Is your business ready for what’s next?
For many businesses, supply chain disruption is no longer a short-term inconvenience. Geopolitical instability, sanctions, tariffs, inflation, raw material shortages, cyber incidents, extreme weather events and supplier/customer insolvency risk are now part of the commercial landscape. Against that background, well-drafted contracts are not just legal housekeeping. According to B P Collins’ corporate and commercial team, they are a practical tool for protecting margin, continuity of supply and customer relationships. This article explores the key areas that should be considered.
A useful starting point is to review your key supply, distribution, manufacturing and services contracts and ask: if something goes wrong, does this contract help us manage the problem?
Do not assume force majeure covers every disruption
Force majeure clauses are often treated as a “get out of jail free” provision, but that is rarely the case. Under English law, force majeure has no automatic meaning: the clause only does what the contract says it does.
Businesses should check whether their clauses cover the risks most relevant to their operations, such as pandemics, war, government restrictions, import/export controls, sanctions, transport disruption, port closures, energy shortages, cyber incidents and failures in the supply chain. Equally important is what the clause does not cover. General economic hardship, increased costs or reduced profitability will not usually be enough unless the drafting expressly says so.
The clause should also set out clear notice requirements, mitigation obligations and the consequences of a prolonged event. For example, can performance be suspended? Can either party terminate after a certain period? Is the affected party required to use alternative suppliers or routes? These points should be clear before a crisis arises.
Build in flexibility around pricing, tariffs and inflation
Long-term fixed pricing can become commercially unsustainable where costs rise significantly. Recent volatility in energy, labour, transport, materials and tariff exposure has made price adjustment clauses increasingly important.
Suppliers may want a mechanism allowing prices to increase by reference to a suitable index, changes in input costs, exchange rates, duties or tariffs. Customers, however, will usually want safeguards: notice periods, evidence of the cost increase, caps on increases, rights to challenge or audit, and possibly the benefit of downward price movements if costs fall.
The key is to avoid vague wording. A clause that says prices may increase where costs rise “materially” may invite dispute unless the trigger, calculation method and process are clearly defined.
Sanctions and trade compliance are contractual risks
Sanctions and trade restrictions can make performance unlawful or commercially impossible with little warning. Businesses trading internationally, dealing with high-risk jurisdictions, or supplying controlled goods should ensure their contracts include modern sanctions protections.
These may include warranties that neither party is sanctioned, obligations to comply with applicable sanctions and export controls, notification duties if a party becomes sanctioned, and rights to suspend or terminate where continuing the contract would create legal or reputational risk.
This is particularly important where supply chains involve multiple intermediaries. A business may have no direct relationship with a sanctioned entity but could still be exposed through its suppliers, customers, shipping routes, financing arrangements or ultimate end users.
Know when you can exit
Termination rights should be reviewed carefully. Customers may want termination for convenience, allowing them to exit if requirements change or supply becomes unreliable. Suppliers may want minimum terms, notice periods and compensation for set-up costs, committed stock or subcontractor exposure.
Termination for breach should also be practical. If payment failure, repeated delays, loss of key licences, change of control or regulatory non compliance would create commercial risk, the contract should say so.
Businesses should also be aware that suppliers’ rights to terminate for customer insolvency are restricted by legislation in certain supply contracts. This makes it important for suppliers to consider earlier warning triggers, such as deteriorating financial position, failure to pay, credit limit concerns or requests for revised payment terms before formal insolvency occurs.
Business continuity and supply allocation
A resilient contract should not simply identify excuses for non-performance. It should help the parties manage disruption.
For business-critical supplies, consider whether the supplier must maintain and test a business continuity plan, hold minimum stock, use alternative sites, maintain backup systems, notify disruptions
quickly and provide regular updates. Customers may also want rights to review those plans or require remedial action.
Where shortages are foreseeable, allocation of supply clauses can be valuable. They can determine whether the customer receives priority supply, a fixed allocation, or a pro rata share of available
stock. These clauses should be aligned with force majeure provisions so that the contract does not say one thing about shortages and another about relief from performance.
Practical next steps
Owner-managers and directors should identify their most business-critical contracts and review whether they adequately deal with all of the above. In addition, businesses can improve resilience by reviewing their liability exposure, maintaining appropriate insurance cover and using indemnities where suitable to protect against identified risks. Together, these measures help reduce financial uncertainty and strengthen risk management.
In the current climate, contract resilience is not about predicting every possible disruption. It is about ensuring that, when disruption occurs, the business has clear rights, practical options and a contractual framework that supports commercial decision-making rather than creating further uncertainty.
For further advice and information, please contact Alex Zachary or B P Collins’ corporate and commercial team at enquiries@bpcollins.co.uk or call 01753 889995.
