Why Risk Management Should Follow Capability – Not Negotiation Power

Jim Bergman

Introduction: Misplaced Risk Is an Unseen Cost Driver
In contract negotiation, allocating risk is a game of chess – and too often, the wrong player is forced to make the risky move. When risk management responsibilities are assigned based on negotiation leverage instead of operational capability, deals may close, but problems linger. Relationship strain, project delays, and hidden costs become inevitable.

The solution? Assign risk to the party best positioned to manage it.

1. Leverage ≠ Capability: Why Default Allocation Fails
Negotiation leverage tends to distort risk allocation logic:

  • Dominant parties offload risk simply because they can – not because it’s efficient or strategic.
  • Smaller suppliers inherit risk they can’t mitigate, leading to subpar performance and frequent change orders.
  • Misaligned incentives create finger-pointing instead of proactive problem-solving when risks materialize.

2. Strategic Risk Assignment Boosts Resilience
Effective allocation isn’t just fair – it’s a form of risk mitigation:

  • Contractual Risk (indemnity, limitation of liability, compliance): Assign to the party with robust legal resources and insurance coverage.
  • Relationship Risk (performance disputes, communication gaps): Place responsibility on the entity managing governance or delivery interactions.
  • Project Risk (timeline slippage, design errors, resource constraints): Entrust the party with control over planning, sequencing, or resourcing.

3. Use Risk Capability Mapping to Guide Allocation Decisions
Smart negotiation teams incorporate capability mapping before assigning risk:

  • Score parties based on expertise, control, agility, and past performance.
  • Conduct cross-functional pre-negotiation workshops with legal, delivery, and supplier management teams.
  • Model trade-offs: what are the downstream costs if risk is placed incorrectly?

4. Reframe Risk as a Shared Strategic Conversation
Move away from adversarial language- shift to shared ownership:

  • “We want to allocate risk where it can be best managed, not where it’s easiest to push.”
  • “Let’s align terms with operational reality so we all succeed under stress.”
  • “Can we co-design a mitigation plan that reflects who has control and contingency options?”

5. Institutionalize Sensible Risk Allocation into Templates and Training
Behavior won’t change unless systems do:

  • Update contracting templates to include risk capability prompts or scoring matrices.
  • Build negotiation simulations into training that emphasize strategic risk trade-offs.
  • Capture deal outcomes where risk was misaligned – and use as case studies in future capability workshops.

Conclusion: Stop Treating Risk Like a Bargaining Chip
Risk isn’t just a contractual term – it’s a lived reality once the ink dries. Negotiation teams must transcend power dynamics and embrace strategic thinking. By aligning risk with capability – not leverage – organizations protect relationships, improve performance, and elevate supplier partnerships from transactional to transformational.

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Published by Jim Bergman

Jim Bergman is a commercial contract professional with global experience spanning the USA, Latin America, UK, Europe, China, South Korea, Japan, India, SE Asia, the Middle East, Africa and Australia. He has worked on a wide range of direct and indirect spend categories in numerous sectors, developing a deep knowledge of services, goods and technology procurement and sales. Across this wide array of commodity and services experience, Jim has found the keys to success in maximizing value for money through customer-supplier relationships founded on innovative category management and strategic sourcing practices, key performance metrics and measures, as well as Total Cost of Ownership principles and collaborative contracting tenets. He has shared his knowledge through advisory engagements, as well as in developing and delivering training programs both on-line and in classrooms, in both open-enrollment and internal environments. Jim has assisted his clients through all phases and steps of contracting, negotiation, strategic sourcing and bidding processes, demonstrating value generation in excess of $250 million. His audiences and clients have included over 7,000 attorneys and commercial professionals students from over 1,000 corporations and public-sector entities.

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