Reconsidering contact risk and contractual risk management

Abstract

PurposeThe aim of this paper is to pursue three objectives: to assess the extent to which theoretical concepts and corporate practice are reflecting the contract’s risk management dimensions; to identify ways to make full usage of the contract’s risk dimensions for risk management purposes; to overcome the isolation of the contract caused by its perception as a legal instrument by integrating its handling into the overall corporate management processes. Design/methodology/approachLiterature is analyzed regarding the contract’s roles as a source of risk and as a risk management device. Based on the relevant findings, it uses the Contractual Management Model to develop a concept that integrates all contract-related risk management processes in an enterprise. FindingsThe paper redefines the term “contract risk” in the light of modern understanding of contract functions and contract purposes. It shows that only Contractual Risk Management theory takes the management capacity of the contract fully into account. A Contractual Risk Management process is suggested which integrates all contract-related corporate management processes and aligns them to the requirements of transaction risk management and enterprise risk management. Originality/valueThe paper may guide executives to optimize corporate risk management processes through a better understanding of the risk potential of contract and of its risk management capacity. It provides a checklist of redefined contract risks as well as a concept that, for the first time, is aligning all contract-related management processes to support the corporate risk management system.

Causal Relationships of Readability Risks in Construction Contracts

“…R1) Unnecessary length in the clauses, sentences, and words: Construction contracts are mostly voluminous and complex documents. They contain a significant number of provisions with long sentences that nobody in the project could read with full attention, failing to comprehend project requirements [24]. It was addressed that putting accurate punctuation in long sentences could make the document easier to read [38].…”

“…This factor refers to the use of too many legal terms and phrases, vocabulary deemed to legal jargon, making the contract difficult to read and understand [1]. It was addressed that minimizing legalese with plain language structure could increase the transparency of contracts [24]. In addition, FIDIC conditions have been criticized for containing many unnecessary legal expressions [2], [29].…”

“…Visual representation of the contracts can increase the transparency of construction contracts, ensuring that the contracts are handled by project managers adequately [24]. It also includes inadequate presentation of technical documents, implementation details and work visualization that could reduce the clarity of the intended work and increase unwillingness of the employers to read the contracts.…”

“…Readability risks of construction contracts are seldom examined and underlying causes are rarely analyzed in the existing literature [24]. In construction risk management literature, it is very common to focus on contractual risks affecting operations as part of a general risk management plan in projects.…”

Gestão de Riscos Relacionais, Confiança, Custos de Transação e Relacionamentos Colaborativos: Proposta de Modelo

“…Dessa forma, a compreensão de como as empresas podem gerenciar interrupções, riscos e incertezas, tornando-se mais preparadas para enfrentar adversidades, é um tema que vem ganhando atenção de pesquisadores (Chung, Tse, & Choi, 2015;Jüttner et al, 2003;Trkman, Oliveira, & McCormack, 2016 O risco relacional refere-se ao risco de que os parceiros não conseguirão cooperar de boa-fé, em vez disso, operam com base em interesses próprios, ou seja, de forma oportunista (Schuhmann & Eichhorn, 2017). Assim a ocorrência de problemas relacionais pode impactar no desempenho e comprometer a realização de objetivos estratégicos, considerando que os parceiros não cooperam plenamente (Krishnan, Martin, & Noorderhaven, 2006).…”