Coronavirus Contract Considerations
What you need to do right now
Existing Contracts
You may be impacted by delays, disruption and extra costs no matter where you are in the supply chain. If so, you normally have an obligation to notify the other party. Force majeure normally gives a supplier extra time, but not extra costs (though there may be other opportunities to raise arguments elsewhere in the contract). It also generally cannot be invoked by a customer just because he no longer needs the supplies (though there may be a separate “termination for convenience” clause dealing with that matter). It is vital to notify the other party in the form required by the Contract as soon as possible. The other party may dispute whether the circumstances amount to force majeure, so be prepared to justify your position. Systematically record the specific adverse consequences it is having on your contract performance and provide regular updates.
"The best laid plans of mice and men..."(Robert Burns, when observing the panic of a mouse whose carefully built nest had just been destroyed by the farmer's plough)
Future Contracts
You should consider a specific clause for contracts you are negotiating now. There are two reasons:
(1) to qualify as force majeure, and event must be "unforeseeable”, but because the virus outbreak is now a known factor, it would not count as force majeure affecting new contracts.
(2) Force majeure does not entitle a supplier to extra cost.
Negotiating who bears the risks before contract signature is prudent and creates certainty for both parties.
Further Information and Support
Unforeseen events like the coronavirus can lead to uncertainty and disputes. We have long experience of providing constructive negotiation support in such situations. We have developed specific clauses and arguments on these matters to help you in your negotiations with customers/suppliers. Please reach out to us if you need contract support.
You may be impacted by delays, disruption and extra costs no matter where you are in the supply chain. If so, you normally have an obligation to notify the other party. Force majeure normally gives a supplier extra time, but not extra costs (though there may be other opportunities to raise arguments elsewhere in the contract). It also generally cannot be invoked by a customer just because he no longer needs the supplies (though there may be a separate “termination for convenience” clause dealing with that matter). It is vital to notify the other party in the form required by the Contract as soon as possible. The other party may dispute whether the circumstances amount to force majeure, so be prepared to justify your position. Systematically record the specific adverse consequences it is having on your contract performance and provide regular updates.
"The best laid plans of mice and men..."(Robert Burns, when observing the panic of a mouse whose carefully built nest had just been destroyed by the farmer's plough)
Future Contracts
You should consider a specific clause for contracts you are negotiating now. There are two reasons:
(1) to qualify as force majeure, and event must be "unforeseeable”, but because the virus outbreak is now a known factor, it would not count as force majeure affecting new contracts.
(2) Force majeure does not entitle a supplier to extra cost.
Negotiating who bears the risks before contract signature is prudent and creates certainty for both parties.
Further Information and Support
Unforeseen events like the coronavirus can lead to uncertainty and disputes. We have long experience of providing constructive negotiation support in such situations. We have developed specific clauses and arguments on these matters to help you in your negotiations with customers/suppliers. Please reach out to us if you need contract support.
