COVID-19 has had a major impact on contractual obligations all across the globe. With nation-wide lockdowns being imposed in countries across the globe, the world had faced major economic crisis. Parties have been unable to fulfil their Contractual obligations and the pandemic has proven as a true test of the effectiveness of contracts. Sub-standard contracts have rendered a lot of parties remediless and have caused not just financial but reputational loss to businesses.
Contracts are the heart and soul of any business arrangement.
They define and categorically lay down the terms and conditions governing the obligations of the parties to the Contract. Herein below is the impact that COVID-19 has had on Contracts while identifying the existing ambiguities in contracts and their possible solutions.
CONTRACT MANAGEMENT IN THE POST COVID-19 ERA
Post lifting of lockdown, we have adapted to a new normal i.e. post-COVID19 world. The post-COVID19 era necessitates the implementation of certain Pandemic Legal Intelligence strategies by the businesses. This includes implementation of certain new risk analysis and identification and impact assessment measures in commercial contracts.
Certain steps that should be taken by the businesses and industries in the post-COVID19 era includes:
- Contract Management Policy
Periodic and thorough implementation of policies that incorporate contract vetting and risk assessment of legal obligations is the demand of the time. The reason being that the business has seen a paradigm shift in working for quite some time and globally also the trends are changing post Pandemic.
This will improve the quality of contracts and ensure that a steady and contemporary safeguard mechanism exists in contracts. This will also ensure that contemporary risk management and damage control strategies can be implemented in time to anticipate contractual shortcomings.
- Incorporation of an ‘inclusive’ force majeure clause
Businesses must refrain from incorporation of a loosely drafted force majeure clause . Having an inclusive force majeure clause that specifies a certain force majeure events, in addition to other unspecified event, leave a scope for protection against unanticipated events in the future.
The Pandemic is a classic example of a force majeure event that could not have been anticipated by anyone, by any stretch of imagination towards lockdown. Inclusive force majeure clauses which has expressed and categorical expressions have served as a blessing in disguise for the concerned parties.
- Fair and practical exit mechanisms
Another pertinent aspect that must be assessed by the contracting parties should be the termination clause of the contract.
It is imperative to weigh the pros and cons of the procedure laid down in a termination clause and its repercussions. Most parties fail to understand the importance of this clause.
The exit clause should be patiently planned and negotiated rather than simply incorporated.
4. Obligations to be Redefined
Uncertainty in fulfilment of business and professional obligations is why the COVID-19 has proven to be such a big setback factor for businesses around the globe.
Therefore, there must be sufficient scope for amendment in the contracts depending on the changing times and practical scenarios. Whereas, obligations could not be fulfilled due to lockdown or subsequent factors should be mutually amended before it becomes a point of dispute.
- Incorporation of mediation
There is an incessant need to encourage incorporation of mediation in addition to an alternative dispute resolution clause in the Agreement, in the event disputes arise from such contracts.
This is necessary to safeguard parties from incurring major expenses on unwarranted litigations.Further, of late mediation has become a go to sort of try before plunging into a full fledged dispute settlement mechanism.
6. Re-negotiation of Economics
The Pandemic has though brought hardships and restriction in may ways at the same time it has also brought an opportunity to renegotiate many transactions with the changed working conditions and availability of resources at the first place.Companies have been in talks to renegotiate on many fronts with vendors and also in long running contracts as well.
In the present times, time is equivalent to money and precious time lost in litigation is at par with monetary loss. Hence, incorporation of alternate dispute resolution mechanisms is the need of the hour.
7. Contract Audit rather than mere Vetting
The Contract audit is much more than simple vetting as it has to be with reference to three sine qua non as below:
a. Anticipation in changed situation
b. Business cycle of vendors or buyers
c. Revisiting the clauses
These all three aspects have to be structured under the new alignment of business which has surfaced after the initial outbreak of Covid-19
PANDEMIC LEGAL INTELLIGENCE & DAMAGE CONTROL STRATEGIES
Damage-control and Pandemic Legal Intelligence is the need of the hour.
Commercial contracts can have major repercussions for businesses if these contracts are not analysed diligently.
It is important to engage into professional risk analysis of commercial contracts in the post-COVID era to continue working as a profit making organisation. Contemporary business practices need to be incorporated which cannot be done without engaging in a mechanism of proper checks and balances with regard to the legal obligations of the parties to a contract.
Commercial contracts form the basis of any business deal. If the groundwork is not laid properly, it is impossible for the commercial strategy to succeed. The world has already witnessed the shortcomings of sub-standard and open-ended contracts that has led to huge financial losses to businesses around the globe due to the pandemic. The Post-COVID era must be welcomed with contemporary strategies.
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