March 12, 2020

covid-19 force majeure coronavirus business disruption

As companies grapple with the business implications of COVID-19 (the personal implications are quite significant themselves), they are likely asking themselves a number of key questions.

From the standpoint of buy- or sell-side contracts, they may be asking themselves things such as:

– If I am obligated to provide products or services to someone and I am unable to because of the business disruption caused by COVID-19, what defenses do I have?

– If I am affected because someone else has an obligation to provide products or services to me, what defenses will they likely claim in the face of COVID-19 and how legitimate are these defenses?

In order to determine the likelihood of either of these scenarios, the first step for a company is to gain insights into elements of contracts that may reference (most likely indirectly) events such as COVID-19 and analyze these provisions with their legal advisors/law firms to understand the implications.

This article by the good folks at LexPredict outlines a process to leverage technology and people to identify elements of contracts that may be referenced in the event of business disruption. This process is a lot easier to execute if a company already has in place a high integrity repository of material contracts, fully organized and current.

Technology such as ContraxSuite can be trained to find provisions such as “force majeure” or “acts of God” that may be referenced by parties impacted by business disruption caused by COVID-19. Now, does this solve the problem? No. But it’s a good start.

Once these provisions are identified, your legal counsel or law firm can help you determine things such as:

– why exactly is there a supply disruption? nobody available to work due to quarantine? factory shutdowns – voluntary or government ordered?

– how does governing law impact the ability to invoke force majeure? was force majeure notification provided timely?

– do you need to amend your force majeure provisions to overtly cover pandemics such as COVID-19?

– can supply disruptions be overcome, albeit at a different cost basis? does that nullify a force majeure claim?

Bottom line. If you are concerned about your exposure in a situation where you are unable to supply your customers because of a break in your supply chain or you are concerned about your vendors ability to supply you, start by understanding the scope of the problem and the possible claims that may arise.

Then sit down and get legal counsel involved ASAP and engage a law company such as Elevate to help you analyze your contracts and if necessary remediate them using guidance from your legal counsel. Short strokes- start now – understanding the magnitude of the challenge early will ease a lot of potential drama down the line.