Articles.

COVID-19 Supply chain disruptions

The global COVID-19 challenges have highlighted the importance of a supply chain that can adapt to deal with uncertainty, complexity and fast and dynamic changes. 

So, what do businesses need to consider when positioning their supply chains for long-term resilience?

Contract re-negotiation is always difficult, as it requires companies to account for a wide range of contingencies and develop terms that both parties accept. And, in times of a crisis – forecasting is more difficult, logistics are thrown in disarray and performance is harder to track.

While some companies are able to renegotiate contracts or reach an agreement on deferring performance and/or payment, some may have been unable to resolve their issues amicably. 

This can lead to disputes revolving around questions of force majeure/frustration and material adverse change (MAC) provisions (give the buyer the right to terminate the agreement before completion), or similar legal doctrines that may excuse performance.

Without careful handling, contractual renegotiations can end up in costly formal proceedings. So what are the stages of contract re-negotiation, how should you manage the process and what constraints might you face?

Changing long-term contracts: from informal renegotiation to litigation

01: Commercial staff, for example, the procurement, warehousing or shipping department ‘informally’ renegotiate supply schedules, volumes, etc with their counterparts. The supply issues may be resolved amicably without the need for escalation.

02: Department managers and the legal team may formally renegotiate with the counterparty. Requires full examination of the contractual wording to determine who owes what to whom. If you find that your long-term contract re-negotiations are not going to plan, a member of the Clearpoint Legal team is on hand to help.

03: A last resort for when negotiations fail or a party refuses to renegotiate. Some courts/tribunals only look at the words on the page; others may try to uncover how/why the contract was first agreed upon. If you find that your long-term contract re-negotiations are not going to plan, a member of the Clearpoint Legal team is on hand to help.

Renegotiation checklist

  • Make sure relevant staff are made aware (via training) when and how a contract-renegotiation process might arise – they need to avoid casual remarks that could be interpreted as making concessions to your counterparty.
  • Document as much as possible – what was recorded during the opening skirmishes can really help during the formal renegotiation process (and any litigation/arbitration). It may be that the counterparty had agreed to waive one of their rights or made a concession that can bolster your case.
  • Check your choice-of-law provisions – the contract may state that the law of a particular jurisdiction applies. However, with multiple contracts, the jurisdiction may differ, offering you a choice you can use to your advantage.
  • Be aware of differences in legal concepts, principles and norms across jurisdictions­ – what may be taken as a given in one jurisdiction, may not be acceptable in others.
  • Be aware of cultural differences – certain negotiating tactics may not be effective with counterparties based in other parts of the world.

Still not clear on your contract re-negotiation rights?

Clearpoint Legal provides commercial legal advice to Australian businesses. For a 15-minute discovery call click here.