Editors Note: The following content has been provided by Nick Owens, PR Manager of commercial property law firm, Harper James Solicitors.
As the past few months have demonstrated, unforeseen events can interrupt the growth of successful business with virtually no warning. Even supply lines created by the world’s biggest companies are now coming under unprecedented strain due to the current global turmoil. Developing and then maintaining a strong supply chain is fundamental to keep the wheels turning in any company.
The after-effects of Brexit, which has led to fewer delivery drivers entering the UK and increased border controls combined with COVID-linked delays have created a perfect storm which has had a big knock-on effect for many UK firms. But despite the challenges, there are several things your business can do right now to proactively protect itself. Harper James, whose commercial solicitors help clients draft and negotiate supply and manufacturing agreements
offered this advice:
‘The current situation creates the potential for the ‘blame game’ in vertical supply chain contracts for failure to meet delivery schedules. To better protect your business, check whether your supply chain contracts remain fit for purpose or if they expose your company to unnecessary risk and potential commercial disputes.’
In today’s economic climate it is vital to ensure that your supply chain contracts plan for the worst whilst hoping for the best. Putting in time with due diligence prior to signing commercial contracts can decrease risk within supply chains.
Requiring contractors to complete basic due diligence questionnaires can ensure that potential partners fully understand the standards they will need to work to if involved in your supply chain. This will enable suppliers to properly evaluate and price contracts. The management of risk includes ensuring that your supply chain contracts limit your risks, and your liabilities should things fall through.
When reviewing contractual clauses pay attention to:
- The parties involved, for example does the supply chain allow for subcontracting and are there any precautions in place to pre approved subcontractors?
- Deadlines and any penalties for missing them. Consider what is required if the contract is expressed using ‘best effort’ or ‘best endeavours’ to meet deadlines?
- Limiting or excluding liability. Are these working in your favour? Are the reasonable and should this level of liability should affect the price?
- How disputes should be resolved for example using mediation or arbitration methods
- A termination clause. This should consider how alternative supply would be secured and the importance of continuing business until alternative suppliers can be found
In addition to legal risk, there are also reputational risks that should be considered. For example:
Treatment of supply chain employees – whether your business is directly involved or not, if a supplier or carrier in your chain fails to pay national minimum wage, doesn’t comply with the Modern Slavery Act 2015 or discriminates against workers – your reputation could be damaged.
Governance – regardless of your involvement, if bribery, corruption or tax evasion is involved in your supply chain your reputation will go down with the ship.
The environment – many businesses are looking to uphold strong environmental and social values. If you advertise one of these promises you must ensure that the same goes for your whole supply chain.
Data protection and confidentiality – you will likely have to share data across your supply chain however not all contractors are thorough in their compliance with data protection and GDPR laws. It’s important to set out expectations in your contracts regarding confidentiality, security and compliance.
Four steps to reduce potential risk
These four steps will help any business reduce the potential risks in their supply chain contracts.
- To be proactive – don’t wait until a supply chain problem occurs to act – do not wait to address manufacturing or transport issues further up the vertical agreements in your supply chain until they are adversely affecting your manufacturer or retail or transportation of goods.
- Give supply chain contract reviews the priority they deserve – Reviewing contracts proactively can reduce risk massively, there is no need to wait for formal review dates or contract review triggers. A commercial solicitor can help you with this by looking at new potential regulations or legislation or environmental or social awareness issues that could influence your supply chain contracts.
Once a contract has been signed, there is a tendency to put the contract in a draw or file it on the computer until the contract is formally up for renewal or is reaching its end date. Instead, look ahead
- Accept that evolution happens – you need to have the internal and external personnel as well as the systems in place to react to it and evolve with the times. Whether it is Brexit, changes to business immigration, a global pandemic or a supply chain crisis the best commercial contractual terms for your business will change.
- Talk to a commercial solicitor – taking advantage of a good commercial solicitor can be the difference between expensive litigation and a low-risk supply chain. You can significantly reduce the chance of expensive litigation through contract review or negotiation with expert commercial legal advice.