Covid-19 and Commercial Supply Contracts

Covid-19 has prompted suppliers and customers to review their commercial contracts and as a result revisit the drafting of a number of crucial supply clauses as well as highlighting any foreseeable issues which can be brought about by unanticipated events such as Covid-19.

If you are either a supplier or a customer who receives the benefit of a supply contract and your business has been effected by the pandemic you may want to enhance the following areas of your supply contracts with the view of future proofing your business’ vitality in unforeseen circumstances:

Monitoring – monitoring clauses allow one party to monitor and review the other party’s working provisions to ensure that any unforeseen circumstances are managed effectively and efficiently, thus avoiding issues or delay arising further down the supply chain.

Non-exclusivity – in the occurrence of an unforeseen difficulty (such as covid-19) a non-exclusive relationship either way allows for a party to seek their supplied goods from an unrelated third party where necessary for the trading of its business and allows for the other party to sell their supplied goods elsewhere to ensure their cash flow is not affected as a result.

Payment terms – as a supplier you may want to re-visit your contractual payment terms and re-negotiate a shorter time frame of payment which as a result would amplify the company’s short term cash flow and allow for more accurate forecasting of the company’s long term business plans.

Alternatively, you may wish to extend the payment terms with the view of preserving customer relations for the future.

Force Majeure – the effects of a force majeure clause can be considered by the customer and supplier equally. Firstly, parties should check that their contracts have the benefit of a force majeure clause and if such clause happens to be in existence they should then proceed to review its substance. It is important to know that force majeure clauses are subject to implied limitations and should meet specific formalities and requirements to have the desired effect.

Please contact us today for a bespoke review of your commercial contracts.

Liliana Armitage

Author Liliana Armitage

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