These seven guidelines can help you to reduce legal risks when dealing with problems regarding your supply chain. You’ll also find three more suggestions that will assist you in building a stronger supply framework going forward.
Dealing With Disruptions to the Supply Chain Due to COVID-19
Businesses have been impacted by the global pandemic in a number of ways. It’s possible that government shutdowns will have an impact on your production, or that fewer workers will be coming in. Shipments could be delayed. Some are setting sail, others may be discontinued by your suppliers, which means you won’t be able to produce goods as normal. No matter how you’ve been impacted, this advice will allow you to keep the situation under control.
- Document supply issues and learn more about the problem you’re facing.
Having complete and current knowledge of the situation will allow you to manage things appropriately. Furthermore, having documentation can benefit you if there are legal proceedings in the future.
If your company has been impacted directly, you’ll want to make sure you can clearly identify the source of your supply issues. Are you dealing with shutdowns or quarantines ordered by the government? Have the staff been staying home? Having precise information about your issue is essential. You’ll want to collect evidence that will prove the source of these problems.
If your supplier cannot provide you with the supplies you need, you shouldn’t simply accept a declaration of force majeure. Instead, you should request that your supplier provide you with details about the ways in which they have been impacted. You shouldn’t accept a declaration of force majeure until you’ve familiarized yourself with the facts.
- Use governing laws and your contract to analyze risk allocation.
Contracts and laws do not always allow force majeure defenses that are built around unpredictable events outside the control of the party. The requirements to establish force majeure and other, similar defenses can vary from one contract to the next. Because of this, it’s best to analyze your situation. You’ll want to look at the governing laws, your contract, and the supply problems you’re facing during your analysis. If a supplier has claimed force majeure and you are unable to supply your customers because of that, you’ll need to look at each contract individually so that you can properly assess risk allocation and build a strong strategy for risk management.
- Be cautious about what you say.
In some cases, governing laws or the terms of your contract may make it a requirement to provide immediate notice of force majeure events. If you fail to do this, you may lose the ability to declare force majeure. If a requirement like this exists, it could be necessary to declare force majeure prior to completing your assessment. If a supplier has declared force majeure, you should use caution when responding. Make sure your legal position is protected. If it is necessary for you to declare force majeure to your customers, you’ll want to stay away from language that could harm your position in any potential disputes with your supplier in the future.
- Try to overcome your supply issues if possible.
Governing laws and contracts may prevent force majeure declarations if it is possible for you to overcome the consequences of the event. In many cases, a defense like this cannot be used to avoid paying much higher goods to supply alternative products unless the governing law allows you to invoke hardship. If you have received a declaration of force majeure that you believe to be invalid, it is required that you take steps that reduce your damages. Make sure your attempts to overcome your supply problems are clearly documented, especially if they are not a success.
- Be cautious when allocating the supplies that you have.
If you are only able to supply some customers because of a reduced output, you’ll want to be careful about how you allocate the supplies that you do have available. You’ll want to consult the governing law as well as your contract to see if there are any guidelines or restrictions that you will need to comply with. If you supply certain customers and declare force majeure to other customers, it could create issues for you. If a supplier has declared force majeure, you should see how their remaining stock is being allocated.
- Be proactive when you are managing contract disputes.
COVID-19 has created a number of issues with the supply chain, and because of that, there will be a number of lawsuits determining who is responsible for the losses. If you’re proactive about managing contract disputes, it’s more likely that you’ll be successful when resolving them and that you will come to an efficient solution. Cooperate with customers and suppliers when you engage with them. Strive to be reasonable. This can help you to resolve disputes quickly and could even help you to avoid disputes entirely.
However, you should also make sure you’re taking steps to protect your position if a dispute does wind up escalating. You should look at the dispute resolution clause in your contract to determine whom your dispute will be decided by. Determine how the situation will be assessed by the adjudicator. An early case assessment can be crucial during this time. It can help you determine if a settlement is your best option or if you should litigate. It can also help to decide on the right settlement amount. An early assessment can boost your odds of success in these situations.
- Work to end force majeure.
It’s important to remember that force majeure is designed to be a temporary defense. After it’s possible to overcome and resume supplies, it needs to be lifted. While you’re waiting for it to be lifted, you may be required by your contract to issue updates on a regular basis. You should look at both the governing law and your contract to see if you are entitled to modify the terms of the contract or terminate it outright. Many contracts only provide an excuse for temporary non-performance.
