The fallout from the COVID-19 pandemic cannot be understated. Businesses, more than ever before, need to tap into all potential sources of revenue and cut costs as much as possible to operate during and beyond this pandemic. If you think your company can safely operate and maneuver through these difficult times, leveraging your lawyer can avoid significant losses and may provide your company with additional gains against your competitors.
Just as a medical doctor examines and treats patients, your lawyer can diagnose legal strengths and weaknesses throughout your business. Contract data management, whether your company is involved in 10 contracts or 10,000, is one of the most cost-effective ways for you to triage your company’s health during a pandemic.
Think to yourself whether you can answer the following questions about your company:
- How many contracts include my company?
- Where does my company retain those contracts?
- Are those contracts digitized and text-searchable?
- Which contracts present the greatest legal risk to my company? Which ones present the least?
These questions are just the tip of the iceberg, and if you can’t quickly answer some or all of these questions, then your company is long overdue for a legal checkup. Many larger companies have neglected contract data management for far too long and are currently paying the price in litigation costs and tracking and digitizing years of backlogged documents. For many companies, contracts are neglected or ignored until a customer fails to make a payment or a supplier fails to deliver goods or services, which is far too late a time to call your lawyer. Smaller companies can easily avoid these costs with some assistance from a lawyer.
As a first step, your company must collect, digitize, and be able to sort contracts by companion agreements. In fact, this process should be a standard practice for your company, but for many, it’s surprisingly not. Once organized, your lawyer can leverage your contract data to advise you how your company can safely navigate through this time. For example, you should ask your lawyer to evaluate your company’s contracts for the following sample of clauses:
Force Majeure: These common clauses essentially free both parties from liability or performance during an extraordinary event or circumstance beyond the control of the parties. While many such provisions do not expressly refer to pandemics, and are narrowly interpreted by courts, your lawyer can advise how such provisions may be interpreted by courts and can assess which contractual obligations your company may terminate or which ones your company’s contractual partners may terminate.
Most Favored Nation: These clauses generally require a supplier to treat a particular customer no worse than all other customers. These clauses are especially important to keep in mind during a period of lower demand. For example, your lawyer can work with your company to identify whether offering discounts to one customer will obligate you to offer the same discounts to another, or if any of your suppliers may owe you additional discounts as well.
Minimum Purchase Requirements: These clauses address the minimum quantity required for purchase over a period of time and what the consequence are for the purchaser for not meeting the minimum. If demand has decreased for your company’s products or services, your lawyer can work with you to assess which contracts should be terminated (if possible) and avoid potential litigation, which will help your company identify how best to consolidate its supply/service requirements before taking on new business.
Right of First Refusal/Exclusivity: A right of first refusal clause gives its holder the option to enter a business transaction with a contracted party according to specific terms before the contracted party may enter into that transaction with a third party. Similarly, an exclusivity clause may prevent a purchaser from acquiring materials from any other supplier. Even if your company holds a right of first refusal or exclusivity under a contract and doesn’t intend to exercise that right, your company may have significant leverage to renegotiate more favorable terms with the other party. Your lawyer can help you identify which of your company’s contracts may be renegotiated under more favorable terms.
Your company’s contractual arrangements often include hidden risks or assets, which might not become apparent without the assistance of a lawyer. By maintaining organized, digitized, and quickly accessible contractual records, your company will be better suited than most to react to changes due to the pandemic. Your lawyer can advise your company how to address its contractual risks or which arrangements provide opportunities for favorable renegotiation.
In some cases, litigation will become inevitable, but by having your lawyer evaluate your company’s contractual exposure now, your company will be able to better forecast which matters may result in litigation before they do. Your lawyer may even be able to assist your company to secure litigation financing now, which may soften the potential blow to your company’s bottom line.
This article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.
Barnes & Thornburg LLP is a large, full-service law firm that seeks to take a more entrepreneurial and cost-effective approach both to client service and its own business.