Contract Risk Management for Business Operations
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Business environments, regulations, rules, and people are consistently changing, and so should your contract and contractor risk management process. Your business can avoid risks by continuously adapting strategies to meet the changing demands of your industry.
Every business wants to protect its interests, avoid disputes, and maintain business relationships. Let’s learn more about contract risk management below, starting with the basics.
Agreement Vs. Contract
Both of these legal terms are related, but they do have differences. Check out our table below on our top 5 distinctions between agreements and contracts.
| Agreements | Contracts | |
|---|---|---|
| Nature | An agreement is any understanding of a situation between two or more parties. Agreements can be informal and non-binding in instances such as meeting a friend for lunch. This meeting can be considered an agreement, but we can agree it’s not a legal contract. | A contract is a written agreement that is enforceable by law. It’s pretty formal and can exist in a written format or agreed upon verbally. A contract ensures that all parties follow the legal obligations stated in an agreement or face court action. |
| Formality | These are informal arrangements between two or more parties and do not need to be documented. | Contracts are formal, legally binding, and require documentation to support the agreement. They contain legal requirements, such as: 1. The offer. 2. Acceptance of the agreement. 3. Considerations. 4. Legality of purpose. 5. Capacities. |
| Enforceability | Agreements come in all types, with some being enforceable and others not. For an agreement to be imposed, it needs: 1. The intent of all the parties involved in the deal. 2. The specific terms of the agreement. | By default, contracts are made to be legally enforceable. When people decide to sign a contract, they already know that a court of law can be contacted to uphold the terms and conditions contained in the document. |
| Terms and Conditions | Agreement terms and conditions vary and do not have to contain the level of detail of contracts. Agreements can be as simple or as complex as you need. | The terms and conditions found in contracts are detailed as they need to specify the obligations, rights, and responsibilities of each party listed in the document. |
| Real Life Examples | Casual conversations with anyone, whether that be socially or over business negotiations, can include promises that can be considered contractual agreements. These agreements can be legally binding. | Contracts could arrive in the following formats: 1. Employment Agreements 2. Lease Agreements 3. Purchase Agreements |
The key takeaway from this comparison is that a contract is legally binding and enforceable. On the other hand, an agreement is much more flexible and does not have to be legally enforceable.
When it comes to the legal industry, it’s important to have an understanding of what an agreement is and what a contract is so that you know your options if a dispute arises.
Create Sound Contractual Risk Management Processes
Contracts are pretty serious documents that can be enforceable by law as we learnt by perusing through the comparison table. It’s good to know the implications of contracts though, so that we can make the most of them to create and maintain solid working partnerships. Contracts assist in this manner by declaring the obligations of the deal. They also thankfully exist to protect all the parties involved in an agreement.
If you are one of the lucky few, your contracts will be risk-free! But to be honest, contracts often come with financial, operational, legal, and reputational risks.
As a result, It would be wise to figure out a unique automation process to identify, assess, and mitigate any danger that could arise. A successful contractual risk management system would involve many tasks to minimize risks. Let’s take a look at a few interesting ones:
Have you Thought About a Contractor Risk Management Process?
A common use case for risk management is the possibility of hiring contract workers who are not a good fit for your organization. Th contractors risk management can be used in this situation to identify and mitigate the risks when employing contractors.
Do you need to protect your business from financial, legal, operational, and reputational risks? You can accomplish this task with a well-thought-out risk management system. To get you started, here are some points to ponder for managing risks when hiring contractors at your organization.
Try to Foresee All Risks that Could Arise
The first step would be to recognize any risks that could arise between the contractor and your organization. For example, are there any financial, legal, or safety risks that you can think of before hiring the contractor?
Investigate your Candidate Before Offering a Job
It’s crucial that you research your contractor thoroughly before entering an individual contract with them. For example, it would be wise to check their qualifications from schools, their reputation at previous companies, and their experience in complying with regulations from references.
Creating the Actual Agreement in the Contract
When you create a deal for employment with a contractor, make sure to clearly express the terms and conditions of a contract. The basic contract should also voice any points for the following factors:
Risk Compensation Involves…
A bonus topic we would like to cover before we end the article with frequently asked questions is risk compensation. It’s a concept that implies people could adjust their behaviors based on changes in risks developing.
For example, this theory suggests that people will behave in riskier manners when they feel safe to do so, especially if there are safety measures and technology in place. Such as bungee jumping! Adventurous people are more prone to jumping off tall bridges because safety measures are in place.
However, in the same light, this theory states that when the level of risk is higher, people engage in fewer risks and make safer choices.
It’s important to know about risk compensation as it could affect how employees work in your business organization.
Frequently Asked Questions
What are the 4 stages of contract management?
The four stages of contract management are pre-contract, contract award, implementation, and close-out.
What are the different types of contract risk management?
They would be financial, legal, security, and brand risks.
What is contract risk management?
It’s the system you have in place to assess a contract to identify, manage, and mitigate risks.
Don’t Miss out on Titan Solutions
We hope we have shed some light on contract risk management and given you some thoughts on how to identify, assess, and mitigate your risks in agreements. If you are looking for a platform that can help you with your contract lifecycle management processes, then check out Titan CLM.
Our no-code platform can give you peace of mind for legal matters and ensure you are 100% compliant. With our Salesforce CLM tool, you can sign legal contracts collaboratively among colleagues and clients and ensure all regulatory requirements are met. We can help with NDAs, regulatory & compliant contracts, partnership agreements, service-level agreements, intellectual property contracts, employee contracts, and more!
Get in touch with us through one of our social media channels below.
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Disclaimer: The comparisons listed in this article are based on information provided by the companies online and online reviews from users. If you found a mistake, please contact us.
