2000 Word Report

Topic: DEALING WITH CONTRACT RISKS

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DEALING WITH CONTRACT RISKS

To effectively manage risks that are associated with contracts, companies must establish and agree on a Contract Risk and Compliance program that will accompany the contract. The main idea behind negotiations is to be able to acquire a product or service at a particular price that both the seller and buyer are comfortable with. Nevertheless, there should be scrutiny before signing any contract. For instance, one might have a seller whose prices are favorably low for the buyer. However, it may emerge that the seller uses illegal labor or using unapproved ingredients in the product.

Although this might seem to be a small inconsequential matter, the outcomes can adversely affect a company’s reputation. Dave Zechnich advises that before you begin a negotiation, one must know the objective of their business as well as any possibility that might jeopardize the accomplishment. Dave adds that the purpose of having negotiations is for both parties to lay out their expectancies and see that they are met. Contracts represent these aspirations. To ensure the both sides' objectives are met, a Contract Risk and Compliance program should be drafted and agreed upon by the involved parties.

A Contract Risk and Compliance program also called a CRC program is designed to help both parties circumvent any possible risks that might come with signing the contract. The CRC helps to make clear the ambitions of the seller and the buyer, the expected service levels and how to supervise these services. The CRC also requires both parties to provide full disclosure of all information associated with the contract. This program, according to Dave, will make organizations work as expected. Both, the execution of the contract terms and the continued supervision to ensure this is done, are very crucial to any agreement.

Daveobserves that the persons negotiating a contract or agreement are usually not the people "living the deal." He also says that with time, some of the aspects a deal contains might in actual sense transform or seem to transform. He gives an instance where a company that produces a product receives speculations that one of its distributors plans to expand in parts of the country where they have not received the necessary approval from the company to do so. The company, in this case, can know the truth with ease through putting into action a mechanism that checks the implementation of the contract.

These mechanisms, Dave assures that they are a sure path to having both a long and satisfying relationship with the parties you are in a contract with. In this way, facts and speculations that emerge about the use of your product can thus be told apart. Dave Zechnich suggests that a governance structure should be incorporated into the monitoring process of contracts. Many companies, in this light, always have an audit clause, in their contractual agreement, which is related to the possible risks that may arise. For instance, say a company has a contract whose price is predetermined.

Although such a company does not require an audit on the pricing, an audit on the supplier’s regulations about withholding confidential information is very much necessary.Audits, nowadays, are more in use for companies to extend their forecasts into their intended business ventures. This has been made possible by the expansion of supply chains as well as the uses of contracts, Dave Zechnich notes. He added that companies all the time more have begun coming to terms with the risks complex supply chains bring with them. Due to this, the companies have of late been requesting for a full audit on the risks in the supply chain.

Dave Zechnich thus recommends that a CRC program is the only path that must be pursued to produce a relationship where both parties benefit. He concludes that both parties must state their expectations and if this is done in an honest manner, a win-win situation is achieved.

References

Steve Minter. (2009) Industry Week 258 no11 23-4 N