5 key issues with supply chain contracts due to covid
Supply chain problems due to the current pandemic are creating huge problems for businesses and the outcome for restoring normal supply chains any time soon is uncertain to say the least.
Supply chains create complex legal issues and risks at the best of times. If a supplier is unable to deliver or meet it’s contractual commitments this can all too easily mean, in turn, that your business then is unable to fully or at all comply with onward contractual obligations to an end user.
Supply chain problems are most problematic with supply of goods (sometimes with ancillary services) contracts and construction contracts.
So, what can you do to mitigate risks in the current environment?
Key supply chain issues
First and foremost, check your existing contracts very carefully. This includes the technical details which can easily be overlooked. Many contracts have lengthy schedules to accompany the boilerplate type clauses. It could be that technical issues or defaults could provide options you would otherwise overlook, which might even include termination if that would assist you. However, care should always be taken before terminating a contract, as there may be significant legal risks associated.
Other aspects to check and consider as part of any possible agree variations to contracts in the covid economic and business environment include :
- Check whether your contracts give you any rights to seek alternative suppliers if the other party cannot comply with it’s obligations. If your contracts do not include such rights, consider seeking agreed variations to the contract to include such clauses.
- If your suppliers ask for additional time to comply or other variations or your customers request additional time to pay or other contract variations, consider how you should protect your interests. Options might include some sort of security or personal guarantee.
- Does your contract include retention of title clauses? Such clauses, if professionally drafted, can enable a supplier to repossess goods which have been supplied but not paid for. Retention of title clauses provide potential protection where a buyer goes into liquidation or administration.
- Does your contract include any mechanisms allowing for price adjustments? With supply chains, aspects can be out of your control and this is a key reason why wherever possible clauses should be cross-checked and harmonised in terms of the supply to you and your onward sale contracts. Some contracts include clauses allowing any costs increases to be passed on if there are your control. If your contracts do not include these types of clauses and you can renegotiate due to the covid pandemic, it is worth considering such provisions when thinking about disruptions going forward until the pandemic is over.
If you need advice or assistance on the best way to protect your contractual interests during the coronavirus/covid-19, our lawyers provide experienced, proactive, rapid and cost effective legal advice.