Response strategies and best practices for dealing with contract disruption
The World Health Organisation declared COVID-19 as a pandemic on 11 March 2020. One month later, organisations are implementing response strategies and new processes to support their teams and customers dealing with the fallout and extreme levels of contract disruption.
At iManage RAVN we have been talking to our customers and share the following practical steps that can be deployed quickly to mitigate risk and ease the increasing pressure on teams managing the impact of coronavirus.
1. Implement a process to document all evidence of force majeure
Organisations can implement a process to document all evidence of force majeure and the corresponding business impact. This may need to be relied on at a later date to support a claim for relief under a contract or in respect of an insurance claim. Ideally, this process should take seconds and utilise a central repository such as a defined location in your document management system (DMS). If you do not have a DMS, consider setting up a file and sharing a link. The aim is to preserve the evidence so the process must be quick and easy to follow.
2. Implement a process for documenting agreed changes to contracts
As businesses move away from the knee-jerk reaction of searching for force majeure provisions, we are seeing a huge increase in contract variations. This is driven by all parties seeking pragmatic and mutually agreeable solutions in an environment where everyone is suffering. Nearly all these changes are being agreed at lightning speed by individuals on the contract frontline (commercial, vendor, relationship, and supplier managers). Legal teams are not being engaged and formal contract change processes are not being followed. This presents an obvious contract risk but, in the current situation, is unavoidable. It is therefore advisable to implement a temporary process to mitigate risk.
As with documenting force majeure evidence, the process should be streamlined as much as possible with central repositories created for documents. Frontline teams should be given a playbook to follow, including template emails. Consider reserving and not waiving rights, stating the change will be reviewed and ratified at a later date and clarifying that any critical contractual rights and obligations will remain unamended (by explicitly stating so).
We are seeing customers implement lots of changes relating to service levels and milestone dates, and the associated service credits and delay payments. If you are experiencing the same in your business, we advise that you create playbooks and template emails specifically for this scenario (and perhaps for both supplier and customer contracts).
Above all else, set out the changes in writing (email) and save them in a location where they can be found later (even if the person agreeing to the change no longer works for the organisation).
3. Deploy response teams
Consider deploying a response team to create and implement new business processes. The team should include representatives from all relevant business teams. It is no good if the legal team comes up with a process for a contract change that doesn’t work for the vendor managers. Collaboration is key both in terms of establishing an effective and efficient process and in order to achieve buy in and compliance.
Also consider deploying response teams for business functions that are more severely affected. For example, if you are experiencing significant supply chain disruption, a response team dedicated to dealing with this may be the most efficient way to ensure the above processes are followed, knowledge is shared, and adjustments are made as the situation develops.
Using response teams is also an effective way to ensure business-as-usual activities are not completely forgotten and lost in the pressure of dealing with the pandemic.
4. Engage openly and frequently with customers and suppliers
It is encouraging to learn about the innovative ways in which organisations are working together to find pragmatic solutions to problems rather than jumping to avoid exposure by relying on force majeure or an insurance policy. This is underpinned by mutual trust and the want to do the right thing. Support this by engaging openly and frequently with both suppliers and customers.
5. Update precedents and templates
Update precedents and templates to ensure that new contracts entered into include the positions you wish you had in your contracts today. This will be more than just tweaking the force majeure clause to call out epidemic and pandemic. You should also look to update change in law, financial distress, business continuity plans and policies, payment terms, pricing indexes (such as CPI), change and variation, committed purchase terms, term and termination rights, exit management, step-in and insurance provisions.
The extent of this task will largely depend on the size of your precedent and template estate, how well rationalised this estate is (i.e. whether standard provisions apply across all templates) and when the last review was completed. We recommend you agree to those provisions most important and target those first.
6. Stop. Take a moment. Breathe.
Life is not normal right now. You are operating in a high stress environment. You are undertaking difficult and new tasks and making tough decisions whilst distanced from colleagues and dealing with everything else going on at home. Remember to rest.
Coming next… 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 are reporting moderate to severe impact on contract performance. It is not surprising that the processes and technologies being deployed to help understand, manage and mitigate such disruption are being looked at. According to the IACCM data, 81% of organisations plan to implement or replace contract management automation technology in response to the pandemic. How can this technology help and exactly which clauses are of interest? In our next blog we will provide a list of the top clauses being extracted and why this contract intelligence is important to answering business-critical decisions. Spoiler alert… it is much more than force majeure!
If you’re interested in learning more about how iManage RAVN can help your organisation applying best practices to deal with contract disruption, check out more about it here.