A Step-By-Step

Contract Management Response

to COVID-19

Author: Rod Linsley

Date: 1st April 2020

Contents

Introduction 1

The Key Commercial Issue Of COVID-19 2

A Contract Management Response To COVID-19 3

01. Identify your key contracts and their key terms 3

02. Understand how COVID-19 is affecting your key suppliers 6

03. Determine the knock-on effects of supplier

issues on your organisation 7

04. Develop approaches for mitigating supplier issues 8

05. Advise all customers about the effects of COVID-19

on your organisation 8

06. Assess risk in your key contracts 9

07. Propose measures for dealing with problematic contracts 10

08. Discuss each problematic contract with the relevant party(s) 11

09. Formulate the course of action to be taken for each

problematic contract 11

10. Enhance your contracting approach 12

11. Log every action taken 12

Summary 13
This ebook is a step-by-
step guide to managing
contracts during the
COVID-19 pandemic.
Includes five free Excel Templates.

COVID-19 is exerting acute economic pressure across all geographies, industries and
sectors at the same time. This combined with the obvious human and health concerns,
is creating an extremely volatile situation for businesses to navigate.

Central to navigating the next 3-6 months
successfully will be accurate assessment of contract
obligations and risks, as well as sensitive relationship
management and tight control over cashflow.
In this article we focus on the actionable steps to be
taken by those responsible for contract management
in your business.
level issues, both external and internal, can be rolled
up to reveal a generalised, organisation-wide picture.
This response effort will need to be ongoing for the
foreseeable future, with regular updates containing
analysis of how the situation is unfolding, and
recommendations for actions to ameliorate the
situation if at all possible.

Every organisation needs to respond in its own
fashion to the issues presented by, and government
responses to, COVID-19. Such a response will
necessarily require much effort from many parts of
the organisation, so the sum of individual function-
All information collected, analyses prepared and
recommendations made by the review process
during and after the pandemic should be formally
documented and stored.

To help get you started with this, we’ve developed a simple Pandemic Issues Log template
which you can use to record all the requisite information.

Download the Pandemic Issues Log Template Now

1
THE KEY COMMERCIAL ISSUE OF COVID-19
While in no way diminishing the tragic and devastating human toll from COVID-19, its main effect on commerce
can be boiled down to the potential for workforce shortages and business shutdowns to limit the ability of
organisations to:

Obtain goods and services from Comply with any other arrangements
their suppliers. they have in place with third parties.

Provide goods and services to Execute new contracts with

their customers. third parties.

In a nutshell, the commercial issue is that

organisations may not be able to meet their
contractual, financial and regulatory commitments.
“Both the genuinely affected and
the opportunists might be pulling
Many organisations can expect a reckoning, contract- out their contracts right now,
wise, even during these early stages of COVID-19. looking for their entitlements
with regard to non-performance
The Contract Management team will be heavily by their third parties, and any
limits to their obligations with
involved in your organisation’s response to
regard to their organisation’s
COVID-19, given that contracts form the
foundations of commerce.
own non-performance. ”

2
Here, we’ll take you through 11 key activities relating to your
business’s contracts and vendors that will need to be carried out:

01. Identify your key contracts and their key terms

02. Understand how COVID-19 is affecting your key suppliers

03. Determine the knock-on effects of supplier issues on your organisation

04. Develop approaches for mitigating supplier issues

05. Advise all customers about the effects of COVID-19 on your organisation

06. Assess risk in your key contracts

07. Propose measures for dealing with problematic contracts

08. Discuss each problematic contract with the relevant party(s)

09. Formulate the course of action to be taken for each problematic contract

10. Enhance your contracting approach

11. Log every action taken

3
A CONTRACT MANAGEMENT RESPONSE TO COVID-19

01. Identify your key contracts and their key terms

Key contracts are those critical for keeping your
organisation operating. They can cover the
acquisition of vital products and services from
suppliers or the provision of valuable products and
services to customers. Contracts that cover the
conduct of other types of business with third parties
might also be considered key.
A key contract might have been provided by the
organisation itself or the third party it is dealing with.
The criticality criteria for contracts need to be
established from the organisational perspective, not
the individual business function level.
Once a key contract has been identified, the relevant
contract documents should be scanned to check for
the presence or absence of key terms.
To be able to make judgements about such
terms, the organisation needs to have established
benchmarks describing all its preferred, acceptable
and unacceptable positions on those terms.
These positions can vary based on any number of
aspects about the contracts they are used in, such as
contract type, governing law, contract purpose and so
on. For certain, current legal advice will be required
for these judgements.

Some of the contract terms that could be of interest include:

• Force Majeure Scope

This clause can provide a party to a contract with a temporary or permanent release from its obligations
and liabilities when prevented from, hindered in or delayed in complying with those obligations due to
circumstances beyond its control.

The presence of this clause should be mandatory, given the high levels of uncertainty in today’s environment.
The clause needs to be drafted very carefully, to ensure that all possible circumstances are covered,
no matter how remote their likelihood, and all reasonable rights of and obligations on all parties, plus
pertinent timelines, are specified.

• Termination Options for Cause and Convenience

These clauses give contracted parties the right to end a contract under certain circumstances. The specific
circumstances often determine how termination can be achieved, such as immediately, only after notice of
default is provided and the default remains uncured after a set time, only on the anniversary of the contract
commencement date, and so on.

The supplier may allow early termination for convenience, sometimes with some type of penalty, such as a
charge equivalent to the fees that would have been incurred from the termination date up to the end of the
term or the next anniversary of the contract’s commencement date.

If the organisation terminates for cause, it should also require the supplier to refund the unused portion of
any pre-paid fees. Often, suppliers give themselves more termination rights than their customers. This should
be resisted to the extent possible. What’s good for the goose…

4
• Supplier Exclusivity
This clause limits the organisation to obtaining whatever products and services are specified in the contract
from only the supplier named in the contract. Often this clause is used to obtain keener pricing from the
supplier than otherwise, at the expense of the organisation not being able to take advantage of better pricing
for similar products and services from other suppliers for the duration of the contract.

The presence of this clause can be a major concern especially if the contracted supplier cannot deliver to
time, cost, quality or any other agreed standard. This is particularly the case if the organisation has limited or
no contract termination rights, or lacks a release from the exclusivity obligation based on the supplier’s delay
or non-performance.

• Supplier Performance Requirements and Non-Performance protections

The service delivery performance of every supplier under contract ought to be measured against some
standard that is agreed initially but may change over time.

The details of what is to be measured, how, when and by whom, plus what is to be reported, when and
by whom, needs to be clearly specified in the contract in the form of Key Performance Indicators (KPIs)
or a Service Level Agreement (SLA). Any self-reporting of performance statistics by the supplier should be
periodically validated.

Some form of redress for self-inflicted supplier under-performance should be specified to encourage the
desired behaviour.

The ongoing relevance of all performance measures and targets should be regularly reviewed.

• Minimum Order Quantities

or Spend Thresholds
Minimum commitment clauses, in terms of time-bound
spend amount, product quantity, resources used and
other measures, are often specified in contracts to
enable a supplier to recoup upfront costs, conduct
resource levelling or achieve other contract-term
benefits, often with the enticement of lower ongoing
unit charges to the organisation.

These obligations can severely limit an organisation’s

flexibility in times of business downturn or other
uncertainty, and can be hard to get out of, even when
suppliers don’t perform to expectations. To add insult to
injury, there are usually consequences specified for the
organisation’s failure to meet any minimum quantities.

There are other less limiting ways to satisfy a supplier’s

ROI, so whenever encountered, minimum commitment
clauses should be challenged using good legal advice.

5
• Price changes
This clause specifies the circumstances where and when a price change might be required by the supplier,
most often upwards but occasionally downwards. These circumstances might include inflation exceeding an
agreed rate, exchange rate rises or falls, failure to meet any minimum commitments, exceeding or dropping
below any volume tiers. Often, prices might be annually adjusted upwards as a matter of course, either by a
fixed amount or a variable amount to account for inflation.

• Payment terms
This clause can specify various elements of the payment terms, such as how often billing takes place,
how bills will be presented, the period during which payment must be remitted, the consequences of late
payment, the right for the payer to dispute the invoice contents or amount, the right for the payee to charge
a particular interest rate on any undisputed overdue amount or to suspend services until all outstanding
mounts have been received, the currency of payment, the acceptable payment methods, any discounts
available for early payment.

This clause should always be present in a contract.

• Notice requirements
This clause specifies how formal communications between a contract’s parties are to be conducted, why
and by when, especially if providing valid notice is a prerequisite for exercising certain contractual rights or
complying with certain obligations.

When receipt of a notice is deemed to have occurred might also be specified in the clause, as well as any
consequences for non-compliance with notice requirements.

This clause should always be present in a contract.

• Limitations or Exclusions
These clauses provide a method for a party to exclude or limit liability in certain circumstances, like potential
breach of contract, the amount that be claimed for such a breach, or time limits for commencing action for a
claim. Many jurisdictions have enacted statutory controls to limit the effect of limitation and exclusion clauses,
so use them with care.

• Change in Law
Changes to an existing law, introduction of a new law, or an action like the declaration of a state of emergency
may introduce a new element of risk to a contract. This clause allows review of the contract if such a change
occurs, but many limits and exclusions may apply to its activation. The presence of this clause can be handy
but is not guaranteed to deliver any relief from pertinent government actions.

To help you manage this part of the process, we’ve created a Key Contracts Template.

Download the Key Contracts Template Now

Capturing this information in one place provides a sense of the size and value of the critical contract inventory
and the scale of each party’s obligations, and is useful for planning the risk assessment of these contracts.

6
02. Understand how COVID-19 is affecting your key suppliers
and those involved with your key contracts.

It may be quite a job to fully understand how COVID-19 is affecting your key suppliers, those involved with your
key contracts. Not only could they be directly affected but their own supply chains, wherever they are located,
might also have been disrupted to varying extents.

Of course, your organisation may have already received some advice from some suppliers or noticed some
unannounced supply issues. This might just be the thin end of the wedge, so prudence dictates that you take
positive action to obtain a more complete picture from all your key suppliers as quickly as possible.

A COVID-19 Supplier Impact Statement Template is available to assist with this activity.

Download the COVID-19 Supplier Impact Statement Template

Expectations need to be reasonable about obtaining a supplier’s response to your request that they complete
this statement. Just about all their customers may be asking them for something similar, at a time when they’re
desperately trying to deal with COVID-19’s effects themselves.

“Before just firing off the template out of the blue, it would be worth a quick chat with
them first, to find out informally what their situation is, what other customers have
been asking them, how they’ve been officially replying.”

They may be already preparing a formal statement for issue to all customers, or have done so and published it on
their web site and kept it updated, which can save you having to send them your own template.

One way or another though, you do need to obtain direct advice from your key suppliers about their current and
developing COVID-19 situation.

7
03. Determine the knock-on effects of supplier
issues on your organisation

As each piece of supplier impact information becomes available, you can begin to consider in detail just how each
one’s situation is going to affect your organisation over time, but probably sooner than later.

The potential outcomes for your organisation will depend on, at a minimum:

• What it does and how • How well it can support a remote workforce

• How much it can get of the supplies it needs • How much income it needs to survive

• How little of its workforce it needs to operate, • The nature of government actions in respect of
whether working onsite or remotely COVID-19.

These factors, combined with the key supplier information and other relevant facts, should be used to model
various “if-this-then-that” scenarios that have a reasonable chance of occurring.

Quite a number of internal stakeholders, and possibly some external assistance, are likely to be necessary to
provide subject matter knowledge about the different operational aspects of the organisation that could be
impacted by supplier difficulties.

Surprises should be expected, in both the effects on the supplier and the consequences for your organisation.
This is because desperate times require desperate measures, sometimes requiring imposition of the lesser of two
evils.

Mistakes will be made, unintended consequences can lead to the classic two steps forward, one step back
situation, and there are few, if any, roadmaps to help guide the way.

An Organisational Effects of COVID-19 Template is available to assist with this activity.

Download the Organisational Effects of COVID-19 Template Now

8
04. Develop approaches for mitigating supplier issues

Armed with a list of potential organisational effects of COVID-19, you can brainstorm and prepare approaches for
dealing with each effect. The assumptions and pre-conditions that apply need to be clearly specified, as do any
success criteria to be met to allow continuation of each mitigating action.

As an example, some options that could mitigate a shortage of product from a specific supplier might include:

Use of alternative suppliers, not or Minimising demand for the

only minimally affected by COVID-19, product concerned.
with inventory on hand.

Use of product with an acceptable Eliminating any need for the

lower level of specification. product in question.

While the intent of the mitigating approaches is to provide a way around supplier issues, care is needed to
ensure that these actions themselves don’t introduce further issues that might in turn need mitigating.

A regular reporting regime should be established to show the changing severity of supplier issues and the
success or otherwise of your mitigating actions.

05. Advise all customers about the effects of COVID-19

on your organisation

If your organisation is part of a supply chain with its own set of customers, then those customers need to
be advised about how COVID-19 is affecting you. Some of those customers may have already asked for this
information, perhaps in the form of a Business Continuity Plan (BCP).

Read our related article on BCPs now.

The COVID-19 Supplier Impact Statement Template mentioned in element 2 above should be completed
for your organisation as a supplier and issued to your customers as soon as possible, or made available on
your website.

9
06. Assess risk in your key contracts

Based on the results of the initial and ongoing reviews of the organisation’s issues during the pandemic,
Contract Managers should be able to identify their most problematic key contracts.

‘Problematic’ will need to be defined in terms meaningful to the organisation. For instance, it could mean:

All key contracts regardless of whether Any key contract where the other party is
or not they caused problems for making noises about exercising certain rights
the organisation. that may increase the organisation’s pain.

All key contracts which caused a Any key contract with limited suitability
financial hit to the organisation for dealing with exceptional or even
beyond a certain value. ordinary circumstances.

Any key contract with an inadequately

specified or missing key clause.

A thorough understanding of the key terms in the key contracts is important for dealing with the major issues
and risks that can be expected over the duration of the pandemic and its cleanup.

An assessment of each contract’s key terms is needed to highlight any deficiencies and allow remedies
to be proposed.

Consideration of each party’s obligations is needed to allow determination of the criticality of each
obligation and understanding of the impact and implications of any non-compliance.

Examination is also required of each party’s rights to allow determination of the likelihood of each right being
exercised and understanding of the impact and implications of that exercising.

A Key Contract Issues Template is available to assist with this activity.

Download the Key Contract Issues Template Now

10
07. Propose measures for dealing with problematic contracts

Analysis of the key contract issues detected is needed to discover the nature of any options that could be
suggested to deal with those issues. Those options might include:

Renegotiating clauses that circumstances Changing the current volume or nature

have shown are necessary but missing, of products and services acquired or sold,
not desirable in their current form, pricing, service levels or other operational
or just not acceptable, for immediate parameters.
or later implementation.

Terminating the contract, immediately or Extending milestone dates and other

shortly, permanently or with the intention delivery schedules to recognise that
of replacing it with a more suitable version everything is far from business as usual
and/or supplier. these days.

With the assistance of the Legal team and the relevant operational stakeholders, the Contract Management
team should consider all the identified issues in each problematic contract, with the aim of formulating responses
preferred by the organisation, as well as fallback and unacceptable positions.

The aim of this work is to set the parameters for negotiations with the suppliers in question.

The Key Contract Issues Template mentioned in element 6 above is available to assist with this activity.

11
08. Discuss each problematic contract with the relevant party(s)

Whether your organisation buys from suppliers, services customers, does both or has some sort of other
business arrangements with third parties, every key contract that is problematic in some fashion needs
to be discussed with the relevant third party(s).

The problematic contract areas need to be revealed and the effects on the organisation explained.

The proposed mitigation measures and their implications for each

party must be presented.

Depending on the volume of issues found and their debatability,

rapid agreement on the mitigation measures and the course of
action to be taken could be reached during this discussion session.
In this event, the Key Contract Issues Template mentioned in
element 6 above is available to assist with this activity.

However, the likelihood is that the other parties will need

some time to consider their position on the effects and their
proposed mitigations.

09. Formulate the course of

action to be taken for each
problematic contract

This element is Negotiation 101, pure and simple. Agreement

is needed on the problem boundaries and the proposed
mitigation measures. Alternatives may be offered then
accepted, rejected or agreeably modified.

However the negotiations pan out, there needs to be an outcome of

some sort. This could mean an agreement to leave the contract unchanged,
modify it in some fashion or terminate it.

The Key Contract Issues Template mentioned in

“If the contract is to be modified element 6 above is available to assist with this activity.
or terminated, an action plan
must be formulated and agreed Whatever the contract outcome, any party or all
for the achievement of the desired parties might initiate legal action to obtain some kind
outcome, then implemented and of relief or damages for failure of the contract. Such
managed to completion. ” action might not necessarily be revealed at this time.

12
10. Enhance your contracting approach

The nature of each key contract’s upgrades is likely to be different, depending on the circumstances applying in
each case. The original clause wording and the flexibility of each party in reaching consensus on how that wording
should be changed will play a big part in this.

The general lessons learned from upgrading your key contracts need to be applied to your organisation’s
preferred and fallback positions on the key clauses involved. These lessons should be applied over time to
any important though not key contracts, and to all new contracts regardless of importance.

These lessons might cover:

Countering the ways that a contract might

Ensuring the completeness of a clause.
be inadvertently susceptible to exploitation
or advantage by considering it from the
other party’s perspective.
Dealing better with uncertainty.

Making the whole contract generally

more robust and complete.

11. Log every action taken

Special attention must be paid to recording details
of all actions taken in response to COVID-19. This
information may be critical for assessment of the
applicability of various contract clauses that might be
invoked as a result of a party’s non-compliance with
contractual obligations.
For instance, when relying on a Force Majeure clause
to provide relief from compliance with obligations,
proof is likely to be needed from the applicant
for relief that the applicant actually took action to
mitigate the causes of the Force Majeure event in
an attempt to achieve compliance with the affected
obligations. Merely claiming relief only because of the
Pre-emptive actions could be taken to bolster the
organisation’s resilience against a second wave of
COVID-19, a different pandemic or serious disruption
to business, whatever the scale.
Approaches for reacting to potential new situations
might be developed and road-tested to further
enhance that resilience.
The suitability of the organisation’s general business
continuity plans in light of the pandemic issues
being faced and potentially looming will certainly
be exposed.
With so much disruption to daily life, both private and

occurrence of the event is unlikely to be successful.
Valuable insights, lessons learned and knowledge
about the organisation’s operations and agility
could be gleaned from such material. Awareness of
possible government actions to deal with a pandemic,
organisational, the pressure to deal with the issues
and the sometimes sheer impossibility of doing
so, will inevitably mean that actions taken will be
forgotten or misremembered.
The consequences of the fallout from COVID-19

and the implications of those actions, will certainly could be more severe than otherwise if all the details

be raised. aren’t available to facilitate understanding, reflection

and planning.

13
Summary
The outstanding feature of COVID-19 to date, apart from the appalling human toll,
has been the absolutely necessary severity of government actions to try to limit the
infection rate of the virus. Just about everything is unprecedented in this regard,
beyond the scale of anything seen or experienced before.

This aspect also applies to the way organisations are trying to respond to the level of business disruption
resulting from those government actions.

For Contract Managers, there is so much work to do that has likely never been contemplated before.

“The silver lining to this is that a very focussed light has been shone on a general lack of
readiness for dealing with events that are unexpected but not improbable.”

This article describes one approach for dealing with
this Contract Management work, highlighting some
important processes that need to be set up and
followed, both to get on top of current circumstances
and to lay the groundwork for a more complete,
robust and resilient approach to uncertainty in
As Shakespeare once wrote:
“adversity brings out the best in man.”
As Nietzsche once wrote:
“what doesn’t kill you makes you stronger.”
Let’s hope that these sentiments are as true today as

the future. when they were first written.

It probably won’t be easy, trouble-free or without If you’d like to understand how Gatekeeper can

some false starts, but we should have confidence in facilitate the process described above and increase

getting there. your business’s resilience for the long term, then
contact us today or request a demo.

Disclaimer: This article does not purport to be, and it should not be construed as, legal advice. Always consult a qualified lawyer for legal advice.