Lawyers and in-house lawyers in particular have a crucial role to play in protecting their clients/companies from supply chain disruption risks. While many of the lessons learned from COVID-related supply chain disruptions help in providing a framework, simply duplicating them is unlikely to be sufficient.
There are a number of areas which we suggest considering to help protect against supply chain risks:
1. Re-visit current contractual clauses
Re-visit current contractual clauses to ensure they cover current perceived risks: generic force majeure clauses utilised during the COVID-19 pandemic may not adequately cover the nuances of geopolitical risks. Lawyers should review and customise those clauses based on the specific risks that could affect their supply chain such as war, sanctions, export controls and specific regional instabilities. It is important to clearly define what constitutes a force majeure event and the obligations of both parties under such circumstances.
2. Diversify and secure supply chains lawfully
Strategies to mitigate supply chain risks should of course include diversification of suppliers and geographic locations. Contracts should allow for the maximum possible flexibility in sourcing and the ability to switch suppliers or logistics providers with minimal or ideally no penalty.
3. Incorporate strong termination and suspension rights
Make sure contracts include clear termination and suspension rights that can be invoked in case of disruption. This should be coupled with detailed provisions on the consequences of termination or suspension such as settlement of accounts and rights to existing stocks or work in progress.
4. Review dispute resolution mechanisms
Ensure that contracts specify dispute resolution mechanisms that are pragmatic and efficient. These should include choice of law and jurisdiction clauses, clauses specifying whether arbitration or mediation should take place before any litigation and if so, choosing arbitration bodies and locations that are neutral and convenient.
5. Monitor compliance and regulatory changes
Make sure that legal teams are abreast of changes to sanctions and/or export controls that could impact their supply chains.
6. Insurance
Review and negotiate insurance policies to cover supply chain and geopolitical risks, ensuring that coverage is sufficiently comprehensive and tailored to the company's specific exposure.
Comments from this article originally appeared in Taking stock of supply chains | International Bar Association (ibanet.org).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
