We’ve been experiencing extraordinarily altered times since March 2020. Apart from wishing you and yours a safe passage to the other side, I can’t say anything new or useful about that period. So, the focus of this article is about contractual dynamics that you should manage and plan as we go forward.
Some of these suggestions may be part of your normal routines. But, if you have scheduled contract reviews, terminations or renewals over the coming months, it will be worth taking a look sooner than you usually would. This will give you extra planning time and better information.
Always have copies of your contracts with suppliers, clients and partners gathered somewhere that is easy to access.
Also, make a spreadsheet or similar document that sets out the key data separately to the actual (long) documents. This spreadsheet should answer the following questions:
- Name of your supplier, client or partner
- What you buy, sell or collaborate on
- Start and end date of the contract
- Details of any break clause
- Dates of any price reviews
- Details of the renewal process, such as whether it is automatic or not
- Whether or not it is possible to terminate the contract on notice
Keep well informed
Review the state of your accounts and relationships with your suppliers, clients and partners, to check whether payments are being made on time, for example.
Depending on what you see from this exercise, you might be reassured about the contractual relationship, or you might identify a cause for concern. You might even be prompted to take action sooner than you would otherwise.
It’s important to communicate regularly with these key people – ‘counterparties’ is the technical term. For example, I am seeing some companies who are collaborating successfully with their suppliers to get through this difficult period and build solid plans for the future. To do this, you have to make sure you’ve got good up-to-date information. And you’ll only get this by staying in touch.
In reality, you’re likely to find that some businesses you deal with will be financially and operationally robust, others will be doing quite well, and some will be in a critical struggle for survival.
Plan for renewals
When you are looking forward to the potential renewal of a supplier contract, here are some questions to bear in mind:
- Are you confident about renewing the contract for the same time period? For example, at the end of a three-year contract, do you want to renew for another three years or a shorter time?
- Do you want to put all your eggs in one basket? Is it still the right approach to retain an exclusive agreement with that one supplier, or do you want to diversify across a couple of suppliers?
If you decide to renegotiate any part of the deal, don’t assume that you can wait until the renewal date to discuss the renewal. Depending on the precise wording of your contract, you may need to terminate it in order to put yourself in a proper position to renegotiate.
That’s just one reason why it’s worth planning ahead.
If you see yourself parting ways either now or in the future, getting a deal negotiated with a replacement supplier is obviously also important. You will have to think through any handover logistics and costs such as whether you will need to finance any TUPE obligations as part of the process.
Whatever industry you are in, you will need to check whether you should change how you deal with VAT for EU transactions. The impact depends on your sector.
If you deliver or receive goods by lorry, you are no doubt already battling with updated import and export documents for goods being moved between the UK, Northern Ireland and Europe.
If you provide or buy services, VAT is likely to apply to you even if you’re not filling out consignment documents. The process is unclear – government consultation is still underway about many respects of the financial services industry, for example.
What this means to you
Whether your current agreements are working smoothly or not, it will involve some planning time to identify your preferences for continuity, termination, renewal, replacement or smaller changes going forward with each of these relationships… and then time for implementation. I could say that any time, but with the current backdrop of the pandemic and Brexit, all of this is likely to take longer and be more complicated than otherwise.
In summary, I strongly recommend that you:
- Know about your contract terms and how they work
- Know what situation the businesses are in that you deal with
That information allows you to work out a proper business solution and check that your contracts are fit for your current purposes (as it may have been radically altered since the contract was originally agreed) so that you can implement that solution.
This advice isn’t new. It reinforces the need to do what you ought to already do, but the current situation has escalated it up the priority list.
And finally, remember we can help with anything to do with reviewing your contracts and with contractual negotiations.