Harrison Drury’s commercial dispute resolution team considers how the government’s restrictions in response to the coronavirus COVID-19 pandemic is affecting the UK’s manufacturing sector.
COVID-19 has now spread across the UK and Europe and will impact our lives to a greater extent, and for much longer, than first anticipated. The government restrictions regarding social distancing and lockdown has affected the ability to continue to do business, particularly for those operating in the manufacturing sector.
Some issues experienced by manufacturing businesses include:
- Disrupted supply chains – resulting from components and raw materials required for fabrication processes being no longer available, in short supply or delayed.
- Logistical challenges – causing issues with the delivery of components and raw materials to the manufacturing business or in transportation of parts. Businesses may also face issues transporting their own finished goods to customers.
- Managing staff numbers – including employees who are unwell, self-isolating or needing to work in compliance with social distancing guidance.
Some manufacturing businesses, either by choice or due to governmental requests, have diversified or changed their production lines to fabricate goods vitally needed to fight the pandemic.
Examples of this include changing production and processes to build ventilators, produce personal protective equipment or formulate batches of hand sanitiser.
Key considerations for the manufacturing sector during lockdown are outlined below.
Managing supplier relationships
If there are difficulties in obtaining components to enable your business to continue production, there may be little alternative but to consider the variation of existing agreements or establishing new commercial relationships with unknown suppliers.
Manufacturing businesses may therefore enter into alternative supply contracts very quickly due to an urgent need, without carrying out the necessary checks they would usually undertake. Under any circumstances, a thorough due diligence on any new business you are seeking to trade with is essential, together with ensuring that clear contractual documentation is in place.
Focussing on products
For manufacturing businesses that are fabricating products for the first time, there is an obvious risk relating to product liability and failure to comply with any relevant regulations. Any business responding to an urgent call to create new products quickly or looking to diversify their product line, must be fully aware of the relevant legislation applicable to the market it is now entering.
The business should also re-consider its insurance cover and any limitation of liability clauses within its terms of business. Clearly, the last thing any manufacturing business wants is to be faced with civil claims for example, due to product safety issues, coupled with fines, potential criminal sanctions and severe reputational harm. Any products created also need to be described and marketed accurately.
Reviewing your contract terms
Businesses should always be clear of the contractual terms upon which they are operating. This is both in relation to agreements formed with new and existing suppliers and in relation to the terms and conditions upon which the manufacturing company sells its products to its own customers, whether these are consumers or other businesses.
Specific clauses in contracts may be of assistance if either your business or your supplier is unable to perform its agreed obligations either on time or at all. One such contract term is a ‘force majeure’ clause which may offer relief to a party if it finds itself unable to perform due to a specific event outside of its reasonable control.
Each force majeure clause is different so will need to be considered individually to establish whether the COVID-19 pandemic is covered or not. Specific force majeure events may be stated in the agreement and wording such as ‘disease’, ‘pandemic’ or general language describing unforeseeable situations may be of assistance.
Checking insurance policies
Manufacturing businesses should ensure they have relevant insurance cover to protect them against claims relating to any products manufactured by them.
Your business may already have a policy that covers losses relating to the pandemic and it may include business interruption insurance. Whether cover is available or not will depend on the exact wording of the insurance policy.
Many businesses will have a range of policies that may be applicable to claim against, such as business interruption, directors’ and officers’, public liability, employers’ or even travel insurance policies if work trips were planned and have now been cancelled. It is important to get an early grasp on what policies may be relevant and make contact straightaway with your insurers.
Mitigating your risk
A fundamental way to mitigate your risk is by taking early, clear and full legal advice. In these unprecedented times, businesses in the manufacturing sector need to think ahead and plan early.
Businesses do not want to be faced by expensive and time-consuming claims relating to their supply chain or product liability. Document retention is key, to demonstrate the sequence of events, and may also assist with defending spurious court claims.
Whilst the above guidance provides a general outline on matters which may be relevant for businesses that operate in the manufacturing sector, our experienced commercial dispute resolution team can assist you in relation to your specific circumstances.
The commercial and corporate team can help draft contractual documentation or provide advice on your terms of business. We can also provide tailored advice to help you protect your interests during the coronavirus crisis and offer solutions to help you and your business minimise risk into the future.
You can discuss your options with Harrison Drury’s commercial dispute resolution team on 01772 258321.