It is vital to have a clear understanding of contractual rights and obligations when addressing the business impact of the COVID-19 crisis. In meeting this challenge, some of the key questions business leaders will want to ask are:
Whether engaging external help or undertaking the process in-house, the checklist below can help organizations prioritize their contractual relationships and identify practical steps to manage material contracts through this current crisis.
The first step is finding and collecting all material contracts. If the contracts are not organized and retrievable, those responsible for contract review should contact project managers, business leaders, vendor managers and others to locate contracts and related documents (purchase orders, statements of work, addenda, etc.). This might mean reaching out to the counterparty for a copy of the executed agreement.
Tip: To determine whether to devote additional resources to review and discussion, start sorting documents based on counterparty, type of agreement and contract value early in the process.
Some contracts can be identified as material based on dollar value alone, but that is not the end of the analysis. Other relevant considerations include:
When assigning priority, remember that the goal is not perfection: settle quickly on simple criteria that will offer the clearest and quickest picture of materiality, and try to apply them consistently.
Tip: Once a materiality assessment has been created, keep material contracts organized—store them in one place, each contract associated with its related documents, notices, notes, and correspondence. Consider identifying a single overall project owner tasked with coordinating management of these contracts through the crisis and providing documentation and updates to relevant stakeholders.
The vast majority of COVID-19-related non-performance issues are going to be dealt with through a business discussion and not a legal proceeding. The contractual framework will dictate the parties’ relative leverage in those discussions, as well as their overall approach to mitigating their risks.
Beginning with the most material contracts, conduct a legal review of contractual terms to understand both parties’ legal rights. This will inform the process of assessing leverage and formulating the strategy for any business discussions.
Some contract provisions will be clearly relevant to understanding your organization’s rights and remedies:
There may be other clauses that are relevant as well, which may include:
Also, be aware of other relevant legal rights and how they may apply:
Tip: There are many contract management and document review technology solutions, but if you do not already have one, now may not be an opportune time to try to implement one. As a provisional step, Excel spreadsheets can be helpful to sort and store information. Once the immediate threat has passed, consider longer-term solutions.
Once material contracts posing a significant risk to the organization have been identified, it’s time to make a plan and execute. While every business and third-party relationship is unique, here are some ideas to consider:
Tip: This is a crisis environment where government intervention and new developments have the potential to change the situation quickly: organizations should be prepared to make adjustments to strategy as needed.
If you have limited capacity to take on contract management in these times, we can help you do this through our Halifax Legal Services Centre, which offers a low cost option to extend the reach of your people and undertake large scale contract review and triage.
1 R.S.O. 1990, c. F.34
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