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Contractual terms and COVID-19 – what to consider

08 June 2020 #Commercial #Corporate


The global outbreak of COVID-19 has impacted the way in which we carry out our lives, both personally and in our businesses in a way that hasn’t happened before.

In other articles, we have explored the innovation needed to operate at our business premises, how we should manage health and safety and returning to work and also how we should negotiate and complete legal documents remotely.

In the many contracts negotiated every day, key terms such as price, delivery and payment are focused on but there are other contractual terms, which, in a post COVID-19 world should be considered and here are some thoughts.  Below I have considered some of the usual contractual provisions and given my thoughts on how they might need to be considered in the current times.

Minimum Purchase Amounts

Many contracts are carried out with the same supplier and these terms are often agreed under an umbrella contract by which I mean an overarching agreed set of terms and conditions which are incorporated into a series of contracts.  The benefits of which mean that the terms are agreed, negotiation times for supply can be reduced and the day to day contractual process is streamlined.

An umbrella contract may contain minimum purchase amounts which in turn dictates pricing.  Understanding the terms of the umbrella contract which might not have been looked at since the outbreak is a worthy exercise, if pricing increases in the supply chain because minimum quotas cannot be reached, what impact would this have on your business? 

Manufacturing and Packaging

Quite often these contracts contain a right for the customer to inspect goods at the place of manufacture at all reasonable times.  Is this feasible?  Are there alternatives to ensuring quality is maintained in the process. If this is the only way, what measures are required to keep staff and visitors safe.

Delivery of goods or performance    

Who is responsible for delivery?  Usually the supplier but is this workable?  Are there increased costs?   Does thought need to be given about timings and if so, what is the impact on your ordering process with customers?  What happens if the process is delayed or goods need to be returned?

In the case of services, what will the legislative implications mean to performance generally, especially if the contract can only be preformed in part remotely.  Is time of the essence for delivery – If so should it be?

Terms of Payment

The economic impact of COVID-19 has resulted in fluctuations in the global currency prices – does your contract enable you to settle pricing in different currencies?  How long does your customer have to pay you?  Are you exposed?  Whilst carefully drafted retention of title clauses will protect the ownership of those goods until payment received, you may incur costs in enforcing your claim and non-payment will only put pressure on your cash flow.

What are your credit control processes?  Do you credit check customers and if so how regularly?  Should this process be increased?  Do you ask for payment up front or deposits lodged?  If not should you?

Termination and Suspension

Does your contract give rights to terminate or suspend for non-payment or breaches of material terms?  There are many articles on the operation of the doctrines of Frustration and Force Majure, but going forward, should your contracts include specific suspension rights for COVID-19 related disruption – such as lock down?

Policies

It is quite usual to insist on compliance with policies relating to Slavery and Trafficking, Anti Bribery and Data Protection – it is not unforeseeable that some customers may want specific assurances in the future about the supply chain and appropriate COVID-19 protections being introduced either because of their own benchmarking or because they will need to pass on such assurance through the supply chain.

In conclusion, it is hoped that this article provokes though about how the contractual process is considered given COVID-19.  There has never been a more important time to consider the ordering process and customer journey when readying to re-open as restrictions continue to be relaxed.  Now has never been a more important time to ensure that you understand both your supply and customer contracts, and that they are suitable for your business operation in the future.

 

Clarkslegal, specialist Commercial lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Commercial matter please contact Clarkslegal's commercial team by email at contact@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

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Stuart Mullins

Stuart Mullins
Partner

E: SMullins@clarkslegal.com
T: 0118 960 4672
M: 0777 630 5578

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