Tips to Reduce the Impact of Coronavirus Pandemic on Contracts

The COVID-19 outbreak has caused a state of uncertainty to all the businesses around the world. This new strain of the Coronavirus has caused a tsunami wave of infections across the globe sparing none. While all sectors of business are grappling to survive in this new COVID-19 pandemic era, few industries shut down entirely, namely the travel and hospitality sector. Few businesses reinvented themselves to stay relevant in the quarantine age such as the entertainment business where they have used the best of today’s technology to keep their home-locked viewers entertained and occupied. Many industries went above and beyond their usual business to serve and to stay relevant during the pandemic. The fashion houses took upon tailoring the Personal Protective Equipment, Masks and Disposable garbs that would help the front line workers, Logistics that safely deliver goods to the customers and the food and medicine industry that has been open to avoid any shortages. One common problem that all businesses faced during this period of improvisation is that they had to redraft their contracts after negotiations and make amendments to the original contract to accommodate the current situation.

The sudden disruption in the contract’s course due to the COVID-19 crisis brings us to the two concepts which are rarely or minimally discussed while drafting the contract.

Force Majeure

Commercial contracts generally include a Force Majeure clause which excuses the non-compliance of terms and conditions as stated in the contract by either or both the parties due to unforeseeable occurrence such as natural disasters or in the present sense a pandemic. The terms stated under the Force Majeure clause are usually not defined as they are considered only in the event of a disruption.

Contract Frustration

Contract frustration is a legal concept that is not written in the contract. A contract is said to be frustrated when the terms which were drafted during the contract initiation becomes impossible to comply with due to unforeseen circumstances such as the COVID-19 pandemic.

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Tips to Mitigate the Impact of Pandemic Lock-down on Contracts:

1. Timely Review

   For a business to succeed and to overcome hurdles it is crucial for the leader to predict the possible course that a business would have to take in case of a crisis. With COVID-19 outbreak spreading steadily throughout all nations, the business should review all it’s contracts that it had created or entered into in the pre-pandemic period and analyse the best course and action to be taken to minimise the impact.

   The terms and conditions the business scribed in the contractual agreement with its partners, vendors, customers and employees should be duly verified and necessary amendments and additions are to be made accordingly.

2. Explore & Select Vendors

   The next stage is very important to sourcing potential suppliers and determining their ability to provide best value and high quality for the goods and services, getting them at the right price. This process to evaluate relevant suppliers involves issuing RFQs, RFIs, and RFPs.

   This best practice is called strategic sourcing. During this stage, procurement professionals should short list the different vendors that provide the goods and services they require. Evaluation metrics such as cost, quality, reputation, speed of service, warranty, guarantee provisions, and customer service would be assessed and only the supplier who offers the best value will be selected based on the factors.

   Unfortunately, all businesses will bear the brunt of the pandemic and its aftermath for quite some time. Therefore it is prudent to negotiate the terms of services with its partners to reduce the business risk during the lockdown season.

   Contract Management software helps in easy review of documents, monitoring of contracts, making provisional changes and getting it reviewed by the managing and legal team efficiently.

3. Follow the protocol in case of Force Majeure

   In the case that the business has already a semi-defined clause for Force Majeure, negotiate and decide upon the actual terms and regulations and adopt it with immediate effect. Not following the established protocol might lead the business into even more damages, especially during the pandemic.

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4. Documentation

   Mass negotiations and renegotiation in the contract terms are being noted all around the world across businesses of every vertical. It is essential to document such alterations made to the contract. The contract management software comes in handy when it comes to documenting changes made to the original contract. This would enable the business to get an insight into how the contract performed when the amendments were made. Further, it would give an understanding of what circumstances that the provisions were included which would aid the business in deciding how to deal with it in the post-pandemic period. Without contract management software, it would be difficult for the business to track all the alterations made.

   Managing contracts effectively during the COVID-19 crisis will help the business to regain its footing when the situation returns to normalcy. The business can easily monitor the performance of the contract and detect and resolve issues early in the event of future calamity.

   DocuCollab is one of the best providers of cloud-based Contract Management Software services in the industry. Create, execute and manage contracts during the pandemic crisis through the software efficiently to mitigate risks drastically.

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