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Effective Contract Risk Management (3 day outline)

Overview
A major function of the contracting process is to ensure that risks to both the owner and the contractor(s) are identified and managed so that both parties are satisfied with the results. This interactive, fast paced seminar is designed to provide participants with a critical understanding of the contract risk management process.

It must be recognized that a contract, nor any process, can allow the owner or client to avoid all risks, it should be able to allocate responsibility for managing the various risks that may arise, and the responsibility for the consequences should the risk occur. The program starts with identification of the risks that might occur, and the analysis of the probability of occurrence and impact should they materialize. This requires the skill and experience of those who have “been around the block a few times” and the exercise of sound business judgment. Since all risks are not equally likely to occur, nor will they always have the same impact, nor are they treatable in the same way, there are no “textbook” answers.

Having identified and analyzed the potential risks, the program shifts to examine the issues of allocating the risk to the party who is in the best position to control the risk. Properly handled, expertly identified and allocated risks allows all parties to properly price the work, thus minimizing unpleasant and unexpected problems that might render the whole job uneconomic for either or both of the parties!

Objectives

  • Provide an understanding the nature of risk and how it arises
  • Learn different methods of identification and assessment of risk
  • Understand the implications of different approaches to risk allocation
  • Examine different contract types and how they can be used to transfer risks
  • Consider various contractual terms and conditions used to allocate risk
  • Understand risk management techniques used throughout the life of a contract
  • Defining various techniques used to mitigate exposure in the event that a risk occurs.

Training Methodology
The program will use a variety of methods to increase the participants’ competencies in risk management, including lectures, exercises, reviewing published articles, checklists, and group discussions.  

Delegates are strongly encouraged to bring real problem examples with them for discussion on a confidential basis, and to share their experience of particular issues in contract risk that they have encountered. Time will be allowed for general discussions, and also for one-to-one discussions with the consultant delivering the program.

Organisational Impact

  • Expand the skills of personnel involved in contract development and management, thus enabling project and general management teams to be more effective.
  • By properly identifying and managing risk, a better understanding of the potential cost of a job can be had, and the total cost of ownership thus reduced.
  • Through the clear allocation of risk the possibility of disputes can be reduced, and those that may arise can be settled more quickly, with less cost, delay and disruption to the job.
  • A better understanding and management of risk can reduce project failure, which often stems from uncontrolled change and cost overruns.
  • Better risk management improves the chance of project success.
  • An understanding of the true impact of contractual indemnities will facilitate better decision-making with regard to contract structures and ensure that risk is passed to others properly and in a cost effective manner.
  • The skills learned on this course will have application in a wide range of jobs, contracts and projects.

Personal Impact

  • Increased understanding of risk and the process of risk management
  • Greater ability to identify and allocate risk, and to select the appropriate contractual elements to achieve your strategies
  • Enhanced risk identification and assessment skills
  • Clearer understanding of the alternative methods that can be used to allocate risk in a contract
  • Improved understanding of the difference between managing a risk, and managing the financial consequences of a risk
  • Greater understanding of the different actions and approaches to managing risk during a contract
  • Improved ability to reduce the impact of poorly-managed risk on a project or a company

Competencies Emphasized

  • Understanding of the nature of risk
  • Identification of risk
  • Understanding of the different types of risk that can arise
  • Allocation of risk
  • Selection of appropriate contracting strategies to manage risk
  • Writing and management of contracts to deal with risk
  • Remedies for failure to perform

Who Should Attend?

  • Risk Professionals
  • Project Professionals
  • Contract Administrators
  • Project Engineers and Project Professionals
  • Claims Professionals and Business Audit Officers
  • Procurement and Contract Strategists
  • General Professionals involved in developing contract strategies, or negotiation
  • Commercial Professionals
  • Anyone involved in the strategy and management of risk and contracts

Programme Contents

DAY 1

Risk Identification, Assessment & Contract Strategies

  • The Definition of Risk
  • Categories of risk
  • Risk Management Process
  • Assessment Risk
  • Transferring risk through contract type
    • Firm Fixed Price or Lump Sum Contracts
    • Cost Reimbursable Contracts
    • Incentive Contracts
    • Award-Fee Pricing Arrangements

DAY 2

Risk Related Terms & Conditions

  • External events
  • Force majeure
  • Risk and Title
  • Use of ICC Incoterms
  • Assignment and Novation

Dealing with Financial Risks

  • Controlling Risk Associated with Payments
  • Currency Risk
  • Economic Risk
  • Fraud and Corruption
  • Limiting or excluding liability
  • Distinctions between liability in contract, and in general law (tort)
  • “Gross negligence”

DAY 3

Remedies When Bad Stuff Happens

  • Mistakes and Misrepresentations
  • Impracticability of Performance / Frustration
  • Remedies Generally
  • Types of Remedies
  • Liquated damages
  • Indemnities
  • Insurance
  • Warranties and Guarantees




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