Contract Risk

Contract risks arise from the possibility that the legal contracts of the company will contain clauses obligating the business to terms and conditions that are unreasonably impacting the company in a negative manner. This risk type could have risk events such as performance penalties, contract termination penalties, warranty terms, non standard clauses not reviewed by legal department, unfavourable clauses inserted by counterparty without knowledge of the company etc.

Contract risk mitigation typically involves getting the Legal Department to be hands on the particular contract. As far as possible, standard clauses should be used for legal contract execution to minimise unknown or unwanted text.