Case study: redesigning the risk structure of an international design and supply project

In a significant international shipping transaction, the real legal risk often emerges long before performance begins. In this case, our firm’s task was not simply to review or draft a contract, but to ensure that the business realities of the transaction were accurately reflected in the contractual structure.

Initial situation

The case involved an international commercial relationship requiring custom manufacturing, advance resource allocation, and multi-stage performance. On the manufacturing side, there was significant exposure regarding procurement, design, and capacity allocation early in the performance phase, while the initial contractual protection did not fully align with this economic logic.

It was clear from the first review that the true focal points of the contract did not lie in standard boilerplate provisions, but in a few key issues.

These were, in particular:

• payment risk and the lack of adequate payment security
• clarification of shipping and risk transfer rules
• managing business exposure resulting from exchange rate fluctuations
• restricting the use of technical documentation and files
• redefining the warranty and liability system in a commercially defensible manner

"In this case, the question was not how to make the contract longer, but where the actual business risks lay and how they could be translated into defensible contractual solutions."

Our firm's task

The focus of the work was to ensure that the document was not just legally sound, but that it also truly reflected the economic structure of the transaction.

As part of this, our firm addressed, among other things, the following issues:

• which provisions are essential for the meaningful protection of the manufacturer
• at which points it is justified to simplify or shorten the contract
• how payment security can be treated not only as a commercial but also as a contractual condition
• how the subsequent unauthorized use of technical documentation can be restricted
• how the liability and warranty system can be aligned with actual risks

A key element of the project was to strip away the bloated or secondary sections of the contract that, while standard in legal practice, were not the most significant aspects of this specific transaction. The goal was to create a shorter, cleaner, yet robust structure that would also be more effective during negotiations.

Key legal and business issues

Payment security

A central issue of the transaction was ensuring that a security structure providing genuine protection for the manufacturer was in place before performance began. In such cases, a deferred payment deadline or a standard invoicing mechanism is typically insufficient, especially when the manufacturer incurs significant expenses in the early stages.

Shipping, Incoterms, and transfer of risk

Another key focus was clarifying the boundaries of responsibility regarding shipping, acceptance, unloading, storage, and on-site risks. In international transactions, these points are particularly prone to ambiguity, yet they can be of decisive importance in the event of future disputes.

Currency risk

Due to the economic structure of the deal, the issue of currency exposure required special attention. If the contract price and the cost base are in different currencies, the manufacturer may suffer significant margin losses if the contract does not address this at all. One of the important lessons of the project was that currency risk should not be treated solely as an internal financial matter when it has direct contractual relevance.

Intellectual property and technical documentation

The handover of technical documentation, models, and manufacturing files can be one of the most sensitive points in these types of transactions. In practice, the question is often not whether the partner receives certain documents, but rather the scope of the usage rights granted and whether subsequent reproduction or involvement of third parties can be excluded.

Warranty and liability limitations

Designing the warranty structure and liability caps was also of fundamental importance. For custom-made, project-specific deliverables, it is particularly important that issues of defective performance, repair, replacement, delay, and consequential damages are not left at a general level, but are instead governed by proportionate, clear, and commercially defensible provisions.

"A good contract is not necessarily the longest document, but the one that is strong exactly where the client is truly exposed."

What made this case particularly instructive?

One of the most important lessons of the project was that a significant portion of contractual risks does not appear in a single dramatic clause, but rather in the overall structure of the document. In many international transactions, the parties have already agreed on the main business points, yet the contract fails to properly reflect which side faces the actual exposure and at what point in time.

In this case, therefore, the essential part of the legal work was not just drafting, but rebalancing the priorities. The question was which provisions were indispensable, which could be simplified, and how the document could be shortened while maintaining the most important points of protection.

The result

The final result was a significantly more streamlined yet strategically stronger contractual structure. The document became shorter and more transparent, while the truly critical points were preserved.

We were able to establish a stronger and clearer position, particularly in the following areas:

• payment security and conditions for commencing performance
• delivery and risk allocation logic
• contractual management of exchange rate risk
• protection of IP and technical documentation
• reasonable limitation of warranty and liability frameworks

Why is this relevant for other businesses as well?

This case clearly demonstrates that in high-value international supply or manufacturing contracts, legal work provides real value only when it goes beyond mere formal completeness and maps the business logic of the transaction. Where this is missing, risk typically reverts to the party that assumes significant performance or financial exposure earliest.

PLM Legal – Dr. Marcell Olajos Law Firm provides legal support to businesses in areas including commercial contracts, international transactions, risk allocation issues, and dispute resolution. If your company is involved in complex supply, manufacturing, or project-based contractual structures, our firm can assist in identifying critical business and legal risks, rethinking contractual priorities, and substantially strengthening your negotiating position.

‍