Coronavirus contract checks – a ten-point checklist for all companies

The coronavirus pandemic is keeping the world on tenterhooks and affecting companies in all industries and of all sizes. In order to mitigate the effects of the crisis on existing contractual relationships and to minimise risks with new contracts, we advise that you review your existing contracts and bear these ten points in mind:

1. Delivery and payment obligations

If delivery difficulties arise due to the pandemic or if there is no longer any interest in accepting certain products due to the changed economic situation, it may be worthwhile to review existing contracts to determine if they actually provide for binding delivery or acceptance obligations and whether these are already due. Often, for example, long-term framework agreements do not even contain "hard" obligations.

2. Rights to refuse performance

If a contractually owed service can de facto no longer be provided or can only be provided with unreasonable effort (e.g. due to official orders), a case of so-called "impossibility" ("Unmöglichkeit") exists in law. The debtor can then refuse performance, and at the same time the claim to the agreed-upon counter-performance is cancelled. In addition, supply contracts often contain a reservation of self-delivery, which enables suppliers to refuse performance under certain conditions if they cannot be supplied.

3. Termination options

It may also be possible to terminate contracts that have become unprofitable or impracticable. In this way, it may be possible to avoid protracted disputes over the question of whether the fulfilment of contracts was still possible and reasonable in view of the pandemic.

4. Contract adjustment due to force majeure

Contractual clauses on force majeure may, under certain conditions, release the contracting parties from their delivery obligations in whole or in part. Depending on the wording of the provisions, the pandemic may be classified as an event of force majeure, which may lead to a reduction in liability. If contracts do not contain such a regulation, a contract adjustment in accordance with the principles of disruption of the business basis may be considered.

5. Examination of alternative procurement possibilities

Force majeure or a coronavirus-related right to refuse performance can only be invoked by those who are unable to remove any impediment to performance with reasonable measures. The question of what is still considered reasonable must be determined separately for each case. However, certain additional expenses are generally considered reasonable. Suppliers who depend on subcontractors for their services should examine all alternative possibilities to ensure their own efficiency if suppliers fail or other circumstances make procurement difficult.

6. Keep an eye on antitrust law

On a personal level, distance is the order of the day, but the crisis is bringing markets closer together. In order to maintain performance, cooperation between competitors should be considered. However, antitrust regulations remain applicable even under current conditions, so that caution is advised in the event of an excessively close exchange. In the case of companies that dominate the market or have a strong market position, unilateral measures should also be subject to examination under competition law. It seems obvious, however, that competition authorities will show understanding if during the crisis the examination of a project's antitrust conformity is carried out faster and less thoroughly than in normal times.

7. For new contracts: include epidemic clauses

As a rule, a precondition for invoking force majeure is that the event was not foreseeable at the time of conclusion of the contract. For contracts concluded after the pandemic became known, it should be specifically clarified that impairments due to the coronavirus should not give rise to liability.

8. Check insurance policies

In the event that the effects of the pandemic cannot be cushioned, check whether and to what extent there is insurance coverage for epidemic-related operational failures or restrictions.

9. Preventing the statute of limitations

We have already provided information here on the effects of the coronavirus on current limitation periods. In order to prevent imponderables in the assessment of whether the statute of limitations can be suspended due to force majeure, even in the current exceptional situation, the statute of limitations that is about to expire should be kept in mind and, if necessary, measures to suspend the statute of limitations should be taken. For this purpose, agreements with the contractual partner, such as a waiver of the statute of limitations, should be considered.

10. Working out possible solutions together with the contractual partner

When in doubt, remember that talk is golden. If the coronavirus has already led to complications in the contractual relationship or if such complications become apparent, communicate this in written form to your contractual partners and try to find a solution that is sustainable for both parties. Especially in cases where the legal assessment is not clear due to rapidly changing circumstances, it makes more sense to work out a solution that saves resources than to argue in court over questions on the interpretation of individual terms or over who must bear the various economic consequences of the crisis.

For more information on this checklist and the steps you can take to protect your business during the current crisis, contact your regular CMS advisor or local CMS experts: