CORONAVIRUS: Are you proactively assessing your businesses rights and obligations?

Coronavirus Pandemic’s Impact on Businesses

The coronavirus outbreak presents an unusual situation for businesses. Businesses not only have to be concerned about the naturally occurring results from the virus itself; but also have to react to action of the government or collateral business partners. Responsive measures must be put in place.

The economy and profitability of businesses are inevitably connected to health and trade. Infectious disease outbreaks that disrupt general workflow, supplies, employees or staffing will ultimately affect a business’s inability to normally function. You should be thinking NOW about whether you can perform on your contractual obligations. You must be prepared to assert your rights to any cost or schedule impact that may result from the Coronavirus.

What does this mean for contractually for your business?

You should be mindful and begin proactively reviewing contracts to prepare for the possibility that their performance may be interrupted. Clauses to look for include:

• Excusable Delay: Some contracts include an exception for excusable delays, which may excuse a contractor or subcontractor’s failure to perform for causes that are without the contractor or subcontractor’s fault or negligence. Reasons such as acts of God, or the government or epidemics etc. may be included. If your contract does not include this, you should consult the contracting officer to determine how such delays should be handled.
• “Force majeure” Provisions: “Force majeure” is a contractual clause, which usually covers several categories of events including natural disasters, human threats, acts of God or acts of government. U.S. Courts tend to construe force majeure clauses narrowly and will typically include events expressly listed. However, reliance on official announcements from government (or in the case of the Coronavirus perhaps even the World Health Organization or the Centers for Disease Control) can be a basis to argue that force majeure has occurred. A company should carefully review the force majeure provisions in contracts to determine whether they apply.
  • Best practices a company should follow when they seek to invoke force majeure include: (a) determine what the provision allows with the current situation to obtain information regarding the timing, the impacted services, parts or facilities and when the force majeure event is expected to conclude; (b) confirm what the notice the requirements are under the contract and any time limitations on reporting that may be required.
  • A party seeking to invoke force majeure must prove that there are no alternative means for performing under the contract. It is also necessary to know the other parties rights once force majeure is invoked, which may include the right to terminate and source from an alternative supplier or perhaps terminate after a period of time.

You should not be without a plan and knowledge of contractual rights and obligations is essential to a plan. Should you have any questions for your business, Lannom and Williams can help.