The first time a new client comes to us something has usually gone ‘wrong’. Legal services are often a distress purchase – an employee issue, someone has stolen a design, there’s a problem with a contract and so on. We know it is neither sensible or desirable to recommend to businesses that they spend a disproportionate amount of their budget on avoiding all possible legal risks. It is clearly impossible to avoid all legal issues and, by taking an overly cautious approach you are certainly going to hamper growth and negatively impact profitability.
We are lawyers and admittedly battle-hardened to dealing with legal problems. We love a juicy dispute or messy contract to unpick! We appreciate that non-lawyers do not relish these situations in the same way…But not all risks and legal issues are equal, and your risk tolerance will be influenced by the type of company you run, your stage of growth and your general risk appetite. Sometimes it is okay to get sued, or to have someone ripping off, or accusing you of ripping off, intellectual property. It means you are doing well enough to be noticed by, and to worry, competitors.
Behind the scenes Sharpe & Abel take an analytical approach to risk. For our regular clients we provide a quarterly update which reviews their recent legal risks and we then recommend preventative steps to avoid a repeat of the most damaging issues. Recently we decided to take a collective view of all our regular clients and their risks to see if we could identify any notable trends or additional insights. Our findings were really interesting and can be read in full here, but this is a summary of the key points:
- The overall risk profile of infrastructure and construction companies is substantially different from other companies, and significantly higher. Whilst it is not surprising that construction companies face greater risks, the starkness of the difference was remarkable.
- Implementing risk management strategies to manage this risk is therefore more important in these industries than elsewhere. Failure to implement these strategies exposes the company to an unnecessarily high level of harmful risk.
- However, it is commonly assumed in the construction and infrastructure sector that such risks are part and parcel of doing business. Our data flatly contradicts this view. With careful review and negotiation certain risks can be designed out.
- The biggest source of risks in contracts are timescale risks. But whilst common, these are not the most harmful risks.
- Liability – the agreement to pay for losses/damage that may be caused by you or another party was in fact the most common severe risk, along with a lack of an indemnity cap. Agreeing a cap on your total liabilities is a key means to reduce risk, and one that is rarely there by default, so it needs to be negotiated in.
- Good, comprehensive insurance is a key risk mitigation strategy. But are you sure you have the right insurance cover?
Clearly, not all risks are equal, and not all risks are inevitable. In many instances risk can be reduced simply by good contract management from the outset. This is not too onerous, nor will it get in the way of your march towards global domination. If you think you could benefit from some help with this, please contact us: firstname.lastname@example.org and we’d be happy to provide a free assessment of your needs.