The impact of COVID-19 may mean that a party is prevented or delayed from performing or complying with its contractual obligations. It may also mean that compliance with its contractual obligations will become more expensive.
Businesses should analyse their supply chains and contracts to spot vulnerabilities and whether their suppliers, or they themselves, can comply with their contractual obligations and whether they can (or should):
- suspend performance of contractual obligations;
- terminate the contract entirely;
- seek to vary the terms of the contract, including price.
Each contract and the potential course of action should be evaluated on a case-by-case base, taking into account the potential operational, financial and reputational impacts on the business. As noted in Section 7 (Insolvency) below, specialist legal advice should be sought before precipitously relying on a Force Majeure or termination for default clause, or for any alleged contractual frustration in reliance on COVID-19 related default or delay.
If you are currently negotiating a contract, consider whether the terms of the contract should expressly deal with COVID-19 and its consequences.