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Contract Risk Management
Contract risk management is the process by which organizations identify and assess risks and manage contracts to limit liability or other harm to the company. The objective is to limit the company’s exposure to loss and ultimately to protect the organization’s assets.
All companies face risk daily – it’s a normal and acceptable part of business. The issue is to eliminate unnecessary risks while recognizing remaining risks and managing them appropriately. An effective contract management process is instrumental in this regard. Below are a few examples of beneficial contract risk management actions a company should consider:
- Put everything in writing – this helps avoid disputes and litigation over alleged verbal promises.
- Use a centralized contract repository – by storing all contracts in a centralized repository, the risk of misplacing or losing paper contracts is eliminated.
- Identify at-risk assets of the company and negotiate contracts to protect them. To avoid future litigation, make sure the resulting contracts are well-drafted and clear. Consider the use of liability-shifting clauses and provisions such as warranties, waivers, and limitations of liability.
- Track compliance – companies lose revenue and incur unnecessary expenses simply by failing to track compliance with contractual requirements, or sometimes by actually losing track of the fact that an issue is covered under a contract.
The risks described in these examples, and lots of others, can be managed with the many contract management features provided by ContractSafe contract management software.
Frequently Asked Questions
Which contract clauses create the most risk for companies?
Uncapped indemnities and unlimited liability sit at the top, since they expose you well beyond the deal value. Close behind are broad IP assignments, auto-renewals with long notice periods, unilateral termination rights for the other side, and vague service commitments. Data protection and confidentiality terms matter too, especially when you’re handling personal or regulated information.
How often should you audit your contract portfolio for risk?
A full portfolio review once a year works for most organizations, with focused checks whenever something changes. New regulations, an acquisition, a security incident, or a shift in your insurance coverage all justify an off-cycle look. Between reviews, run targeted searches for specific exposures, like every agreement missing a liability cap, rather than rereading everything.
What’s the risk of not tracking contract obligations after signing?
You lose money and protection quietly. Unclaimed rebates, missed volume discounts, and service credits you never invoiced all go unrecovered. On the other side, missed deliverables or reporting deadlines can put you in breach without anyone noticing until the counterparty raises it. Post-signature obligation tracking is where most contract value actually gets won or lost.
