What steps should I take to manage my supply chain in the light of the COVID19 outbreak?

An exceptional event like the COVID-19 outbreak will place stresses on those supply chains in many different ways, including:

• Financial stress on supply chain members;
• Labour shortage caused by staff absence, and therefore the possibility of delay;
• Restrictions on the movement of staff and goods.

As it stands following the Prime Minister’s announcement of 23 March, Government advice is that people should work from home if at all possible, and whilst the likes of pubs, cafes, and cinemas have to close their doors, it is apparent that construction sites and manufacturing plants do not have to be closed.

Many businesses will therefore have to consider how to manage their on-going operations in these highly unusual circumstances.  This means they have to look at their arrangements with customers and suppliers, and to manage the relationship between the two.

What should I consider regarding to my existing customer relationships?

• What are the delivery dates or milestone dates in key customer contracts?

These should be carefully reviewed to understand your business’ ability to comply with its contractual obligations.

• If it will not be possible to perform in accordance with these deadlines, will the customer agree a variation?

Many supply chains will work collaboratively in the current crisis, rather than falling back on strict legal remedies. If changes to contracts are agreed, ensure the amendments are properly documented.

• If an agreement cannot be reached about changes to contracts, is it possible to claim “force majeure” to excuse late performance?

You are likely to need legal advice in order to decide whether “force majeure” can provide relief from liability for late performance in a customer contract.  Much will depend on the wording of the contract in question.

• What would be the consequences of late performance?
• Points to consider include: Are there liquidated damages provisions? Could the contract be terminated – and what might be the potential consequences of termination?

As regards supplier relationships, consider the following points:

• Are there any indications that suppliers will not be able to supply you in line with agreed delivery dates?

Have delivery dates not been met?  Keep lines of communication open so that you are not taken by surprise.  Consider the impact of supplier default on customer contracts.

• Have any suppliers claimed “force majeure”, or any other form of relief?

Take legal advice as to whether “force majeure” has actually arisen, and whether the correct notification procedures have been followed.

• Are you aware that any supplier is in particular financial distress?

Consider what the consequences would be of the supplier failing, and what steps can be taken to mitigate this?  Are there alternative sources of supply, and how long would it take to put them in place?

Businesses should consider both the legal and commercial aspects of supply chain management in the context of the coronavirus outbreak.  The Government is making regular announcements that have a profound impact on the ability of businesses to function, so the position has to be kept under constant review.

For further information, please contact one of our specialist commercial lawyers.