Contract Risk Assessment Checklist: 10 Steps to Reduce Risk

Oakhurst Dairy lost $5 million because of a missing comma. That's how seriously contract risk assessment deserves to be taken and why a checklist matters more than good intentions.

What is contract risk assessment?

Contract risk assessment is the process of identifying and evaluating potential risks associated with entering into a contractual agreement. It involves reviewing contract conditions, identifying risks, assessing their likelihood and impact, and developing strategies to mitigate them.

"To me, a risk only matters if it's material. To be material, it has to be likely to occur, and it has to be costly."
— Jonathan Franz, Head of Legal, Crunchbase

What is a contract risk assessment checklist?

A contract risk assessment checklist is a list of tasks contract managers work through to systematically identify and evaluate risk in an agreement. It removes the need to rely on memory, following a predefined guideline that helps you catch problems proactively rather than reactively.

The 10-step checklist

1. Evaluate the scope. Define obligations, deadlines and cost requirements, and clarify any ambiguous language before it becomes a dispute.
2. Examine the delivery schedule. Check whether deadlines are realistic and what risk comes from delivering late. Automated reminders help keep this on track.
3. Evaluate the terms. Review pricing, liabilities, warranties and dispute resolution for fairness. Automated approval triggers based on specific attributes can shorten negotiation cycles significantly.
4. Review location-specific obligations. Different regions carry different regulatory risks, from GDPR in the EU to HIPAA in the US, affecting product quality, exchange rates and operations.
5. Research your contract partner. Check reputation, financial stability and track record before committing.
6. Confirm mandatory provisions. Every organization has clauses that must appear in every contract, like NDAs, limitation of liability and indemnification. A clause library makes these easy to import consistently.
7. Review optional provisions. Evaluate whether including additional protective clauses strengthens your position enough to justify the negotiation cost.
8. Identify high-risk clauses. Flag provisions like broad indemnification clauses that could expose your organization disproportionately, and renegotiate if needed.
9. Consider regulatory standards. Identify applicable organizational and federal requirements, and keep a full audit trail to prove compliance if needed.
10. Track continuously. Risk assessment isn't a one-time task. Ongoing contract tracking with redlining and version control keeps you proactive as terms and circumstances evolve.

Real contract errors that proved costly

NASA's Mars Climate Orbiter (1999). A mismatch between metric and English measurement units between NASA's team and contractor Lockheed Martin destroyed a $327.6 million spacecraft.

Oakhurst Dairy (2018). A missing Oxford comma in overtime pay language cost the company $5 million after a court sided with drivers over the clause's ambiguity.

Both cases show the same lesson: risk assessment catches the small details that manual review tends to miss under time pressure.

Stay ahead with a CLM tool

Contract risk assessment gets overwhelming as volume scales. An all-in-one contract lifecycle management platform keeps contracts secure, tracks changes and manages risk proactively instead of reactively. SpotDraft also pairs this with VerifAI to flag risky language automatically during review and a central repository that keeps every contract and its risk history searchable in one place.

Want to see it in action? Request a personalized demo.