Non-compliance with contractual obligations related to COVID-19 by suppliers (procurement)
In general, delays in deliveries compared to agreed deadlines, pressure on suppliers to extend agreed or negotiated delivery times, as well as complete delivery failures or rejection of orders are to be expected, despite the obligations under the framework contracts. These may or may not be justified by force majeure, i.e. they may or may not give rise to liability claims against suppliers.
Accordingly, it may be advisable to consider the following measures, ideally by issuing an organisational standard, in purchasing:
- review and, where appropriate, modify force majeure provisions in commercial relations where this is a realistic option, i.e. in particular in relations where there is no framework contract and which are governed by their own general terms and conditions, i.e. in particular explicitly exclude the applicability of force majeure to the now foreseeable COVID-19 pandemic and the associated quarantine measures
- identify suppliers for whom there is no legal obligation to supply goods, i.e. certain volumes, over a certain period, at certain prices, etc., i.e. suppliers to whom there is no legal entitlement to further deliveries beyond the already concluded sales contracts, and try to contractually negotiate this obligation
- examine the contractual price adjustment and price clauses, in particular to determine which suppliers have the right to unilaterally adjust/set prices; for suppliers with an obligation to deliver at certain prices, enforce the contract, i.e. insist on the agreed prices
- identify potentially risky suppliers whose supply could be jeopardised by quarantine measures affecting a link in the supply chain, approach alternative suppliers and properly document the communication, ask for explicit assurances or guarantees from these suppliers that the fulfilment of their contractual obligations is not jeopardised, prefer fixed deadlines ('time is of the essence') for deliveries
- examine the force majeure arrangements in contractual relations with suppliers and identify suppliers or the extent to which the failure of suppliers to fulfil their obligations constitutes a force majeure event and does not give rise to claims for delay
- refuse suppliers' requests for extensions of delivery deadlines, not to waive claims arising from breaches of contractual obligations, not to waive penalties, etc. (bearing in mind that a change of contract does not in principle require a written form), retain the possibility of legal recourse to such claims and properly document the relevant circumstances
- in the event of force majeure on the part of the suppliers, require unquestionable proof of these circumstances by means of confirmation from public authorities, chambers of commerce, declarations from subcontractors, etc., both for the purposes of internal assessment of the justifiability of the breach of contractual obligations and for the purpose of proving, if necessary, a secondary force majeure circumstance on the part of the company itself in relation to its customers, and to submit notifications of force majeure for legal assessment and, if they are not legally tenable, to oppose them without delay