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{{a|negotiation|}} | {{a|negotiation|}}===[[Contractual risk]] and commercial [[decision-making]]=== | ||
===[[Contractual risk]] and commercial [[decision-making]]=== | |||
Contract negotiation lawyers tend to be more consequence-agnostic than they need to be — both in creating and commenting on drafts. There is a [[decision-making]] aspect to this. Some risks are existential, some are mere irritations. Treat them differently when you formulate your positions. Consider three types of contractual provision: | Contract negotiation lawyers tend to be more consequence-agnostic than they need to be — both in creating and commenting on drafts. There is a [[decision-making]] aspect to this. Some risks are existential, some are mere irritations. Treat them differently when you formulate your positions. Consider three types of contractual provision: | ||
*'''Credit related''': Contract clauses which address what happens if your counterparty ''does'' — or looks like it ''imminently will'' — blow up. These are of mortal significance in a [[finance contract]], where the essence of the arrangement is for the parties to take material present financial exposure to each other: if there is no counterparty, you lose all your money. In service contracts, where a party commits to provide ongoing services for ongoing payments, the “present value” of your exposure is limited, and a counterparty’s failure is less catastrophic: if your building maintenance contractor blows up, you just engage another one. In any case, whatever your exposure, if your [[counterparty]] has no assets, ''it doesn’t matter what the contract says''.<ref>If you have security or netting rights, [[QED]] your counterparty still has some assets left: for example, its claims against ''you''.</ref> Can these consequences be ameliorated by the [[commercial imperative]]? Generally, no. They are, | *'''Credit related''': Contract clauses which address what happens if your counterparty ''does'' — or looks like it ''imminently will'' — blow up. These are of mortal significance in a [[finance contract]], where the essence of the arrangement is for the parties to take material present financial exposure to each other: if there is no counterparty, you lose all your money. In service contracts, where a party commits to provide ongoing services for ongoing payments, the “present value” of your exposure is limited, and a counterparty’s failure is less catastrophic: if your building maintenance contractor blows up, you just engage another one. In any case, whatever your exposure, if your [[counterparty]] has no assets, ''it doesn’t matter what the contract says''.<ref>If you have security or netting rights, [[QED]] your counterparty still has some assets left: for example, its claims against ''you''.</ref> Can these consequences be ameliorated by the [[commercial imperative]]? Generally, no. They are, things like: | ||
:*'''[[Events of default]]/[[termination rights]]''': These allow you to get out of further obligations and mitigate the incurring of forward losses, but don’t have a lot to say about existing exposures | :*'''[[Events of default]]/[[termination rights]]''': These allow you to get out of further obligations and mitigate the incurring of forward losses, but don’t have a lot to say about existing exposures | ||
:*'''[[Credit mitigation]] terms''': Whatever the contract says about [[enforceability of security]] and effectiveness of [[close-out netting]], things which preserve or prefer your claims over whatever assets your counterparty still has, including its [[contractual claim]]s against you. But security provisions and close-out netting formulations tend to be “[[verba magicae]]”: incontrovertible formalities which no [[legal eagle]] dares touch. | :*'''[[Credit mitigation]] terms''': Whatever the contract says about [[enforceability of security]] and effectiveness of [[close-out netting]], things which preserve or prefer your claims over whatever assets your counterparty still has, including its [[contractual claim]]s against you. But security provisions and close-out netting formulations tend to be “[[verba magicae]]”: incontrovertible formalities which no [[legal eagle]] dares touch. | ||
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{{sa}} | {{sa}} | ||
*[[Decision-making]] | *[[Decision-making]] | ||
*[[Commercial imperative]] | |||
*[[Risk]] | *[[Risk]] | ||
*[[Magic words]] | *[[Magic words]] | ||
*[[Boilerplate]] | *[[Boilerplate]] | ||
{{c|Risk}} | {{c|Risk}} | ||
{{ref}} | |||