Contracts are an essential part of local government operations and come in varying forms of complexity and type, from the construction of a major asset or supply of stationery, contracts are part of day-to-day operations. They can create unexpected risks to members if  not managed well.

This is why we've developed the 'Guide on contract risks' to help local governments better understand the key mechanisms and common approaches to allocating risk in contracts. It highlights some of the crucial features of a contract and the important clauses that often crop up whenever the parties to a contract discuss risk.

A contract is the main tool to regulate the relationship between a local government and their service providers, suppliers or contractors.

The guide provides examples of contractual risks that members should be aware of during the contract lifecycle process. It explains the relationship between contractually assumed liability and general liability risks which exist irrespective of a contract.

You can download the guide HERE.

Risk clause checklist, 10 points to note:

1. Consider whether your local government is the 'principal' and therefore responsible for setting the terms and conditions of contract.
2. If the local government is not 'principal', but is subject to terms and conditions set by another party (e.g. as lessee in a lease), assess whether these terms and conditions are acceptable.
3. If the contract is a template contract (e.g. WALGA contract, Australian Standards) and the contractor has proposed variations, consider whether these variations are acceptable.
4. Consider the insurance requirements for both parties and check whether they are relevant and appropriate.
5. Consider whether the contract excludes any liability risks and whether the exclusions are appropriate and acceptable.
6. Consider the effect and appropriateness of any caps on liability. Remember if you cap liability, you will not be able to recover losses in excess of the cap.
7. Consider the effect of any indemnities; small changes in wording can make a big difference.
8. Consider the definition of consequential loss; is there anything that you feel should not fall within that definition.
9. If the local government is 'principal' and the contract refers to excluding proportionate liability; be alert to any changes to this clause proposed by the contractor.
10. Make sure that you document the basis of liquidated damages calculations so that it is clear how you have calculated the losses, should a dispute arise as to whether they are a penalty.

LGIS can assist members to understand the implication of the risks identified in the context of a particular contract. Specifically where risks have the potential to create a liability for the member, LGIS can offer contract risk advice on appropriate measures and options to remove, reduce, transfer, share or retain the liability risk. We can advise on the insurance, indemnities and limitation of liability clauses. 

To get a copy of the guide or to discuss assistance that can be provided, please contact the LGIS risk team.