Structuring T&Cs in your new contracts and renewals – legal implications of covid crisis from Danske Bank

contracts CLM

Last week ProcureCon Europe hosted its flagship international event for procurement practitioners online, for the first time. The virtual event proved very popular, probably because it focused on the topical theme of Procurement’s response to Covid-19’s impact on business and the strategies and solutions it relies on.

To discuss the unprecedented challenges to their procurement strategies, and how they have faced up to them, ProcureCon brought together procurement leaders, global supply chain directors, heads of corporate services, and company directors from some of the world’s largest organisations to share their learnings.

One of the best attended virtual sessions came from Hernan Huwyler, Head of Procurement Center of Excellence, responsible for compliance and due diligence at Danske Bank. He talked about the legal implications of the coronavirus crisis for supplier contracts, including how you can structure the terms and conditions of your new contracts and renewals to ensure you don’t find yourself in a difficult position again and how you can assess the scope for protection in existing contracts, including force majeure clauses.

He reminded us of the disparity in levels of lockdown in different regions, affecting delivery to contract, and how we have a host of very different scenarios to cope with. To this, he looks at whether our contractual clauses are protecting our business.

Coronavirus has exacerbated the need for more robust contract protection, he says, as in many cases we are either not prepared for some events, or have clauses missing altogether. So we need to pay more attention to how we analyse and enforce force majeure clauses.

He advises that we should be including epidemic as a ‘clear’ clause in our contracts, which is something we might not have thought about before, but is a necessity to help avoid disputes. This might be as simple as including an addendum to key contracts, but it is essential they are clearly negotiated with suppliers. This means ensuring terminology and interpretation of the clause referring to inability to perform is clear to both parties.

Clarity means defining what is, and isn’t, an acceptable delay in the services provided. These cases must be documented for force majeure, including minimum volume commitments where that applies, alongside every change in the contract, formalised, documented and signed, for the duration of the crisis. And – he insists – this cannot be reliably done by email.

He impresses the need to identify risks, and to do that we must disclose which clauses might result in a legal effect. This includes identifying risks to our own tasks, not just to the supplier’s, and this is important because it might be the client that is preventing the supplier from executing to contract.

To this, of utmost importance, is to introduce a communication clause into the contract, requesting that contractual performance tasks are communicated via the supplier, making them accountable for that communication. That way you can ensure in advance that any difficulties or operational issues the supplier is experiencing are properly communicated, as per the contract, in advance, allowing you to react, which might mean changing your delivery dates in time.

However, we must be clear what the cause of delay is. We must remember that not all non-conformance is directly due to covid, as we have come to expect. And this will affect whether we can evoke force majeure – or not!

What we must not do, is see force majeure as an excuse to delay payments for services already delivered. As a bank, Danske Bank recognises this and has undertaken to pay suppliers earlier to help increase liquidity in businesses (particularly to increase solvency for smaller suppliers), to help prevent disruption to services and to improve relationships.

This is just a snapshot from Hernan’s presentation. He discusses in more detail the grounds on which you can terminate contracts and how you can structure new contracts with clauses specific to diseases. He also explains how you can conduct a full risk assessment of your supply chain and where legal exposures lie, partly by segmenting suppliers by categories and regions, rather than by spending. This is good practice when identifying risk, he says, and so goes on to give a step-by-step guide to carrying out a risk assessment.

ProcureCon has recorded all sessions for you to listen to, so to hear this presentation in full, and any others that interest you, you can register here.

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