A facilities contract shifts all liability for high-hazard work onto a one-person vendor with no assets or insurance. What does this illustrate about risk transfer?
Select an answer to reveal the explanation.
Short Explanation
Handing a million-dollar problem to someone with empty pockets is theater, not transfer. Real transfer needs a party that can actually pay or perform when things go wrong — capacity matters as much as the clause.
Full Explanation
Effective risk transfer requires both clear allocation language and a counterparty with financial and operational capacity to absorb the shifted exposure. Shifting liability onto an undercapitalized vendor creates "transfer theater": the organization may still face claims, regulatory duties, and reputational harm when the vendor cannot respond. Corporate risk managers evaluate transfer effectiveness, not just the presence of a clause.