The year 2020 will not soon be forgotten. Despite the devastation of the COVID-19 pandemic, it has also provided a catalyst for substantial innovation and positive disruption to business models and commercial practices. During this time of business adaptation to respond to the unique challenges of pandemic-induced measures such as physical distancing and remote working, businesses can also focus on implementing better contract negotiation practices and adapting their contracts to address ongoing uncertainty.
The following are five considerations for negotiating, drafting and executing contracts in uncertain times:
1. Pause and Re-evaluate.
With most businesses having to make at least some changes to their operations this year, it would also be worthwhile to review your practices for executing contracts and reconsider the terms of such contracts (whether the contracts are standard form or negotiated on a case-by-case basis). The terms of your contracts should accurately reflect the intended business arrangement while also responding to the realities of today’s complex business environment. COVID-19 has provided a sobering reminder that unfortunate and unexpected things do happen sometimes. A little extra time spent in the contract drafting stage can alleviate some of the difficulty in responding to problems when they do arise during contractual performance.
2. Importance of a Force Majeure Clause.
By now you have likely heard plenty about the importance of including a force majeure clause in your contracts and the difficulty of relying on the common law doctrine of frustration (where a contract does not include a force majeure clause). While these clauses can provide relief from contractual performance and liability where unforeseeable events prevent a party from performing its obligations under the contract, they are unlikely to provide any relief for contracts executed during the pandemic (as contracting parties will already be aware that pandemic-related problems or restrictions could prevent contractual performance). Nevertheless, where a contract will be performed over a period of time or at some point in the future, it is essential to include a well-drafted force majeure clause.
3. Negotiate Clauses Specific to COVID-19.
The prospect of a second wave of COVID-19 and related government-imposed restrictions may have businesses concerned about their ability (or the ability of another party to a contract) to perform contractual obligations on time and to the same standards of performance. To avoid disputes arising down the road, parties can take the opportunity to negotiate the inclusion of specific terms in contracts to address how delays or other problems will be handled and how liability will be allocated between the parties. For example, a contract could specify the circumstances under which delays will be permitted and for how long – possibly giving rise to a right to terminate if delays exceed such length. Alternatively, the contract could include a mechanism for the parties to amend contractual terms if COVID-19 related challenges make the obligations difficult or impossible to perform. The parties can be as creative as necessary to account up front for the issues that might arise during the life of the contract.
4. Health and Safety Obligations.
If a service provider interacts with your employees or customers, you may be concerned about the risks (in terms of health, liability or public image) of the service provider not adopting health and safety practices which are responsive to COVID-19. In a contract governing such a relationship, consider including a positive obligation to perform services in compliance with any laws in force due to COVID-19 and to adhere to best practices for maintaining physical distancing.
5. Key Personnel Commitments.
In certain industries, it may be common for a contract for services to specify the employee(s) who will perform the services on a company’s behalf (for example, IT or engineering services). With workplace protocols being adopted to address the risks of COVID-19 (such as requiring employees exhibiting symptoms to stay home for 14 days or until they receive a negative COVID-19 test result), service providers may wish to incorporate sufficient flexibility to allow the replacement of an employee who is unavailable due to these protocols. A purchaser of services, on the other hand, may want to ensure that the service provider has enough resources to accommodate these replacement situations while avoiding delays in performance and degradation of service quality. The contract might designate a clear and timely process for another employee to step into the place of the unavailable employee and perhaps even allocate liability to the service provider for any delays resulting from the failure to effectively make such replacement.
Stay tuned for part two of this article, which will discuss five more contractual considerations for pandemic-era contracts. If you have any questions concerning settling business contracts during these uncertain times, please contact a member of our Business Law Group for more information.