Be Prepared

There’s hardly any business that won’t be affected by the ripple effect of the coronavirus pandemic. Employees may be required to work from home if they’ve been in contact with others who have been in contact with someone who may be a carrier. Are you set up for telecommuting?

Suppliers may not be able to fulfill orders because parts they need come from Italy or China or elsewhere, and they can’t get the parts. That causes you to be unable to fulfill your contractual obligations to your customers. 

If your business anticipates being unable to meet contractual requirements due to some ramification of the coronavirus, it behooves you to review your contracts and be ready to take appropriate action. Most contracts contain a Force Majeure clause, also known as the “Acts of God” clause. It’s usually near the end of the contract, in the “boilerplate” provisions, but not always. The provision excuses delayed performance if the delay is caused by events beyond your control, such as acts of war, tornadoes and the like. It’s important to review this clause so you can take appropriate action in the event of a delay, to avoid being held in breach of contract when you fail to perform in accordance with your contract delivery schedule. The clause will identify what events enable you to be excused from performance, and should specify what you need to do if you are delayed because of such an event. 

Most likely, you will need to promptly notify your customer of the delay, as well as the cause of the delay and the anticipated length of the delay. You’ll need to review the Notices provision to provide notice in accordance with that clause. It will specify who notice is to be given to, how it is to be given (some notice provisions allow notice by email but others do not), when it is to be given (for instance, it may need to be given immediately, or within 3 days from the occurrence of the event causing the delay) and the address you need to send the notice to. Arguably, if you can prove that your client received notice even if you didn’t follow the contract notice procedure, you’ll have a defense; but it’s better to follow the procedure and to provide notice to whoever you normally communicate with.

The Force Majeure clause may also require you to take reasonable actions to work around the delay, to minimize the delay as much as possible. Even if it doesn’t require this, you should seek alternative sources, and keep your customer informed about what you are doing to minimize the delay. Your customer will appreciate it, which can help you maintain the relationship for when things improve. 

Some Force Majeure provisions allow the customer to cancel the contract if the delay extends beyond a certain period, such as 30 days. If your customer sees that you are making efforts to minimize the delay, the customer is less likely to terminate the contract.

May you and your business stay safe during this troubled time.