Impact of COVID-19 on contractual obligations

Every business around the world irrespective of location, size and nature of business has been deeply impacted with 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 uncertainity 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 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 any event that prevents performance.

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

  2. 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 be adhered 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

  3. Review your contractual relationship
    Make sure you are reviewing all your related documents associated with a particular contract like statement of works, amendments etc for clauses that can impact your performance obligations.

    With hundreds and thousands of contracts already executed between customers, vendors and partners it is going to be very difficult for organizations to manually review each and every contract, its related documents to understand how many contracts have force majeure, what is included in the force majeure and if that is going to get them into risk for non performance of contractual obligations from their end.

    At Smart Contract Analytics we have developed an artificial intelligence and machine learning based platform which can ingest all your contracts irrespective of whether they are in digital or scanned format. Further, we can understand the key metadata by way of extracting clauses from the contracts using pre-trained machine learning models and give you the ability to search for any keywords or terms across your contracts in minutes. Using our semantic analysis we can not only find the force majeure clause but also language related to force majeure like acts of god, epidemics, pandemics etc

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