Key Clauses to Consider When Responding to COVID-19 Contract Disruption
In the current situation, there are many impactful data points organisations will need to understand from their contracts. These points will change as we move away from thinking about the urgent and concentrate more on the important. A considered response is going to require an understanding of various positions in a contract. Furthermore, as the landscape within which we operate continues to shift, organisations will need tools at their fingertips to interrogate contract portfolios to provide contract intelligence to support business decision-making.
No one size fits all approach
Knowing whether a force majeure clause is present in a contract is unlikely to have any real value on its own. Even establishing whether that force majeure clause includes (or may be interpreted to include) the current pandemic has little use. When considering force majeure, more informative questions may include “can the contract be terminated for force majeure?” or “does notice have to be served to rely on force majeure relief?”. For these types of questions to be answered related provisions (such as termination rights, consequences of termination, notice requirements) must also be evaluated. This then leads to a consideration of suspension, step-in, exit management, intellectual property clauses, and so on.
Furthermore, it is very possible that, despite the initial flurry of interest, force majeure mechanisms may not actually be that much help. When discussing this with senior in-house counsel at a UK organisation, she flagged that termination of the contract (in most cases) does not really help anyone and termination in part (to enable continuing supply of unaffected services) opens a can of worms when relying on force majeure for such termination.
The more contract professionals I speak to (in-house counsel, contract managers, vendor managers and relationship managers) the more solutions I discover. I think it is fantastic how businesses are coming together to find mutually acceptable approaches to contract disruption. There is no one size fits all approach when reviewing contracts to manage the fallout and make decisions to respond to COVID-19. However, we can identify questions that are likely to be asked of contracts and the clauses and data points that are going to provide the contract intelligence you need to answer those questions. An example of how this may be applied to buy side and sell side commercial contracts is set out in the downloadable table here.
How can technology identify and extract contract intelligence and how does this create insights that support decision making?
The International Association for Contract and Commercial Management (IACCM) represents over 65,000 members globally. In a recent survey conducted by the IACCM, 78% of organisations reported moderate to severe impact on contract performance. It is, therefore, not surprising that the processes and technologies being deployed to help understand, manage, and mitigate such disruption are being evaluated. According to the IACCM data, 81% of organisations plan to implement or replace contract management automation technology in response to the pandemic.
The IACCM identifies clause analysis and portfolio analysis as two shortfalls in current systems that have been highlighted in recent weeks. Clause analysis refers to reviewing a contract for a particular clause or data point (such as a date) – this can be completed on one or many contracts. Portfolio analysis refers to taking all the data points collected across each contract to give an aggregate view of that contract portfolio. Portfolio analysis can be used to assess risk in a particular customer segment, supply chain or market.
At iManage, lawyers and legal specialists are collaborating with software developers and data scientists to come up with solutions to help our customers complete contract analysis and portfolio analysis tasks triggered by COVID-19. Our aim is to develop a range of out the box and customisable solutions to answer not just questions of force majeure but, give you a holistic view of the legal and commercial risk across many aspects of a contractual relationship. To do this we utilise the RAVN toolbox of technologies (including search, rules, and machine learning). Giving you the power at your fingertips to create the parameters for the contract intelligence you need to support stakeholders and critical business decision-making.
Here are some examples of contract intelligence considerations and the associated key clauses that may be considered for extraction. Download the list.