COVID-19 Contract Review Service
If your business has been interrupted by the COVID-19 pandemic you may be wondering what you can do to protect your cash flow. Whether you are the customer or the supplier, your contracts are likely to contain a variety of tools which will allow you to descope services or suspend payment obligations and more which may be helpful to you in these times. Some of these options are set out below.
Are there force majeure provisions you could take advantage of?
Under English law, a force majeure clause will excuse either or both parties to a contract from liability if an extraordinary event beyond their reasonable control prevents or delays performance of some or all their obligations.
Do your contracts contain force majeure provisions? If so, would the COVID-19 pandemic be considered a force majeure event? What protections are available to you if the force majeure provisions are triggered?
These provisions may allow you to suspend performance for the duration of the force majeure event, extend time for performance or reduce the charges to reflect the reduction in services. They may also entitle one or both parties to terminate the agreement, or the affected services, or any services, if the services are affected by a force majeure event for more than a specified period.
Whether the force majeure provisions are triggered, and the protections they offer, will depend on the precise wording of the relevant clauses in each contract.
Are there service credits you could/should be claiming, or should they be suspended during the pandemic?
Service levels are often included in contracts to ensure suppliers perform services to a high standard.
As a customer, have the services you received from your suppliers been negatively impacted by the pandemic? If so, do your contracts include provisions relating to service levels, and are there service credits or other remedies available to you to compensate you for the reduced performance?
As a supplier, are then any terms in your contract which allow you to suspend service credits during the COVID-19 pandemic if you are prevented from reaching the service levels? If so, have you complied with any prerequisites, such as a duty to mitigate or a notify the customer to allow you to suspend the service credits?
There may also be other relevant factors to consider, such as whether service credits are the sole remedy for breach of service levels, or whether there are any service credit caps which have been or could be met.
Do you have the right to termination for convenience?
Termination for convenience generally refers to the unconditional right for one party to end the agreement, without having to give a specific reason.
If your contracts do not contain force majeure provisions, or if they are unlikely to be triggered by the COVID-19 outbreak, do they contain provisions which would enable you to terminate for convenience?
If so, what is the process for how to implement them? How long is the notice period and what precise form should the notice take? What rights are available to you during the notice period?
A termination for convenience right may be helpful to a customer looking to cut costs but also to a supplier who knows they cannot comply with the terms of a contract and does not want to be liable for breach.
In addition to the above, there may also be lots of other tools that could be used to renegotiate, descope or terminate contracts, as appropriate, which could help you through this difficult time and position your business for optimal recovery once the pandemic is over and business returns to normal. Our corona-contract review service can help you identify your options and we will then discuss with you what would put you in the strongest position going forward.
View similar articles on our coronavirus content hub.
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