The Coronavirus epidemic is having many unprecedented consequences, one of which is the disruption of regular supply chains for goods and services. Here, we offer practical suggestions and guidance to help businesses through this difficult process.
See also our article on Force Majeure and Coronavirus in Commercial Contracts.
This could involve any one or more of the following:
- Supplies are no longer required because your retail outlet has shut or is about to
- Your supplier has ceased trading or is threatening that it might have to
- Restrictions have been imposed by government agencies that have stopped or delayed delivery
- As a result of part-time working or employee furloughing, supplies are being delayed
Any of the above will certainly throw up big challenges for any business and potentially cause it to lose customers and sales.
Supplies are usually subject to some sort of contract between the buyer and supplier.
So it is to these that it is sensible to turn initially to check what they say and if they deal with the particular situation that has arisen.
It's equally important that both sides of the supply chain first find, dust off and then start to scrutinise their contracts.
Where are these contracts to be found?
- Hard copy agreements that have been signed
- Soft copy contracts that have been accepted online
- Purchase Orders (POs) that have been placed and accepted
- Terms of Engagement (ToEs) hat have been accepted
- Terms & Conditions attached to or referenced in POs and ToEs
What are you looking for in a Supply Contract?
The sort of provisions you are trying to locate in your supply contracts include:
- When the contract was signed?
- Who exactly was the contract signed with?
- What is the Term of the supply contract (i.e. when does t last until)?
- Has the Term expired?
- If it has expired, when did it expire?
- Was the expiry date before or after the virus started to spread?
- Was the contract renewable?
- If so, was it automatically renewed or is renewal optional requiring a fresh agreement?
- Are there any terms covering delivery times and dates?
- If so, are they specific to particular goods or services?
- Have specific dates and times been missed or are they in danger of them being missed?
- Is there any ability under the supply contract to alter delivery dates and times?
- If so, what is the mechanism for agreeing an extension?
- Has that mechanism been triggered and adhered to?
- Is delay in delivery a notifiable event by the supplier?
- If it is, what is the notice period and how is notice to be given?
- Is on-time delivery critical to the buyer?
- What are the payment terms?
- Do they allow for non-payment or delayed payment in some situations like delayed or non delivery?
- Is there a provision allowing termination for a failure to perform an obligation?
- Is there a general variation of terms provision and mechanism?
- If so, what does it require the parties to do?
- Does the failure to deliver on time give rights to the buyer?
- What are those rights?
- How are those rights to be exercised by the buyer?
- Is there a Force Majeure provision?
- If so, what does it cover?
What are the options if supplies are threatened?
First, find the relevant paperwork ToEs, POs, T&Cs and emails with the other party.
Then start by analysing your position as carefully as you can- see above.
What you do is going to depend in large part on the answers to the above questions, but here are a number of practical general suggestions:
We recommend that if the position is unclear then consult a lawyer regarding the options available under the supply contracts and at law.
- Take specific actions provided under your Supply Contract that best suits and supports the position of your business;
- These could be mutual or they could be unilateral- either way, strict adherence to their terms is important;
- Respond using your contractual rights to any steps taken by the other party;
- Open a 'without prejudice' discussion with your counter-party to see if the problem can be sorted out without resort to contractual mechanisms;
- Try to agree a solution and then document it in a way that both sides give their agreement
- Try to avoid making a bad situation worse by doing or saying things that could inflame or antagonise;
- Bring in an outsider to help negotiate a compromise solution, this could be a trade body or a mediator appointed by both sides;
The legal position
We can't and don't give legal advice, but we can direct you to useful professional websites that offer guidance on the sort of issues that can arise when there is supply contract disruption and stress.
You may also find it helpful to read our blog article on Force Majeure- Coronavirus affecting commercial contracts and also download our Commercial Contracts Guide,which covers many useful topics.
Other useful website blogs and articles:
Coronavirus & implications for international supply contracts- FieldFisher
Coronavirus: force majeure, supply chains and contractual performance- Osborne Clarke
Coronavirus and commercial contracts – what should you be checking?- Brodies
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