Companies should prioritise risk management in their approach to business and review their third-party relationships and contracts as the coronavirus pandemic continues. While the degree of disruption to supplies and staffing has settled since its initial peak, it is still fragile, and the future remains uncertain. Staff are engaged in new ways of working and supply chains continue to experience pressures outside their control.
With the pandemic reaching into every aspect of business, it is important to review practices, policies and processes to be sure they match up to the new normal.
The recent example of fashion retailer Boohoo and the media storm around poor working practices in their supply chain demonstrates how quickly such issues can turn into a financial liability. A Leicester factory supplying the retailer was found to be paying less than the minimum wage and not complying with Covid-19 safety requirements. The resulting scandal triggered a major selloff in Boohoo's shares.
And it’s not just suppliers of raw materials or finished products, equally detrimental could be the failure of operational providers, for example in technology.
Organisations must take third party risk seriously and every member of staff should understand how vital this is to the future of the company. No one can afford to be passive in a time of crisis, and ongoing due diligence is essential. Companies will find themselves in difficulty if they fail to anticipate or identify issues in their own operations, or in their supply chains and partnerships.
It is always better to anticipate than try and deal with problems afterwards which is why it is important to review existing contracts and any new ones proposed, whether with suppliers or customers or new or old, to be sure that you are maximising protection. We have seen how likely companies are to find themselves in unforeseen situations and having the right terms for waiver of rights or contract variation through to indemnities and damages could make all the difference. This way, you could also ensure that, if the worst happens, there is an understanding of invoking force majeure or termination, if necessary.
Some of the questions to ask yourself when reviewing the Terms include:
Third party relationships
Is our vetting process for new suppliers and partners sufficiently robust in a Covid-19 world?
Do we have processes in place to recognise warning signs with our existing suppliers and partners?
Can suppliers provide proof of meeting standards and regulatory compliance if work is taking place outside the normal working environment, e.g. with workers at home?
What would we do in relation to each of our third-party relationships if they were to shut down temporarily due to the virus?
Do we have alternative suppliers or partners identified if one of our existing relationships were to close permanently?
- Are we and all our suppliers responding to the current guidance and complying with safety practice where staff are in the working environment?
- How do we ensure third parties are operating within mandated requirements at their local, national or international level, such as those relating to lockdown or the government's guidance regarding health and safety for Covid-19?
- How are remotely operating staff being monitored and managed to avoid breaches in working practice or other standards?
- Have data security processes been updated and adapted to reflect changes in working practices and sensitive information is protected?
- Are we confident our suppliers have addressed intellectual property protection in any home working that is taking place?
- Do supply chain timelines need to be adjusted, by us or those who supply us?
- If we or our partners need to hold more stock than usual, or cannot sell at all for a period of time, how will this affect cash flow?
- Are previously agreed payment terms in need of review?
- Is accounting up to date and everyone keeping a close eye on performance so they can identify any potential difficulties well in advance?
- If we need to apply for financial support, do we know the options and are we on top of corporate reporting and documentation?
This is not legal advice; it is intended to provide information of general interest about current legal issues. Should you require more specialised and specific advice, please do not hesitate to contact our team who will be more than happy to assist you and provide you with the necessary guidance and information.