Posted In: Business Transactions & Corporate Counseling
By Marc B. Merklin & Elizabeth Schultz-Horbus on July 30, 2021
The impact of Covid-19 on supply chains and the labor workforce has been causing disruptions in the way companies do business all over the county. Almost every industry has been touched in some manner by these interruptions, but manufacturing clients seem to have recently been hit hardest. If your company is dealing with supply chain and labor problems, here are some key things to consider:
- Understand the terms of your contract: Pull out the agreement you signed a few years ago to determine your legal standing. Do you have a full-blown supply agreement in place, or are you working on a purchase order-to-purchase order basis? Are you operating under your terms and conditions? Did you inadvertently agree to the other party’s onerous terms and conditions? Did you perform under a blanket purchase order that may cover production for a year or the life of a program?
- Look for force majeure: Does your agreement include a force majeure provision? If so, does it include your particular situation? Are increased raw material costs or labor shortages a trigger for a force majeure? Do you need to send out a formal force majeure notice? If your document does not address force majeure, do your circumstances allow you to make a common law argument for frustration of purpose, impossibility, or impracticability?
- Evaluate your legal position: Does your agreement allow for changes to pricing or surcharges based on certain factors or the use of a price index? Which choice of law governs your contract? Do you have legal remedies you can avail yourself of to get out of a contract that is causing you to lose money by performing? How do you determine the proper way to allocate the products you are able to produce among all of your customers? Can your customers hold you responsible for late deliveries resulting from shortages or labor issues?
- Consider your insurance policies: Do you have business interruption insurance in place under which you could pursue a claim for coverage?
- Consider adjustments to your form contracts and agreements: Have you adjusted your form contracts and agreements post-Covid to address the changed landscape of doing business? Decide whether your templates would benefit from revisions to address adjustments to raw material pricing, termination, force majeure, damages, and other such provisions.
If you are experiencing any supply chain or labor-related issues, or would like help answering the questions asked above, our team at Brouse McDowell can help. Whether you want to discuss a current problem with a customer or vendor or want to work on revising your current contracts to address doing business in a post-Covid world, please reach out to one of us today.
This blog is intended to provide information generally and to identify general legal requirements. It is not intended as a form of, or as a substitute for legal advice. Such advice should always come from in-house or retained counsel. Moreover, if this Blog in any way seems to contradict advice of counsel, counsel's opinion should control over anything written herein. No attorney client relationship is created or implied by this Blog. © 2022 Brouse McDowell. All rights reserved.