Managing Contracts and Risk - Assignment Example

NАGING СОNTRАСTS АND RISK By Name Course Professor University City and State Date Task 1 Creation of a Valid and Enforceable Contract Agreement The first requirement for a valid contract is an agreement between two parties (Educate-Em Business School Pty Ltd and, John Dory and Anne Chovie). The agreement is usually based on the rule of an offer and acceptance (Latimer 2011, p.359). This may be expressed as a clear indication (offer) by the ‘offeror’ (Educate-Em Business School Pty Ltd) of their willingness to be bound by specific terms. This is accompanied by a communication from the second party ‘offeree’ (John Dory and Anne Chovie) to the ‘offeror’ of a complete agreement to the offer (acceptance). In our case, the Company has given an offer to the Contractor to provide it with a strategic business plan. An offer is an indication of an intention by ‘offeror’ to become bound without any further discussion and negotiation, on the acceptance of the agreed terms (Latimer 2011, p.359). An offer also differs from ‘mere puff.’ It is possible to make an offer to become liable to anybody who accepts such offer before it is withdrawn. Nevertheless, an offer cannot be effective if it has not been communicated by the ‘offeror’ or a third party acting with the consent and authority of the ‘offeror.’ Acceptance of an offer leading to a legally binding contract needs to take place with sufficient knowledge of the existence of the offer and intention to accept the offer. The Contractor (John Dory and Anne Chovie) has accepted the offer by the Company (Educate-Em Business School Pty Ltd) to be provided with services, which include a strategic business plan. While it is not necessary for acceptance to be express and as it could be implied from behaviour, it must correspond to the offer, be unequivocal, and must be communicated to ‘offeror’ (Carter, Peden and Tolhurst 2007 p.104). Where there is a purported acceptance that proposes different or additional terms, it will be deemed an ineffective acceptance, unless the differences solely favour the offeror. Any purported acceptance shall also be deemed ineffective if they are made after the expiry of the offer or if it was based on a contingency which ceases to exist or becomes irrelevant to the offer. It can also be ineffective if the ‘offeror’ passes way and the ‘offeree’ is notified, and through revocation of ‘offeror’ or rejection by ‘offeree’ (Carter, Peden and Tolhurst 2007 p.104). Consideration Consideration is the second step in the creation of a legally binding contract. A promise will only be enforceable as an agreement if it is backed by consideration (Carter, Peden and Tolhurst 2007 p.104). Consideration may be anything of value such as money, goods or services given to one of the parties in return for a promise (Clark et al. 2013, p.78). In our case, the Contractors will provide the Company with services within the set timeframe. In return, the company will have to pay the contractors the specified fees within thirty business days. Intention The intention is the last step in the creation of valid and legal contracts. The intention is often recognized on the basis that the parties to the commercial contract are presumed to create legal relations (Carter, Peden and Tolhurst 2007 p.104-105). Risk A risk can be described as the uncertainty, which surrounds future outcomes and events. The risk is also the expression of a probability and impact of a particular event, which has the potential of influencing the attainment of an organization’s goals (Klee 2015, p.16). There are various steps for risk management, which include identifying the risk, analysing the risk, treatment and monitoring as well as reviewing the risk (Munier, Jiménez-Sáez and Fernández-Diego 2013, p.83). Risk Identification The identification of risk is the most important part in risk management. Risk identification entails asking several questions such as what may happen, why, how, the likelihood of happening as well as the consequences of these risks if they happen (Munier, Jiménez-Sáez and Fernández-Diego 2013, p.83). Significant risks that can be identified in the commercial contract between the Company and the Contractor is the failure by the parties to read carefully and understand the contract, proper meaning of terms used in the contract, payment, and termination of the contract. Both sides should read the contract and understand the meaning of terms in the contract, for example, ‘business day’ which is used to mean any day except Saturday and Sunday or public holidays in some States such as Victoria. The Contractors have to understand that the Company might delay paying them until it is contented with the extent and quality of the service offered. Failure to read the contract will make it impossible for either or both parties to understand a warrant for the termination of the contract. In the contract, one party might choose to end the agreement by giving an official notice to the other party of thirty calendar days of their intent to terminate. Risk Analysis Risk analysis involves evaluating the probability and consequences of the identified risks and determining risk factors that will possibly have the highest impacts and should, thus, be given priority regarding how they can be managed or mitigated (Munier, Jiménez-Sáez and Fernández-Diego 2013, p.83-84). Risk analysis also involves drawing a comparison between the levels of risk identified during evaluation with previous risk criteria, and deciding if a risk may be accepted. Risk priority scale can be used in risk analysis and is a tool that helps to determine the nature of a risk and action required. Risk Treatment Treatment of risk mainly involves finding a variety of options available to treat a risk, assessing the options, preparing and implementing plans for risk treatment. It also involves considering the treatment options and choosing the most suitable approach to achieve desired outcome (Munier, Jiménez-Sáez and Fernández-Diego 2013, p.85). The options for treatment must proportional to the consequence of a risk, and treatment costs correspond to the possible benefits of the treatment. The options for treatment primarily consist of risk acceptance, risk avoidance, reducing the probability of risk occurring, completely or partly risk transfer, and retaining the risk (Munier, Jiménez-Sáez and Fernández-Diego 2013, p.85). It is also vital to take into consideration the acceptable risk level. If a risk falls below or in acceptable level, it is possible to accept the risk with negligible further treatment. It is necessary to monitor and review periodically such a risk to ensure that they remain in the acceptable level. If a risk does not fall below the acceptable level, there is need to treat it using appropriate treatment options. Risk Monitoring and Review Risk monitoring and review is a continuing area of risk management, which is vital to all steps of the process. However, it tends to be an area of risk management which is mostly given insufficient attention, thus making risk management in many organizations to become ineffective or irrelevant (Munier, Jiménez-Sáez and Fernández-Diego 2013, p.85-87). Risk monitoring and review helps in ensuring that the vital information risk management generates is captured, utilized and preserved. Few risks are likely to be static because change can occur on factors, which might affect the probability and consequences of an outcome, just as the factors affecting the appropriateness and cost of different options for treatment. Negotiation Negotiation is not just about getting a ‘yes,' rather it is about getting the correct ‘yes.' The objective is not about reaching an agreement but reaching right business decisions, which might be to walk away (Fisher and Ury 2012 p.9). While negotiations are traditionally conducted through positional bargaining, where each party starts with their positions on a particular issue, according to Fisher and Ury, positional bargaining does not result in right agreements since it neglects the interests of the parties (p.9). They proposed principled negotiation, which gives a better means of reaching good agreements. They came up with four negotiation principles, which include separation of people and issues; focus on interests; generation of a range of options; and the use of objective criteria (Fisher and Ury 2012, p.11). Separating People and Issues Separating people from issues is important because when people become involved in issues, they are likely to take sides and respond to issues as personal attacks towards them (Fisher and Ury 2012, p.11-12; Ury 2007, p.99). Separating people from issues will allow both sides to resolve existing issues without harming their relationship and helps the parties to have a much clearer understanding of the issues. Focus on Interests Right agreements should focus on interests of the parties and not their positions. Defining an issue in terms of position could mean that either or both parties can ‘lose’ in the disagreement. When an issue is defined in relation to the interests of both sides, there is a possibility of finding an amicable solution that will satisfy the interests of both sides (Fisher and Ury 2012, p.42). Therefore, it is very important to identify the interests of the parties with regard to the issue. This may be conducted by asking the parties reasons for holding their positions on the issue, and considering why they do not hold other possible positions. While, either party often has several different interests, which underlie their positions, both parties share some basic interests, such as, economic well-being and security. After identifying their interests, the parties must hold joint discussions on those interests (Fisher and Ury 2012, p.42). If one of the parties wants the other party to take into account their interests, such party should give a clear explanation of their interests. Discussions should seek to find the desired solution, instead of focusing on the past events. The parties must clearly be focused on their interests while remaining open to other different positions and proposals. Generate Options There is a need for the parties to meet in an informal environment and brainstorm in an attempt to find all the potential solutions to their problems. Brainstorming sessions may be more productive when the parties are encouraged to adopt a thinking process that states the problem, analyses the problem, considers general approaches, and considers specific actions (Fisher and Ury 2012, p.43). After the parties have made various proposals, they turn their focus on evaluating the proposed ideas. Evaluation begins with the most viable plans. At this point, the two parties might also improve or refine proposals. They can avoid the win-lose situation by focusing on their shared interests (Ury 2007, p.99-100). When the interests differ, the parties should look for options, which can make those differences compatible or complementary. Use Objective Criteria When interests of the parties are conflicting, there is a need for the parties to use objective criteria to address their differences. Various criteria may be used, and the parties need to agree on the criterion that best suits their situation, and the criteria must be practical and genuine and practical. Some sources of objective criteria include legal precedents scientific findings, and professional standards (Fisher and Ury 2012, p.56). Several points should be considered when applying objective criteria. Firstly, both sides must approach every issue as shared search in the objective criteria. Using the thinking of the other side to support one’s position is a powerful means to negotiate (Lewicki and Hiam 2006, p.112). Secondly, both parties must also keep open minds and should be reasonable, and be ready to reconsider their positions whenever it is necessary. Thirdly, while the parties need to be reasonable, they should never surrender due to threats, pressure, or bribes. When one party stubbornly becomes unreasonable, the other party can change the discussions from seeking substantive criteria to procedural criteria (Lewicki and Hiam 2006, p.112). Task 2 List of Boilerplates The selected boilerplates include force majeure, indemnities, intellectual property rights, liabilities, and insurances. I chose these boilerplates because they best suit the commercial contract. Force Majeure Force majeure refers to a typical clause found in contracts, which free the parties from liability when a strange circumstance or event beyond the parties’ control prevents either or both sides from accomplishing their obligations in the contract (Noguellou and Stelkens 2010, p.377). Examples of such events or circumstances may include wars, strikes, riots, crimes, or events that are legally described as acts of God, for example, floods, hurricanes, earthquakes, and volcanic eruptions. In practice, a majority of force majeure clauses do not entirely excuse a non-performance of a party but suspend it during the force majeure. Force majeure is intended to take into account occurrences that are beyond the reasonable control of either or both parties (Noguellou and Stelkens 2010, p.377). Therefore, it does not cover any outcome of malfeasance or negligence of a party that has significantly adverse effects on the capability of that party to fulfil its obligations, or any outcome of the normal and natural effects of external forces. Indemnities An indemnity refers to an obligation by one party (‘indemnitor’) to give compensation to another party (‘indemnitee’) for a particular loss incurred. An indemnity is also a legitimately enforceable promise made by one of the parties to the contract that they will accept the risk of loss that the other party can suffer in a given situation (Burnett, Bath and Burnett 2009, p.381). Indemnities seek to make the party best manage particular risk to avoid responsibility for the consequences if the risk occurs. Indemnities are often applied in commercial contracts to allocate possible risk between the contracting parties. Regardless of the party offering or receiving an indemnity, when agreeing to a contract that contains indemnity, it is vital to take into account the expected outcomes carefully and ensure the type of words used correctly records the agreement between the parties (Burnett, Bath and Burnett 2009, p.381). Indemnities are usually used in circumstances where one party may be liable to compensate the other party if indemnity was absent. Intellectual Property Rights Intellectual property rights describe the rights, which are given to individuals from the conceptions of their minds. These rights typically give the inventors exclusive rights in the use of their creations for a given period (Burnett, Bath and Burnett 2009, p.321). They include patents, copyright, trademarks, trade dress, and trade secrets, among others. Patents A patent refers to a type of right given by the state to an inventor, granting the owner right of excluding other persons from creating, selling, using, and importing such invention for a limited period, in return for public disclosure of that invention (Burnett, Bath and Burnett 2009, p.321-322). Copyrights A copyright grants the inventor of original work the exclusive rights to such the work, usually for a limited period. Copyright can apply to a broad variety of intellectual, creative, or artistic works (Burnett, Bath and Burnett 2009, p.322). Copyrights do not cover ideas and information themselves, but only cover the manner or form that they are expressed. Trademarks A trademark describes a unique sign, design, and expression which differentiate goods or services of a specific trader from similar goods or services of the other traders (Burnett, Bath and Burnett 2009, p.322-323). Trade Dress Trade dress refers to a legal, artistic term that describes characteristics of aesthetic and visual appearance of a particular product and its packaging that indicate the origin of the product to the consumers (Burnett, Bath and Burnett 2009, p.324). Trade Secrets A trade secret can be described as a formula, process, practice, pattern, design, instrument, or compilation of information that is not usually known or rationally ascertainable, through which a business can obtain an economic advantage over its competitors and consumers (Burnett, Bath and Burnett 2009, p.324). Liabilities Liability in a contract often arises when there is a breach of performance of a contract by one of the parties, and it is based on the voluntary fulfilment of obligations by the party (Burnett, Bath and Burnett 2009, p.381). Insurance Contracts usually include obligations on a particular party to have insurance against any commercial risks. Insurance provides a valuable way of mitigating or managing contractual risk, by transferring risk to a third party (Burnett, Bath and Burnett 2009, p.381). However, contractual obligations to have insurance can sometimes be extreme for the risk and scale of the contract. Bibliography Burnett, R., Bath, V., & Burnett, R. 2009. Law of international business in Australasia. Sydney, N.S.W., Federation Press. Carter, J. W., Peden, E., & Tolhurst, G. 2007. Contract law in Australia. Chatswood, N.S.W., LexisNexis Butterworths. Clark, E., Griggs, L., Cho, G., Hoyle, A., Blanpain, R., Colucci, M., & Herbots, J. H. 2013. Contract law in Australia. Alphen aan den Rijn, Kluwer Law International. Fisher, R., & Ury, W. 2012. Getting to yes: negotiating an agreement without giving in. London, Random House Business. Klee, L. 2015. International construction contract law. Chichester, Wiley-Blackwell. Latimer, P. S. 2011. Australian business law 2012. North Ryde, N.S.W., CCH Australia. Lewicki, R. J., & Hiam, A. 2006. Mastering business negotiation: a working guide to making deals and resolving conflict. San Francisco, Jossey-Bass, a John Wiley & Sons Imprint. Munier, N., Jiménez-Sáez, F., & Fernández-Diego, M. 2013. Project management for environmental, construction and manufacturing engineers: a manual for putting theory into practice. Dordrecht, Springer. Noguellou, R., & Stelkens, U. 2010. Droit comparé des Contrats Publics: Comparative Law on Public Contracts. Bruxelles, Bruylant Ury, W. 2007. Getting past no: negotiating in difficult situations. New York, Bantam Books. Read More