Managing your commercial contracts post-lockdown

By Colin Smith is partner in the commercial and corporate team at Blaser Mills Law.

The majority of businesses have felt the unprecedented effects of the lockdown period, leaving some unable to fulfil their commercial contracts. Now, as the country begins to emerge from three months of heavy restrictions, businesses are looking to resume activity and the supply of their goods and services.

In the early stages of lockdown, the government published guidance urging businesses to act responsibly and fairly when enforcing and performing contracts where there had been impact from Coronavirus. However, as business starts to resume, some may not be willing to practice the same leniency and understanding.

With this in mind, it is crucial that you know how to manage your commercial contracts post-lockdown. Here are some of the main things to consider.

Review your contracts early

There is a chance that a contract you agreed to before COVID-19 has since rendered impossible or illegal to fulfil due to recent lockdown restrictions, or that obligations have transformed into something you had not intended when you entered into it.

Therefore, it is vital that you assess your commercial contracts as a matter of urgency to determine whether you are still required to fulfil them under the current circumstances. Key clauses to review include force majeure, termination and cancellation clauses.

Whilst you will need to review each individual contract in detail, it is best to focus on the business critical contracts and compile a priority list. It is also important to consider how delays and closures may have affected the contract. For example, whether the contract stipulates that a delay in delivery of services allows the other to suspend or terminate the contract, as this could have a significant effect on your business.

Force majeure

Many commercial contracts will include a ‘force majeure’ clause, which may excuse one or both parties from fulfilling the contract in some way due to events that are outside their control. You need to identify whether your contracts contain such a clauses and, if so, if the clause includes reference to epidemics or pandemics.

Whether or not a force majeure clause will aid your business in the current circumstances all depends on the specific wording of the clause and, as there is no set phrasing for such clauses, it is best to have contracts reviewed by a legal professional to determine if they comprise a force majeure relief.

Mitigate losses

Due to the inactivity brought about by the lockdown measures, you may find yourself in a situation where a contractual obligation has been breached. If this does happen, you will need to mitigate any losses that could occur as a result.

It is worth bearing in mind that if a supplier breaches the agreed terms, this may affect your ability to comply with your contract to other parties too, and you must take reasonable steps to limit the impact. This may mean negotiating terms in contracts with the other involved parties, or simply finding an alternative supplier. If you fail to do so, such losses may not be recoverable, leaving your business in a sticky financial situation.

Managing your commercial relationships

As most businesses have faced a degree of uncertainty for three months, clear communication with your commercial partners is more important than ever, and continual management of your relationships in light of the previous disruption will be essential to the continual survival of your business.

The majority of businesses will have been affected in some way by the pandemic, and your partners are likely to be more understanding of your current situation and more willing to compromise, especially if they are informed early about your difficulties. By keeping an open dialogue, you will be able to maintain strong business relations.

Future damage control

When returning to business, continue to monitor your performance against contractual terms to ensure you can identify any potential issues early on. Take what you have learnt during the lockdown to ensure that if a second wave of the virus occurs, you have preventative measures in place, meaning goods can still be delivered on time, and you can anticipate any fluctuation in the pricing of goods due to a second lockdown. If your business managed to survive the initial lockdown, you are in a strong position and should be prepared for any further business interruption.

If you are unsure about your obligations or find yourself facing a dispute with someone you are under contract with, it is always advised to seek external legal advice. Make sure you speak to a qualified and reputable solicitor with experience in business and commercial law. They will be able to help you review your contracts and ensure you reach the best possible outcome.