REG NO: BPSMC01/0888/2020

GEORGE OTIENO ODHIAMBO

CONTRACT MANAGEMENT ASSIGNMENT
2.

1(a)Contract negotiations is a tactical

process guided by certain theories.
Describe FIVE of these theories.
• Game Theory: Game theory is a mathematical approach that examines
strategic interactions between parties. In contract negotiations, this theory
helps parties analyze and predict how their decisions will affect the other
side. The Nash Equilibrium, a central concept in game theory, is often used
to identify stable outcomes in negotiations where neither party can gain by
unilaterally changing their strategy.
• Principle of Least Interest: This theory suggests that the party with the
least interest in the contract has more negotiating power. In other words, the
side that is more willing to walk away from the deal typically holds an
advantage. Negotiators often use this theory to leverage their position and
get more favorable terms.
• Bargaining Power Theory: Bargaining power theory focuses on the relative
strengths of the negotiating parties. Parties with more leverage, often due to
factors like market share, unique expertise, or alternative options, can push
for more favorable terms. Understanding and assessing each party's
bargaining power is crucial in contract negotiations.
• Information Asymmetry: This theory recognizes that one party may
possess more information than the other, creating an imbalance in the
negotiation process. Parties may use this asymmetry to their advantage by
disclosing or withholding information strategically. Negotiating tactics often
involve efforts to reduce information asymmetry or exploit it to secure better
terms.
• Principle of Fairness: While not a formal theory, fairness is a fundamental
consideration in contract negotiations. Parties often need to strike a balance
between their interests and creating a contract that both sides perceive as
fair. Negotiations can break down if one party feels the terms are
egregiously unfair, leading to disputes.

(b) Elaborate FIVE circumstances under

which contractual disputes may
Arise
• Ambiguity in Contract Terms: If a contract's terms are vague or open to
interpretation, disputes can arise over what the parties originally intended.
This often results in litigation to clarify the contract's meaning.
• Breach of Contract: When one party fails to meet their contractual
obligations, it can lead to a dispute. This may involve failure to deliver
goods or services, delayed payments, or not meeting quality standards.
• Change in Circumstances: Sometimes, unforeseen events or changes in the
business or legal environment can render a contract impractical or
impossible to fulfill. Parties may dispute whether these changes constitute
grounds for contract termination or modification.
• Disagreements on Performance Standards: If the contract does not
specify clear performance standards or measurement criteria, parties may
dispute whether one side has met their obligations.
• Misrepresentation or Fraud: If one party misrepresented facts during the
negotiation process or intentionally concealed information, it can lead to
contractual disputes when the truth comes to light. This often results in
claims of fraud or misrepresentation.
In contract negotiations, parties should strive to create clear, well-defined
contracts, minimize information asymmetry, and consider the principles and
theories mentioned above to reduce the likelihood of disputes. When disputes do
occur, alternative dispute resolution mechanisms such as mediation and arbitration
can often help parties find resolutions without resorting to costly litigation.