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Which terms are risky?

December 13, 2016

For 15 years, IACCM has been publishing a list of the most frequently negotiated contract terms – and highlighting how these are more focused on risk consequence than on risk probability.

In a workshop last week, a participant asked “So what are the most risky terms”.

To a degree, this depends on the definition of risky, and the nature of the supply, but if we mean those provisions where disagreement most often occurs (impacting financials and relationship) they are probably scope and goals, change management, acceptance, KPIs/service levels, termination.

That answer is certainly true across services contracts. But if I was answering this in a pre-award context, I’d think a little differently because I’d want to consider risk as it relates to  the behavior and culture of my trading partner – so things like payment terms, IP, gain share, dispute resolution might be high on my list. In other words, I’d want to be sure the incentive systems were appropriate and that I was taking into account the history of their reliability and integrity as a supplier or customer. Industry or geography would also influence what I deem risky – for example, data protection, cybersecurity, regulatory compliance would be of particular concern in some industries or geographies.

So unfortunately the answer to this question is ‘it depends’. The one certainty is that the most negotiated terms are generally not the most risky – and arguably we worry so much about the consequences because we are not very good at assessing / judging where the greatest risk likelihood will occur.

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