Contract Risk: What Is It And How To Mitigate It?
Updated: Nov 21, 2021
As a legal services firm with specialty skills in contract law, we deal with diverse contracts on a day-to-day basis. Our unique training and experience in the industry means that contract risk is second nature to us.
Meanwhile, to an average everyday person with skills in areas other than law, contracts can often be confusing and overwhelming. A concept such as contract risk may be an entirely foreign idea.
At Arida Lawyers, we believe that education and information is essential for assisting the community to make good legal choices that keep them clear of any complications. Because everyone encounters different types of contracts throughout their life, whether they may be personal or business contracts, it is important that everyone has a basic understanding of contract risk and how it can be mitigated.
Understanding contract risk
In simple terms, contract risk is the degree of risk imposed by the signing of a contract. Common risks associated with contracts include financial risk, legal risk, security risk and brand risk.
Contract risk can be assessed on any contract and, because all contracts are unique, each contract will have varying degrees of risk associated.
Mitigating contract risk
In almost all cases, risk is something that you want to minimise as much as possible. Most people want to be able to sign a contract that has low likelihood of ever causing any strife or inconvenience to their future. Hence, mitigating contract risk is essential before you sign or commit to anything.
The first step is to read your contract thoroughly, as this is the only way you can deeply understand the terms that are outlined within. You will need to consider whether the details in the contract are accurate, achievable and in your favour. From there, some of the basic actions you can take to minimise contract risk include:
Removing or altering conditions that may be difficult for you to meet.
Establishing permissions around who can access or alter the contract.
Asking for clarification on any clauses or conditions that you do not understand.
Create a risk management plan that entails a proactive response that can be implemented in the instance of any risk ever materialising.
Contract risk is considered to be an ongoing task, meaning you need to continue considering contract risk after you have signed your contract. You should have plans, processes and strategies in place to ensure you can meet the terms that were in your agreement – including meeting any budgets and timeframes that were outlined in the contract.
Ultimately, the best way to mitigate contract risk is to contact a trusted lawyer to provide advice and guidance on your contract or agreement. Experienced lawyers innately understand what is and is not ‘normal’ in a contract, so they can advise on the best methods for mitigating risk.
At Arida Lawyers, we also specialise in employment law, building and construction law, consumer law, and a variety of other legal services. If you would like to get in touch with our team, you can contact us on 1300 146 390.
This article provides general information relevant to our expert services. It is not legal advice and should not be relied upon as such. If you are seeking legal advice, you should contact us for a free initial consultation.
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