Contract Risk Management and Compliance Essentials

Introduction

Contract risk management and compliance is a critical element in contracting that ensures both the owners and contractors involved identify and manage risks appropriately to achieve a satisfactory project outcome. A contract does not eliminate risks; instead, it clearly outlines them, assigns responsibility for each risk, and stipulates the outcomes if these risks materialize.

In this comprehensive course on Contract Risk Management and Compliance, participants will learn how to identify and mitigate potential contract risks for both owners and contractors. They will understand who bears responsibility for each risk and what the consequences will be if those risks occur, ensuring that the project meets both parties’ expectations.

Objectives

Upon completion of this training, participants will be able to:

• Comprehend how risks are generated in contract risk management.
• Compare different approaches for identifying and assessing risks within contractual frameworks related to risk management.
• Examine the impacts of alternative strategies for risk allocation within contracts, focusing on achieving regulatory compliance.
• Incorporate various contract types aimed at transferring risks into advanced strategies for managing uncontrollable situations involving investments or suppliers during the procurement process.
• Utilize techniques within contracts to ensure effective risk allocation using available contractual tools.
• Review tools for managing risks throughout the contract lifecycle, ensuring continuous compliance through effective negotiation strategies.

Training Methodology

• Interactive classroom lectures
• Case studies drawn from real organizations
• Risk identification exercises
• Small group scenario-based activities focused on problem-solving skills
• Business games based on dispute resolution simulations (role play)
• Training with demonstrations of risk management tools and systems
• Guided practice sessions with immediate feedback
• Quizzes to test and reinforce learning
• Final project or assessment to apply concepts in a practical context
• Continuous access to learning resources and templates for contract risk management

Course Outline

Unit 1: Types and Management of Risk

• The need for contractual relationships
• Risk definition versus applicability within contracting frameworks
• Categories of risk for both sides of a contract
• Risk evaluation process using contract risk management tools
• Managing risk through contract compliance measures
• Supplier qualification in contract compliance
• Delineation of internal control related to contract risk management
• Proportionality in controlling contractual duties within this type of work

Unit 2: Minimizing and Transferring Risk

• Risk transfer via different contract types
• Fixed price, firm, or lump sum contracts and predicting associated risks
• Cost reimbursement contracts in relation to contractual compliance
• Incentive agreements as alternative methods for managing uncontrollable situations with multiple suppliers
• Award fee arrangements in high-risk projects
• Legal release as an instrument to limit liability and transfer it to another party
• Cross-indemnity clauses in contracts
• Insurance as a method of transferring risks through contracts

Unit 3: Risk-Related Terms and Conditions

• External events impacting contract risk management
• Force majeure in contracts
• Industrial action and employee non-compliance issues
• Risk and title in contract compliance
• Application of ICC terms for contractual compliance
• Assignment or novation in the procurement process
• Flow down of clauses to subcontractors for effective contract risk management
• Risks posed by subcontractors in contract risk management

Unit 4: Dealing with Financial Risks

• Control of payment-related risks
• International contractual compliance related to currency fluctuation
• Economic risks in contracts and risk management
• Fraud and corruption as contract management risks
• Liability limits and exclusions in contract risk management
• Distinctions between liability in contract and general law
• The concept of "gross negligence" in contract risk compliance
• Understanding sample clauses from standard contracts and real documents regarding contract risk

Unit 5: Remedies When Bad Stuff Happens

• Mistakes and misrepresentations in contract risk management
• The impracticality of performance affecting contract acceptance
• Remedies for breach of contract

Types:

• Liquidated damages in insurance contracts
• Warranties as part of contracts
• Covering liability events under specific contract terms