Every contract carries risk — delays, cost overruns, defects, disputes. That’s why allocating risk fairly and clearly is one of the most important aspects of contract management.

Risk allocation determines who bears which responsibility if something goes wrong. For example:

• Who pays if raw materials arrive late?
• What happens if the project is halted due to regulatory issues?
• Who is liable for design errors or safety incidents?

Contracts should include clauses that define risk ownership, set limits to liability, and specify insurance coverage. These clauses reduce ambiguity and prevent conflicts down the line.

However, overly one-sided risk transfer can backfire. When one party bears too much risk, it can lead to inflated prices, strained relationships, or refusal to sign.

A balanced approach to risk creates a healthier working relationship and improves project outcomes.

Insight: Fair risk sharing builds trust — and trust builds success.