Covid-19 Contract Management

Contract Management
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A common experience of lawyers with years’ coal-face experience is the limitations of “word-smithing” solutions to risks in commercial contracts.

There is always the place of the “get out of jail free card”; to protect a business with iron-clad textual solutions. However, with experience comes an appreciation of the wider context and other important tools in a company’s risk mitigation box.

In the immortal words of T.S. Eliot in The Four Quartets:

“Words strain,

Crack and sometimes break, under the burden,

Under the tension, slip, slide, perish,

Decay with imprecision, will not stay in place,

Will not stay still.”

 

Retrofitting standard Force Majeure clauses to fit with the emerging COVID -19 crisis is a good example of this limitation. Even if such clauses include express reference to pandemic or epidemic or by vaguer reference to events beyond parties’ reasonable control, their range of practical tools (namely efforts to mitigation and termination by one or either party after a defined period of time) belies what is needed in term of effective operational risk management and risk mitigation.

There are just too many possible implications and permutations. If both parties are committed to a successful project, suppliers and buyers need to be flexible but how this plays out must be managed by effective change control and contract governance.

My first example of force majeure being activated was by a local authority. It involved an IT implementation project. The client was unable to attend technical workshops and supply resource for acceptance sign-off. The solution was to adjust the implementation plan into the following year. This cost the provider so, being unable to on-charge, the contract variation put this down to goodwill.

More complicated scenarios require moves and changes at a granular level, potentially too many to formally record in a contract variation each time, but overall impacting the balance of supplier profitability and client delivery controls.

The solution is an effective contract management system with effective tools to capture each nuance, log impact and responsibilities, which can then be formalised cumulatively into change notes if necessary. A key component is a goodwill register where the proven cost of flexibility can be recorded for future bid scenarios.

Overall, a dashboard permits executive overview and a traffic light risk register to monitor changes in wind direction and course as the project comes safely into port.

The devil is in the reliance on blunt contractual positions; the beauty is in the detail.