CONTRACTUAL RISK MANAGEMENT: Strategic STRATEGIC CONTRACTUAL RISK MANAGEMENT: Identification of strategies C-RM 1) business and risk management The word STRATEGIC functions as a link to the beginning of the presentation Risk identification 2) The abbreviation functions as a link to the general theory of Contractual Risk Management The numbers also function as navigation links to the beginning of the section and as memory notes to the content of the section (point them by your mouse) 3) Risk evaluation 4) Contractual risk mitigation Monitoring and control of contractual risk management 5) 6) Development of strategies and procedures business and risk management

CONTRACTUAL RISK MANAGEMENT: Strategic STRATEGIC CONTRACTUAL RISK MANAGEMENT: C-RM Identification of business and risk management strategies 1) 2) 3) 4) 5) 6)

Identification of business and risk management strategies Strategic Identification of business and risk management strategies C-RM 1) What is the company’s operational environment like? 2) What are company’s business strategies? 3) What about risk management strategies? 4) If such strategies do not exist, how should they be formed? 5) What goals do these strategies set for the contractual risk management? 6)

CONTRACTUAL RISK MANAGEMENT: Strategic STRATEGIC CONTRACTUAL RISK MANAGEMENT: C-RM Identification of business and risk management strategies 1) 2) Risk identification a) Identification of general risks connected to the business and business transaction b) Identification of legal norms regulating the transaction c) Identification of risks and risk distribution created by legal norms 3) 4) 5) 6)

Identification of general risks connected to the business and business transaction Risk identification: Strategic C-RM 1) 2) a) General risks connected to the business: b) c) 1) Financial risks (currency risk and risk of buyer’s insolvency, etc.) 2) Political risks (risk of change in legislation, etc.) 3) Risk of interruption 4) Risk of dependency 5) Product risk 3) 4) 5) 6)

TBT Risk identification: Finance C Sales C Transport C Insurance C Identification of general risks connected to the business and business transaction Risk identification: Strategic C-RM 1) Risks connected to the coordination of the different parts of a transnational business transaction: 2) a) b) c) Finance C Sales C 3) 4) TBT 5) Transport C Insurance C 6)

Risk identification: Finance C Sales C Transport C Insurance C Identification of general risks connected to the business and business transaction Risk identification: Strategic C-RM 1) Risks connected to the coordination of the different parts of a transnational business transaction: 2) a) b) Payment modalities c) Finance C Sales C 3) 4) INCO TERMS, The 1982 Institute Cargo Clauses INCOTERMS, COMBITERMS 5) Transport C Insurance C 6)

Risk identification: Sales C Identification of general risks connected to the business and business transaction Risk identification: Strategic C-RM 1) Risks connected to the coordination of the central parts of a sales transaction: 2) a) Spesifications for the goods b) Delivery terms c) 3) 4) Sales C 5) Mechanism for the adaption of the contract Payment terms 6)

Risk identification: Sales C Identification of general risks connected to the business and business transaction Risk identification: Strategic C-RM 1) Risks connected to a single business transaction: 2) a) Negotiation risk Risk of contractual disputes b) c) Information risk 3) Risk of product liability Risk of non-performance 4) Sales C Risk of changing circumstances Risk of delayed performance 5) Risk of damage to or loss of the goods Risk of non-conforming performance 6)

I S C Risk identification: Sales C Identification of general risks connected to the business and business transaction Risk identification: Strategic C-RM 1) Need for contractual allocation of risks? 2) a) Negotiation risk Risk of contractual disputes b) c) Information risk I S C 3) Risk of product liability § 1 § 2 § 3 § 4 § 5 § 6 Risk of non-performance 4) Sales C Risk of changing circumstances Risk of delayed performance 5) Risk of damage to or loss of the goods Risk of non-conforming performance 6)

Identification of legal norms regulating the transaction: traditional approach Risk identification: Strategic C-RM 1) BUILDING BLOCKS OF TRANSNATIONAL SALES CONTRACTS, 2) MATERIAL FOR INTREPETATION and MATERIAL FOR GAP-FILLING: a) b) Interpretation guidelines of the contract standards Tailored contract terms ORDRE PUBLIC c) International trade usage 3) Standard contract clauses Established usages and/or practices between the parties 4) Standard contract terms ? Law of the contract 5) Contracting standards CISG PECL, UPICC & CENTRAL TLDB LEX MERCATORIA 6)

Risk identification: Identification of legal norms regulating the transaction: RM-approach Strategic C-RM 1) 2) a) TYPES OF LEGAL NORMS REGULATING THE CONTRACT b) c) MANDATORY LEGAL NORMS 3) INDIVIDUAL CONTRACTUAL NORMS 4) STANDARD CONTRACTUAL NORMS DEFAULT LEGAL NORMS 5) 6)

Risk identification: Identification of legal norms regulating the transaction: RM-approach Strategic C-RM 1) 2) a) TYPES OF LEGAL NORMS REGULATING THE CONTRACT b) c) MANDATORY LEGAL NORMS 3) INDIVIDUAL CONTRACTUAL NORMS 4) Designated default legal norms DEFAULT LEGAL NORMS STANDARD CONTRACTUAL NORMS (contractual default legal norms) Optional default legal norms (legal orders) 5) 6)

Risk identification: Identification of legal norms regulating the transaction: RM-approach Strategic C-RM 1) MANDATORY LEGAL NORMS, DEFAULT LEGAL NORMS, STANDARD CONTRACTUAL NORMS 2) and INDIVIDUAL CONTRACTUAL NORMS: a) b) Interpretation guidelines of the contract standards Tailored contract terms ORDRE PUBLIC c) International trade usage 3) Standard contract clauses Established usages and/or practices between the parties 4) Standard contract terms ? Law of the contract 5) CISG Contracting standards PECL, UPICC & CENTRAL TLDB LEX MERCATORIA 6)

Identification of risks and risk distribution created by legal norms Risk identification: Strategic C-RM 1) 2) a) What is the default legal distribution of the risks to the business and business transaction? Are contract-specific investments adequately protected? Do legal norms give adequate protection against the opportunistic behaviour of the contracting party? Do legal norms create risks of their own? b) c) 3) 4) 5) 6)

CONTRACTUAL RISK MANAGEMENT: Strategic STRATEGIC CONTRACTUAL RISK MANAGEMENT: C-RM Identification of business and risk management strategies Risk identification a) Identification of general risks connected to the business and business transaction b) Identification of legal norms regulating the transaction c) Identification of the risks and risk distribution created by legal norms 1) 2) a) b) c) 3) Risk evaluation 4) 5) 6)

Strategic Risk evaluation C-RM 1) The goal is to allocate risk management resources with help of determination of the risk exposure 2) Risk exposure is determined as a multiple of the likelihood of the risk and its extent: 3) 4) Extent of the risk Insignificant Great Catastrofical Li k e l y h. Unlikely Likely Very likely 1 2 3 2 4 6 5) 3 6 9 6)

1 III II 2 3 I III 2 4 II 6 I II 3 6 I 9 I Risk evaluation C-RM 1) 2) Strategic Risk evaluation C-RM 1) 2) Determination of the likelihood and extent of risks connected to contracts is often difficult and a three-way classification might be sufficient: 3) 4) Extent of the risk Insignificant Great Catastrofical Li k e l i h. Unlikely Likely Very likely 1 III II 2 3 I III 2 4 II 6 I 5) II 3 6 I 9 I 6)

The resources would then be allocated according to and in relation to Strategic Risk evaluation C-RM Allocation of resources of the company’s legal department based on a similar classification could be highly cost-efficient 1) 2) The resources would then be allocated according to and in relation to the risk exposure: I Preventive law II Preventive law & remedial law III Remedial law 3) 4) Extent of the risk Insignificant Great Catastrofical Li k e l i h. Unlikely Likely Very likely III 1 II 2 I 3 2 III II 4 I 6 5) II 3 6 I I 9 6)

CONTRACTUAL RISK MANAGEMENT: Strategic STRATEGIC CONTRACTUAL RISK MANAGEMENT: C-RM Identification of business and risk management strategies Risk identification a) Identification of general risks connected to the business and business transaction b) Identification of legal norms regulating the transaction c) Identification of the risks and risk distribution created by legal norms Risk evaluation 1) 2) a) b) c) 3) Contractual risk mitigation a) Identification and evaluation of contractual risk management tools b) Prediction and development of the viability of the contractual risk management tools c) Contractual risk allocation 4) 5) 6)

Contractual risk mitigation: Golden advices: Strategic C-RM 1) 2) - predict eventual contractual problems and agree on meaningful governance mechanisms for the contract and the contractual relationship - remember cost effectiveness considering negotiating, designing, monitoring and enforcement of contracts - protect contract-specific investments - remember to build exits - prepare for contractual disputes 3) 4) a) b) c) 5) 6)

Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) 2) - Alternative governance mechanisms for business transactions? 3) 4) a) b) c) 5) 6)

STRATEGIES TRANSNATIONAL BUSINESS FOR Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) 2) STRATEGIES TRANSNATIONAL BUSINESS FOR 3) Firm A 4) a) b) c) 5) 6)

Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) 2) Direct export sales DIRECT SALES 3) Firm A 4) a) b) c) 5) 6)

Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) 2) Direct export sales DIRECT SALES 3) Firm A 4) Reseller a) b) INDIRECT SALES c) 5) Sales Agent 6)

Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) 2) Direct export sales DIRECT SALES 3) Firm A 4) Reseller a) b) INDIRECT SALES c) LICENSING 5) Franchise Sales Agent License agreement 6)

Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) Sales office 2) Subsidiary Direct export sales ESTABLIHMENT ABROAD DIRECT SALES 3) Firm A Joint Venture 4) Reseller a) b) INDIRECT SALES c) LICENSING 5) Franchise Sales Agent License agreement 6)

GOVERNANCE MECHANISMS BUSINESS TRANSACTIONS FOR Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) Sales office 2) Subsidiary Direct export sales GOVERNANCE MECHANISMS BUSINESS TRANSACTIONS FOR 3) Firm A Joint Venture 4) Reseller a) b) c) 5) Franchise Sales Agent License agreement 6)

MARKET GOVERNANCE Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) Sales office 2) Subsidiary Direct export sales MARKET GOVERNANCE 3) Firm A Joint Venture 4) Reseller a) b) c) 5) Franchise Sales Agent License agreement 6)

MARKET GOVERNANCE SYMBIOSIS GOVERNANCE Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) Sales office 2) Subsidiary Direct export sales MARKET GOVERNANCE 3) Firm A Joint Venture 4) Reseller a) b) SYMBIOSIS GOVERNANCE c) 5) Franchise Sales Agent License agreement 6)

POWER GOVERNANCE MARKET GOVERNANCE SYMBIOSIS GOVERNANCE Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) Sales office 2) Subsidiary Direct export sales POWER GOVERNANCE MARKET GOVERNANCE 3) Firm A Joint Venture 4) Reseller a) b) SYMBIOSIS GOVERNANCE c) 5) Franchise Sales Agent License agreement 6)

POWER GOVERNANCE MARKET GOVERNANCE SYMBIOSIS GOVERNANCE Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) Sales office 2) Subsidiary Direct export sales POWER GOVERNANCE MARKET GOVERNANCE 3) Firm A Joint Venture 4) Reseller a) b) SYMBIOSIS GOVERNANCE c) 5) Franchise Sales Agent License agreement 6)

Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) 2) - Alternative governance mechanisms for business transactions? - Alternative contractual instruments? 3) 4) a) b) c) 5) 6)

Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools More detailed? Yes! No! 1) Sales office 2) Subsidiary Direct export sales 3) Firm A Joint Venture 4) Reseller a) b) c) 5) Franchise Sales Agent License agreement 6)

Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) Sales office 2) Subsidiary Direct export sales 3) Firm A Joint Venture 4) Reseller a) b) c) 5) Franchise Sales Agent License agreement 6)

Contractual risk mitigation: Strategic C-RM Identification and evaluation of contractual risk management tools 1) 2) - Alternative governance mechanisms for business transactions? - Alternative contractual instruments? - Alternative model contracts? - Alternative standard clauses? - Tailored contract clauses? 3) 4) a) b) c) 5) 6)

Contractual risk mitigation: Strategic C-RM Prediction and development of the viability of the contractual RM-tools 1) 2) - Personal/organizational experience of the viability of the alternatives? - Case law examples of non-viable alternatives? - Law, economics & organization-analyses of the alternatives? - Examples of success stories? 3) 4) a) b) c) 5) 6)

Contractual risk mitigation: Strategic C-RM Contractual risk allocation 1) Golden rules of risk allocation: 2) - don’t take larger risks than what you can not bear - don’t take large risks to gain little - don’t think that others do so 3) 4) a) b) Golden rules of contractual risk manangement: c) - don’t take risks that fall under the influence of your contracting/subcontracting party - don’t take large risks just to please your contracting party - don’t think others do so 5) 6)

CONTRACTUAL RISK MANAGEMENT: Strategic STRATEGIC CONTRACTUAL RISK MANAGEMENT: C-RM Identification of business and risk management strategies Risk identification a) Identification of general risks connected to the business and business transaction b) Identification of legal norms regulating the transaction c) Identification of the risks and risk distribution created by legal norms Risk evaluation Contractual risk mitigation a) Identification and evaluation of contractual risk management tools b) Prediction and development of the viability of the contractual risk management tools c) Contractual risk allocation 1) 2) a) b) c) 3) 4) a) b) c) 5) Monitoring and control of contractual risk management a) Monitoring of changes in legal norms and their distribution of risks b) Monitoring and control of the viability of the contractual risk management 6)

Monitoring and control of contractual risk managment: Strategic C-RM Monitoring of changes in the legal norms and their distribution of risks 1) What’s new in transnational commercial law? 2) CISG-database at PACE http://www.cisg.law.pace.edu/ 3) 4) Transnational Commercial Law-database at CENTRAL http://www.tldb.de/ 5) Lex mercatoria http://www.lexmercatoria.com a) b) 6)

Monitoring and control of contractual risk managment: Strategic C-RM Monitoring of changes in the legal norms and their distribution of risks 1) Are there any new contractual risk management tools available? 2) National Contract Management Association (NCMA) http://www.ncmahq.org/ 3) 4) National Center for Preventive Law (NCPL) http://www.preventivelawyer.org 5) a) b) 6)

Monitoring and control of contractual risk managment: Strategic C-RM Monitoring and control of the viability of the contractual risk management 1) 2) Did the contract function in an unexpected way? Why did the contract fail? 3) 4) Has the company’s riskposition changed? 5) What must be done differently when planning the next transaction? a) b) 6)

CONTRACTUAL RISK MANAGEMENT: Strategic STRATEGIC CONTRACTUAL RISK MANAGEMENT: C-RM Identification of business and risk management strategies Risk identification a) Identification of general risks connected to the business and business transaction b) Identification of legal norms regulating the transaction c) Identification of the risks and risk distribution created by legal norms Risk evaluation Contractual risk mitigation a) Identification and evaluation of contractual risk management tools b) Prediction and development of the viability of the contractual risk management tools c) Contractual risk allocation Monitoring and control of contractual risk management a) Monitoring of changes in legal norms and their distribution of risks b) Monitoring and control of the viability of the contractual risk management 1) 2) a) b) c) 3) 4) a) b) c) 5) a) b) Development of business and risk management strategies and procedures 6)

Development of business and risk management strategies C-RM Strategic Development of business and risk management strategies C-RM 1) Can contractual risk management support company’s business according to its strategies? 2) According to risk management strategies? 3) 4) If not, should these strategies be reviewed? 5) What has the contractual risk management to offer for the development of these strategies? 6)

CONTRACTUAL RISK MANAGEMENT: Strategic STRATEGIC CONTRACTUAL RISK MANAGEMENT: C-RM Identification of business and risk management strategies Risk identification a) Identification of general risks connected to the business and business transaction b) Identification of legal norms regulating the transaction c) Identification of the risks and risk distribution created by legal norms Risk evaluation Contractual risk mitigation a) Identification and evaluation of contractual risk management tools b) Prediction and development of the viability of the contractual risk management tools c) Contractual risk allocation Monitoring and control of contractual risk management a) Monitoring of changes in legal norms and their distribution of risks b) Monitoring and control of the viability of the contractual risk management Development of business and risk management strategies and procedures 1) 2) a) b) c) 3) 4) a) b) c) 5) a) b) 6)

Go to Strategic C-RM Operative The end THEORY OF CONTRACTUAL C RM RISK MANAGEMENT: Identification of strategies 1) Go to Strategic C-RM Operative Risk identification 2) Risk evaluation 3) 4) Contractual risk mitigation Monitoring and control of contractual risk management 5) The end 6) Development of strategies and procedures

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