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Are You Making The Most Of Your Contract In The Current Climate? By Pete Maguire, Partner in the Commercial Contracts Team at Wright Hassall
The focus on the far-reaching effects of coronavirus appears to have shifted from healthcare worries to economic woes, with the financial impact creating a period of instability, particularly throughout supply chains.
With more sectors looking to get back to work, it is hardly surprising that businesses in survival mode are looking to protect their interests and reduce risks, with a review of their existing commercial contracts essential.
Few contracts will have been written to mitigate the risks of a global pandemic, with months of lockdown and social distancing, but understanding its impact on commercial relationships and the ability of a business or its suppliers to fulfil their contractual obligations, is currently key.
Businesses must be close to their suppliers and customers, like never before. They have to understand the pressures everyone is facing in the current climate and the impact a failure by any member of the supply chain would have both commercially and practically.
Key Contractual Points
The relationship between a Facilities Management Provider (FMP) and its customer is often completely different from that you may find in a standard supply agreement. Personal interactions are often critical and maintaining the relationship is essential.
From the FMP’s perspective, whilst it is critical to ensure that your exposure is as limited as possible in the current climate, what is equally as important is to ensure your customer does not feel exposed by the approach you take.
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Being seen to mitigate costs and coming up with proposals will stand the relationship in good stead, whilst enhancing the feeling of mutual trust between the parties.
In terms of the contract itself, the first important consideration is whether it contains a force majeure clause and if so, does it extend to the impact of the pandemic?
Whilst the FMP should certainly consider this clause and whether the current circumstances could trigger it, they must ask themselves if it will be in their long-term interests to do so.
The impact of a force majeure clause can sometimes be draconian and can potentially lead to an immediate termination of activity, which presumably, will not be in the interests of either party.
How To Address The Necessary Variations Instead of jumping straight to the triggering of the force majeure clause, it may be possible to make use of the variation provisions in the contract. This will enable any additional costs incurred to be recovered by the FMP.
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