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If the costs incurred under the contract are driven by people costs and if it’s possible to flex resources, but have additional costs picked up by the customer, this would be a sensible option.
For example, the service provider may be able to recover redundancy costs in some circumstances, if the contract allows it.
Some contracts will have a formal change control procedure which sets out the process to be followed and it would be worth checking to see whether the customer is entitled to withhold its approval of any changes proposed.
The critical point here is to try and find a way of ensuring that a contract remains financially viable. The contract will usually set out how a variation should be documented, but even this can vary.
If the contract is silent in this respect, then the accepted position under English law is that any variations would need to be agreed between both parties, rather than imposed by one or the other.
When variations to the contract are agreed, these should be documented carefully, detailing whether they can be agreed verbally or whether they need to be in writing and signed by both parties.
Mitigating Losses And Managing Relationships
For a service provider, to effectively mitigate their losses, it’s important to understand how their
charges are calculated, and whether it’s an open book arrangement or cost plus.
Cost plus is a common form of charging and it may be possible to mitigate costs by making use of this mechanism, particularly if the supply chain costs increase as the costs of materials are impacted by the pandemic.
When it comes to managing ongoing commercial relationships, it’s important to assess both supply contracts and commercial contracts, as there may be flexibility allowing for volume related price reductions.
In any event, if a service provider can reach an agreement with suppliers that enables it to keep costs to the customer down, this can only improve the relationships with customers.
It’s Always Good To Talk…
The single most important issue for FMPs to consider is not necessarily the contract itself, but the day to day relationship with the customer.
FMPs tend to be unique in that they will be in regular contact with the customer, talking with them on a daily basis, whether it’s the security staff, cleaners, reception workers or maintenance support – all of these roles are on premises throughout the week.
Therefore, FMPs have more opportunities to build close personal relationships than other service providers do, so it’s important that they take full advantage of this.
For this reason, you should open a dialogue as quickly as possible if you think there is any possibility of issues in meeting your contractual requirements.
Given a good working relationship and a customer who may also require flexibility, then collaborating to find an equitable outcome, with the contract as the foundations for that relationship, businesses could emerge from the crisis in an improved position.
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