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covid-19 – can’t perform your commercial contract?

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In these uncertain times, businesses are juggling a range of risks.  And being able to perform their commercial contracts is one of them.  What if you need to be onsite at a commercial premise to perform?  What if your key staff are ill?  And there are many more what ifs.

(This is one of a series of blogs we’ve written on covid-19. See the other blogs here.)

It may give you comfort to know that you are not alone.  We’ve been fielding calls from several businesses who are worried they are breaching a commercial contract, including major supply contracts on which their business relies.

Here’s a few things to think about if you have these concerns.

if you think you can’t perform your contract because of covid-19, be proactive

Talk to your customer as early as possible.  Explain your position.  Try and offer workarounds or tell them what you can do (even if you can’t meet your contractual obligations).  The earlier you advise your customer of potential issues, the more likely it is that you’ll have a sympathetic ear.

read your contract – most contracts include a clause relating to force majeure

 This clause usually says that a party is not liable for a breach of contract if that breach is caused by an event outside the party’s reasonable control.  Common examples of this type of event are floods, fires, earthquakes, and pandemics (hint hint).  This clause may well protect you from liability if you can’t perform your contract due to covid-19.  But, there are usually some limits (read your own clause to check whether these apply):

  • normally you need to notify the other side immediately or promptly that you want to rely on that clause – as we said earlier, proactivity is key
    • often, you can only rely on the clause if you’ve tried to perform the contract as far as practicable and have used best efforts to mitigate the impact of the event, e.g. implementing BCP plans
    • if you rely on this clause, you are unlikely to get paid for the period of the force majeure – while you have no liability for breach of contract, the other party isn’t receiving what it agreed to pay for
    • often, the other party can terminate the contract if you have relied on the force majeure clause beyond a certain time period

If no force majeure, find an interim solution, like a payment plan.

If you cannot make a contracted payment, the force majeure clause is unlikely to protect you – usually these clauses do not cover an inability to pay money.  But check your contract to see if this is the case.  Where you can’t make a payment, we suggest you contact the other party with an interim solution, e.g. a payment plan.  Given the risks facing most businesses, the other party is likely to prefer getting some money over no money.

Each commercial contract is different, so you should read your contract to see if there are any protections in there for you.  Also, it’s likely the other party is facing similar risks, so will be open-minded to you raising issues where you have a plan of attack that minimises the impact of your inability to perform.

If you’re reading through your contracts and other questions crop up, don’t be afraid to get in touch. Apart from working remotely, it is business as usual for us.  We operate in the cloud and are ready and able to support you through this time.

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