Business conditions continue to change amid the COVID-19 pandemic, and it’s putting organizations at risk. Conga’s Jason Gabbard provides best practices to protect the contracts that protect their businesses during these unexpected times.
It might not feel quite like it at this moment, but we’re about to enter a post-pandemic business world. Exactly when that will be — and what that will look like — is in some ways a complete mystery. In other very real ways, we can anticipate what we’ll all face in the aftermath of coronavirus, and we can take steps now to prevent some of the issues businesses might have encountered in the early days of COVID-19 from happening again.
The pandemic hit just about every aspect of business, creating problems that transcend both industry and organization size. As most companies shifted to a work-from-home life to flatten the curve of the virus’ spread, processes and workflow have all been impacted – for better and for worse.
Adjusting to these changes and reacting swiftly, specifically when talking about contract responsibilities, is especially important during this time. So too is planning, preparing and strategizing for how to deal with those contracts now and in the future.
Many business leaders will find themselves in the position of managing the effects of COVID-19 on their contractual obligations. A global pandemic is an unforeseeable circumstance, and contract managers will need to determine whether they are required to perform under their contracts or if they can invoke a force majeure — a clause that acknowledges events beyond anyone’s control that could prevent them from fulfilling contract agreements.
With COVID-19 affecting nearly all types of contracts legally binding businesses’ day-to-day operations, it is crucial for leaders to be aware of key clauses affected by COVID-19, challenges (and options) to future-proof contracts and ways technology can help mitigate the hurdles associated with this process.
Top of Mind
As we look at existing contracts and establish the possible solutions — whether temporary or permanent — legal experts point to a number of clauses that deserve our attention.
A key clause to focus on when contemplating the impact that COVID-19 can have on contracts is the force majeure clause. This clause relieves a party from contractual obligations in the event of extreme circumstances. For example, a force majeure clause could be:
In the event either party is unable to perform its obligations under the terms of this Agreement because of an Act of God, unrest, strikes, equipment or transmission failure or damage beyond its control after appropriate action or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes.
The pandemic brings with it social-distancing guidelines, office closures, traveling restrictions, remote employees. These factors and more have forever and drastically altered how force majeure clauses are read and interpreted, in a way that could impact provisions to nonperforming parties. More clear-cut language, unlike the above example, has the force majeure specifically referencing the phrase “infectious disease,” which eliminates any other potential interpretations.
Because language is so vital in these instances, so too is having and maintaining a central language repository with powerful search capabilities for both legal and contract management teams to use. Having an exceptional contract life cycle management (CLM) tool will make it easier to quickly assess which contracts might be affected by COVID-19 (or other unforeseen future events).
The force majeure is the most likely clause to be discussed in this context, but there are other potential clauses and factors a business leader should observe, such as:
- Doctrine of impracticability: The doctrine of impracticability either excuses or delays performance under a contract in the event an unforeseeable circumstance prevents the parties from fulfilling their obligations.
- Frustration of purpose: The doctrine of frustration of purpose could come into play if the primary reason for entering into a contract becomes impossible.
- Delivery of notices: COVID-19’s presence might prevent hand delivery of certain notices, either because physical office spaces might be closed or to uphold social distancing guidelines.
- Business interruption insurance: Outside the contract itself, businesses might want to take a look at whether business interruption insurance is available. It could address specific losses or interruptions due to the pandemic. Companies anticipating potential business interruption should review applicable insurance policies and provisions, including business interruption and contingent business interruption insurance.
Tools to Protect and Simplify
Given the numerous types of clauses listed above that legal professionals need to revisit as a result of COVID-19, it is clear utilizing technology can help users avoid and mitigate potential negative impacts on contracts.
A robust contract life cycle management (CLM) tool will allow you to search for affected contracts by clauses and terms, to streamline mass amendment and to handle changes using Microsoft Word while seamlessly connected to the CLM application.
Using the CLM’s form generators, clause libraries and workflow management capabilities will permit lead contract drafters to design and implement gold standards across the organization, along with rules and workflows to ensure their consistent utilization.
Because language is so vital in these instances, so too is having and maintaining a central repository with powerful search capabilities. Having an exceptional contract life cycle management (CLM) tool will make it easier for the party to quickly assess which contracts may be affected by COVID-19.
Additionally, an AI tool will help by allowing the contract author to train multiple clause types, like force majeure and frustration of purpose, in order to stress-test the repository for relief.
Great Tech Requires Great Lawyers
COVID-19 is having a significant and harmful impact on businesses and their ability to perform under their contracts. Many epidemiologists have theorized that a second wave of infections may occur later this year. If that happens, your organization needs to be prepared. A contract management tool is vital as you make the necessary transformations to not only keep business moving, but to protect your company for future interruptions that could affect your contractual obligations.
As efficient and beneficial as these tools can be to help manage your contracts, it’s equally as critical for your legal department to be there to interpret and respond to the language and clauses in your contracts. The CLM will transform disorganized data to a place that allows your legal team to take action on existing contracts, and it will give them all the information they need to draft future such provisions to allocate risk appropriately.
A great legal team, though, will work with the technology to not only implement the best courses of action for your business, but to leave contract language with little room for interpretation.
The issues of doctrine of impracticability, frustration of purpose and delivery of notices and whether they can be invoked or applied to a given situation is heavily dependent on the facts and circumstances.
Next Steps Toward Future-Proofing Your Business
We might be several months into the COVID-19 pandemic, but it’s not too late — or too early — to start taking the necessary steps toward future-proofing your organization.
Get started today by updating your existing clause language with pandemic-specific language. Business leaders should also review existing contract practices and determine whether it’s best to change how notices are delivered or whether business interruption insurance is available.
Finally, implementing digital transformation technology like a CLM or AI tool will increase your likelihood for success in the future.