Contractual Risk Transfer

Contractual risk transfer is a strategy used in agreements where one party shifts potential risks to another party. This means that instead of bearing the financial consequences of risks, like accidents or failures, they specify in the contract that another party will handle those risks. For example, a contractor may transfer the risk of material loss to their supplier. This approach helps to manage liabilities more effectively, ensuring that each party understands their responsibilities and can prepare accordingly. It’s a common practice to reduce uncertainty and protect against financial losses in business dealings.