Supply chain issues – managing and reviewing existing supply contracts

Shortages of workers, global shortages of materials and transport delays appear to be at the heart of the supply chain issues affecting so many businesses. From chicken restaurants running out of chicken to shortages of raw materials affecting manufacturing businesses, a variety of sectors have been impacted in one way or another.

Now, more than ever, it is of vital importance that you review your contracts so you are fully aware of your own individual obligations under them, both as a business owner/manager and as either a supplier or a customer yourself.

By being primed with this information you are better prepared when having those difficult conversations with your own suppliers or customers should there be a possible delay in delivery or a shortage of goods. In each case, a supplier will want to know where the liability lies and the customer will be keen to understand their own contractual position. The answer, in most instances, will be within the contract itself.

Delivery

Check your terms to see what they say about delivery dates. If delivery or performance dates are estimates only, a supplier will have the flexibility to negotiate alternative delivery dates which they may have greater capacity/flexibility to fulfil.

Binding orders

Check to see if any orders being placed are binding. One of the typical issues in a supply agreement is the extent to which the supplier is obliged to meet the customer’s orders, particularly in a long-term arrangement. Check to see if the supplier is free to accept or decline an order, which would of course provide them with the time and freedom to accept orders which they know they can fulfil.

Force majeure

Most English law contracts will often define what constitutes a force majeure event by reference to events “beyond a party’s reasonable control”. This is usually by way of a non-exhaustive list of the type of events covered. Check to see if the force majeure clause helps the supplier to argue that their obligations should be deferred or extinguished due to events beyond their reasonable control.

Pragmatism

As we have pointed out, being primed with this information is, of course, important. However, while you may be surprised to hear us say this, communication via the legal channels may not, at first, be the most pragmatic approach. The key in any supply chain issue is managing the issue, including the management of individual relationships within that supply chain.

Having commercial conversations which encourage a sensible dialogue may be better for both parties in the long run before turning to formal legal responses. Be honest about possible delays in deliveries or shortages of goods as this will in turn enable the customer to better manage their own resource. They will also be able to  adopt realistic contingency plans leaving the supplier  to sort out any supply chain issues that may arise.