In general, it is well known that Contractual Terms and Conditions have a very significant role in the assignment and transferring opportunities and risks. The disciplined application of Contractual Principles is also essential to prevent major risks that could have a life-or-death effect on the project-driven organization. This aspect is sometimes misunderstood and overseen in the heat of contract negotiations. In our new White Paper 2015-08 ‘How Some Contractual Terms Are Essential At Preventing Killer Project Risks’ we take a hard look at those essential contractual clauses and how they will prevent major risks.

We thus need to ensure as much as possible that the Projects constituting our portfolio do not show a long tailed behavior, which means, in practical terms, that the probability for these Projects to end up costing significantly more than expected must be extremely low. We thus need to ensure that there is almost no chance that a Project will finish up costing significantly more than what was expected, at least without compensation. This leads to strong contractual clauses around termination, suspension and overall limit of liability.

While most Project-driven organizations have contractual norms that follow these principles, their importance is not always understood and when it comes to contractual negotiations, they are sometimes waived under the commercial pressure.

When it comes to the survival of the organization it is essential to prevent long-tailed risks, i.e. the possibility that a project goes very significantly beyond any reasonable limit in terms of losses and time spent. To achieve this, strong limits of liability are essential contractual terms that should not be waived for any reason. The risk might be considered remote but if it occurs it can destroy the organization. Be disciplined in applying the adequate contractual principles in that area! Understand more in our new White Paper 2015-08 ‘How Some Contractual Terms Are Essential At Preventing Killer Project Risks’.