David Kerr: Welcome, everyone, to our webinar on global disruption and rising costs, what your contracts should cover.
David Kerr: My name is David Kerr, and I am the Practice Group Leader in our Corporate team. Today, I am joined by my co-host Stephen Drysdale, a Practice Leader in our Commercial Contracts team, and Vanessa Swain, a Practice Leader in our Disputes team.
David Kerr: Before we get started with the webinar,
David Kerr: I just wanted to let you know that you will receive a copy of the recording and the slides in your email. You will have an opportunity to submit any questions in the Q&A box, and we will get to them at the end. There will be a short survey at the end of the webinar. If you can please complete that, and you will need to stay until the end of the webinar to enter into our Apple AirPods monthly draw.
David Kerr: In order to claim your complimentary consultation, you will need to fill out the survey that appears at the end, where you will have an opportunity to put in your contact details, or visit us via our website.
David Kerr: Now, for today’s webinar, what we are going to go through is price variation and escalation clauses. We are going to look at what termination and exit rights you can ordinarily expect to see in contracts. We will discuss force majeure and supply chain disruptions.
David Kerr: We will discuss payment terms and debt recovery. We will look at risk allocation between common elements like indemnities, liability caps, and how you can use insurance. We will also talk about some of the key actions and trends we are seeing from clients.
David Kerr: What brings about this webinar is that we are seeing large interruptions to supply chains, inflation, and geopolitical instability.
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Stephen Drysdale: From a commercial contracts perspective, what we are seeing is that a lot of agreements simply were not drafted with this level of volatility in mind. Pricing assumptions, supply reliability, and timelines were often taken for granted.
Stephen Drysdale: As a result, businesses are now finding themselves locked into arrangements that do not reflect current economic conditions. That is where well-drafted price variation clauses and escalation mechanisms become critical.
Stephen Drysdale: If those clauses are not there, or are too vague, it becomes very difficult to pass on increased costs or renegotiate terms without friction.
Vanessa Swain: From a disputes perspective, we are seeing an increase in disagreements where parties have different interpretations of what their contracts actually allow them to do.
Vanessa Swain: In particular, force majeure clauses are being tested more frequently. Many businesses assume these clauses will automatically apply in situations like supply chain disruption, but that is not always the case.
Vanessa Swain: The wording of the clause is critical. If it is too narrow or does not clearly cover the event, businesses may not be able to rely on it to suspend or avoid their obligations.
David Kerr: That is exactly right, and it is why understanding your termination and exit rights is so important.
David Kerr: If your contract does not give you a clear pathway to exit or renegotiate, you may be forced to continue performing under unfavourable conditions.
Stephen Drysdale: On payment terms, we are also seeing increased pressure on cash flow.
Stephen Drysdale: Businesses are experiencing delays in payment, and that has a flow-on effect across the supply chain. Strong payment terms and clear debt recovery processes are becoming increasingly important.
Stephen Drysdale: This includes setting clear due dates, interest on late payments, and having mechanisms in place to escalate unpaid invoices quickly.
Vanessa Swain: When those mechanisms are not in place, disputes can escalate quickly.
Vanessa Swain: We often see situations where a simple payment delay turns into a broader contractual dispute because the parties do not have clear processes for resolving issues early.
David Kerr: That leads into risk allocation.
David Kerr: Contracts should clearly set out who bears which risks. This includes indemnities, liability caps, and insurance obligations.
David Kerr: Without this clarity, businesses can find themselves exposed to risks they did not anticipate.
Stephen Drysdale: Insurance also plays a key role here.
Stephen Drysdale: It is not just about having insurance, but ensuring that it aligns with the contractual risks you have agreed to take on.
Vanessa Swain: And from a disputes perspective, if there is a mismatch between contractual obligations and insurance coverage, that can create significant issues when something goes wrong.
David Kerr: In terms of what we are seeing from clients, there is a clear shift towards being more proactive.
David Kerr: Businesses are reviewing their contracts more regularly, tightening their terms, and focusing on flexibility.
Stephen Drysdale: There is also more focus on scenario planning.
Stephen Drysdale: Businesses are asking, “What happens if costs increase significantly? What happens if supply is disrupted?” and building those scenarios into their contracts.
Vanessa Swain: And importantly, they are also thinking about dispute resolution upfront.
Vanessa Swain: Having clear escalation processes and dispute resolution clauses can make a significant difference in how quickly and effectively issues are resolved.
David Kerr: Ultimately, the key takeaway is that contracts are not just legal documents. They are commercial tools.
David Kerr: In times of disruption and rising costs, they play a critical role in protecting your business and giving you the flexibility to respond.
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