Contract Management in Times of Economic Volatility

Prioritising Risk and Stability

Most sectors have always operated in cycles of volatility, however, the current economical landscape presents a particularly complex environment. Geopolitical tensions, supply chain disruption, inflationary pressure and fluctuating commodity markets are creating sustained uncertainty across operations.

For many organisations, the immediate focus is understandably on operational continuity and financial performance. Yet in periods of economic instability, contracts become one of the most critical tools available to manage risk, protect margins, and maintain commercial stability.

The challenge is that many organisations do not actively manage their contracts once they are signed. Instead, agreements often sit in the background until a dispute arises or a project encounters difficulties. In volatile market conditions, this passive approach can expose businesses to significant financial and operational risk.

Understanding Where Volatility Impacts Contracts

Economic volatility typically affects energy contracts in several key areas:

Pricing and cost escalation

Supply chain costs, labour rates, and commodity pricing can change rapidly during periods of instability. Contracts that lack clear adjustment mechanisms or escalation provisions may force one party to absorb unforeseen cost increases.

Supply chain disruption

Global instability can affect the availability of equipment, materials, or specialist services. Delivery obligations and schedule commitments may become difficult to meet if contracts do not account for these realities.

Force majeure and geopolitical risk

Political unrest, sanctions, and international trade restrictions are increasingly relevant in cross-border energy projects. Many contracts include force majeure clauses, but these are often narrowly drafted and may not cover the specific disruption that occurs.

Cash flow pressure

Delayed payments, extended approval cycles, or unclear acceptance criteria can significantly impact contractor cash flow when projects are already under financial pressure.

Prioritising Contract Review During Volatile Periods

When markets are unstable, organisations cannot realistically review every contract in detail. A more practical approach is to prioritise agreements that present the highest financial or operational exposure.

A structured contract review should focus on:

1. High-value or long-term agreements

Large engineering, procurement and construction (EPC) contracts, framework agreements, and long-term service contracts often contain the greatest exposure.

Understanding how these agreements allocate risk, define acceptance, and manage variations is critical during uncertain market conditions.

2. Supply chain dependencies

Contracts with key suppliers should be assessed for resilience. If a critical supplier is unable to deliver due to disruption, the commercial and operational impact can be significant.

Reviewing delivery obligations, substitution rights and remedies helps organisations plan contingencies before disruption occurs.

3. Pricing and variation mechanisms

Volatile markets often lead to requests for price adjustments or contract variations.

Organisations should understand:

• What triggers a valid variation

• Whether cost escalation mechanisms exist

• How changes must be formally approved

Without clarity, informal adjustments can quickly erode margin or create disputes later.

4. Liability and risk allocation

Periods of instability can increase the likelihood of delays, performance issues, or project changes.

Understanding where liability sits within the contract, particularly around delay damages, indemnities and limitation of liability, helps businesses make informed decisions about risk exposure.

Moving from Passive Contracts to Active Management

The organisations that manage volatility most effectively are those that treat contracts as operational tools rather than legal documents stored in a repository. This means translating key contractual obligations into operational awareness across project, procurement, and commercial teams.

For example:

• Project managers should understand acceptance criteria and milestone triggers

• Procurement teams should understand supplier obligations and escalation rights

• Leadership teams should understand liability exposure and termination rights

  
  

By embedding contractual awareness into operational decision-making, businesses can respond more effectively to economic pressure.

Building Resilience Through Contract Strategy

Contracts are not simply legal safeguards. When properly understood and managed, they provide a structure that allows organisations to respond to uncertainty with clarity and confidence.

At Protea, we work with organisations to translate complex contractual frameworks into practical operational guidance, helping businesses understand where risk sits and how to manage it effectively.

In times of economic volatility, this clarity becomes one of the most valuable assets an organisation can have. Reach out to info@protea-consult.com to discover how we can support your business.