Risk allocation

Allocation of risk is central to all commercial contract negotiations. Each party seeks to minimize its risk and maximize its reward, which creates an inherent tension between contracting parties. Parties can manage risk by carefully negotiating and drafting many common contractual provisions. To obtain maximum value while preserving working relationships, contracting parties should turn their mind to balancing the risk obligations. Risk should generally be allocated to the party best able to control it.

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Disclaimer: The views and opinions expressed in this article are those of the Subject Matter Experts and do not necessarily reflect the official policy or position of The Procurement School.