If you missed this month's webinar for business owners on the key post-COVID business strategies, you can catch the recording here. Here's a brief summary:
Businesses are still trying to move beyond the disruption caused by COVID-19 pandemic. There have been a lot of lessons learned, one of which is that the impact could have been less severe with better planning. Disastrous events happen often enough, certainly every few years. While the effects of COVID are fresh on our minds, it’s the time to begin planning for the next big disruption, whether it’s a pandemic or something else.
This is a great time to sit down and think through different kinds of events and how your business can overcome or minimize the risk of disruption. Pandemic should be on the list, of course, but also think about war, terrorist attacks, civil unrest, the effects of climate change, etc. We’re still experiencing the pandemic, we’ve seen a lot of civil unrest lately, and we can be pretty sure that climate change is coming. None of these are unforeseeable events. So, as big as those risks are, the riskiest thing for businesses to do is to remain unprepared.
Business Continuity Plan. With these types of events in mind, each business should create and implement a business continuity plan that addresses how it would deal with a reduction in personnel and resources, and commit to periodically review this plan and update it as necessary. Contracts with key suppliers should require them to implement their own business continuity plan, and, if it’s a long term contract, the contract should require a periodic review of their plan as well.
Supply Chain. Secondly, each business should take a close look at the supply chain. Good supply chain practice says that there should have several suppliers in different countries and geographies. This is an ongoing endeavor that will need to be monitored and updated as needed.
Insurance. Third, as business insurance policies come up for renewal, it's a great time to review them for coverage and exclusions with an eye toward each kind of potential disastrous event. Whether a particular type of claim will be covered or not depends on the specific policy language, so each policy should be carefully reviewed, including the exclusions and riders.
Contracts. Another proactive step to take right now is to update all the existing contracts and contract forms. Of course, the force majeure clause should be updated to include more specific details about how it is invoked and what type of relief is offered: either giving broader relief to one party or limiting the relief to the other party, depending on the transaction. But the force majeure provision is not the most important, or even the primary, provision that should be reviewed and possibly changed. This is also a great opportunity to take a close look at the contract in its entirety, to build in more options and flexibility. There are many provisions that may need to be amended now, but here are some key ones, and depending on whether you are the customer or the service provider, I would advise focusing on different considerations.
Suppler/Service Provider Buyer/Client Both
Early Termination Termination for Convenience Limitation of Liability
No Prepayment Refunds "Time is of the Essence" Dispute Resolution
Suspension of Services Tie payment to performance Warranties
Schedule Adjustment Renegotiation Indemnity
Price/Fee Adjustment No Exclusivity Insurance
Finally, each contract should now include a dispute resolution provision. This clause will determine whether the parties can effectively enforce their rights. For example, if a customer receives a force majeure declaration from a Chinese supplier, a Chinese court may not be the best forum for pursuing a claim. Also, because we can expect there to be huge court backlogs for a long time to come, an alternative dispute resolution that permits remote video hearings and conferences may be faster and more practical. I have started recommending to many of my clients that their contract should start including a mandatory mediation provision. But of course, as always, it depends on each situation whether that’s appropriate or not.
Osensky Law works side-by-side with clients to anticipate and address business and legal risks in an efficient and practical way. For an analysis of your company's existing contracts and contract processes, please contact email@example.com.