What is Contractual Risk Transfer?
"Contractual Risk Transfer" is a risk management term for spreading risks among contracting parties through a provision in the contract agreement. It is a good risk management practice to transfer the Entity's risk exposure for the contracted activity to the Contractor. This transfer is appropriate because the Contractor is in the best position to manage the work and prevent losses. In theory, risks should be allocated to the party that is in best position to manage them. In reality, it is usually the party with the better bargaining position that determines who will be responsible in the event of a loss. If not completed properly, inadequate risk transfer can create a substantial liability for your Entity.
The Guide to Insurance Requirements in Contracts is intended to be a useful tool in helping you determine which requirements are critical -- and why -- and which can be waived under certain circumstances. Although this manual provideS guidance for most situations that will be encountered by your Entity, there will be exceptions to the rules. If your project is not addressed in the Guide, please contact PARSAC at (800) 400-2642.