Impact of COVID-19 on contractual obligations | Smart Contract Analytics

Every business around the world irrespective of location, size, and nature of business has been deeply impacted by the unprecedented situation we are in with Covid-19. This has greatly challenged businesses with supply chain, business continuity, and performing the contractual obligations

With uncertainty prevailing all over, it is time for all businesses to relook into their contracts to understand what are their obligations across their contracts and the amount of risk they can be entitled to if they fail to perform as per the agreed provisions.

Typically all contracts have some sort of language that allows businesses to seek relief from performing the obligations or postpone or modify and it solely depends on the exact language used in the contract and what is covered. Some contracts use the term Force Majeure which actually means an event that can neither be anticipated nor controlled and in most cases, the force majeure clause covers events like natural disasters including Earthquakes, Hurricanes along with strikes, Government orders, etc. There can be some contracts that also include Covid-19 situations like epidemics or pandemics. It is not necessary that the clause has to be named as Force Majeure and there are several similar terms across contracts like “Acts of God”, “events beyond control”, quarantine or a catch-all clause addressing an event that prevents performance.

Here are some of the steps you should be following to understand your contractual obligations and associated risks

Review the Force Majeure clause across your contracts

The very first step you should do is to review all your active business contracts that include your customer contracts and vendor contracts. See which of these contracts have force majeure included. The exact language used within the force majeure clause will decide whether nonperformance of contract obligation can be excused or modified. Some contracts have detailed events included in the force majeure clause and some are very restricted.

Look for notice, duration, and other provisions within the Force Majeure clause

Force Majeure clause differs across contracts and it is important to understand what it can trigger within a contract when an event like Covid-19 occurs. Some contracts have a mention of notice, duration, and mitigation requirements that need to adhere to excuse nonperformance. Depending on what is included in force majeure it is possible for complete termination of the contract or temporary relief from performance or relief from agreed deadlines etc.

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