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Insights

Supplier and Customer Contracts during Coronavirus

Posted on 05th May 2020 in Company & Commercial, Coronavirus Pandemic

Posted by

Amy Laver

Partner and Solicitor
Supplier and Customer Contracts during Coronavirus

It is worth reviewing your contractual obligations not just with employees but also with clients / customers and your bank.

There is generally a limit to the changes you can make to staff contracts, which must be agreed. For more details on staff contracts and employees, see our employment advice page. However it may be possible to work greater flexibility into any new contracts you issue.

Consider carefully your terms with clients / customers; if you are unable to meet your usual standards then you may be protected by a cancellation right or “force majeure” (unexpected events) clause in your terms and conditions. If you don’t have such a clause in your standard terms, you may wish to consider introducing one.

 

I have ongoing contracts with my customers and suppliers – do they carry on unaffected?

As a general rule, if performance of a contract becomes more difficult or even impossible, the party who fails to perform is liable in damages. You should therefore assume your contracts will continue unaffected so you will need to continue to pay suppliers and customers should still pay your invoices.

Some contracts may include force majeure clauses which allow the parties to suspend or cancel their entire obligations under a contract where an event outside the parties control such as a pandemic makes performance impossible. Not all contracts will include force majeure clauses and not all force majeure clauses include pandemic, you need to check before relying on them. Usually, notice must be given to the other party that a force majeure clause is relied on.

If the contract does not include a force majeure clause the doctrine of frustration may provide an exception for contracts directly affected by Coronavirus. Frustration allows the contract to be automatically discharged when a frustrating event occurs so that the parties are no longer bound. Frustration applies even where it is not specifically mentioned in the contract.

Frustration may apply where the government has outlawed the subject matter of the contract from being performed, for example contracts which involve gatherings of people. Coronavirus is not necessarily a frustrating event for all contracts, difficulties with availability of workers, cash flow or a lack of demand is unlikely to be enough. Each situation will be different and you should take advice before seeking to rely on it.

Almost all contracts can be amended if the parties agree. Many customers and suppliers may have difficulty meeting their obligations so it makes sense to address this as soon as possible and if necessary agree a variation to the date for performance or payment rather than find yourself behind other creditors waiting for payment.

 

How will Coronavirus affect construction contracts?

The effect of coronavirus on construction contracts generally is a constantly evolving subject. It seems likely that all but essential construction projects are likely to be put on hold by government order.

However, until such time as the government stop construction projects from proceeding, the contract remains live and the parties remain obliged to carry out their contracted elements.

There are likely to be disruptions to the efficient running of a construction project in any event owing to supplier chain issues, professionals being unable to travel to site and staff self-isolating. Disruption will likely result in applications for extensions of time and these will need to be considered carefully.

In extreme circumstances, the force majeure provisions may need to be invoked resulting in the termination of the contract. Parties should take urgent advice if they are considering termination.

 

Communication in times of uncertainty

If you do not have provisions which deal with situations such as these, what are your options if you cannot perform your contractual obligations? As with staff, early engagement is key. Be honest with your customers or suppliers about your position (they will likely be suffering similar issues) and try and negotiate an agreement that suits both parties going forward and avoids the need for more formal action later.

 

How can Tozers help?

Our Company and Commercial Team is highly experienced in contract matters and available to support you and your business during this time.

Contact our expert lawyers

 


 

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