COVID-19: An (out)source Of Bother?

• Published date: 11 December 2020
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Coronavirus (COVID-19), Insolvency/Bankruptcy, Litigation, Contracts and Force Majeure, Operational Impacts and Strategy
• Law Firm: Hill Dickinson
• Author: Megan Bentham

Has COVID-19 encouraged you to reconsider your outsourcing needs? If so, it might be time to quarantine your outsourcing agreements and give them a health check. Below we have tracked-and-traced a list of considerations to help you to isolate any potential areas in those agreements that may need sanitising.

It always makes good sense to review your outsourcing agreements periodically, especially if your business relies heavily on outsourcing business-critical functions to third-party suppliers. The time for review is usually when those agreements are coming up for renewal or in the event you are considering appointing a new supplier. Of course, COVID-19 has introduced new and unpredictable challenges and as a result, some businesses have naturally turned more towards outsourcing functions to reduce in-house resources, while some have encountered service delays and disruption. Further, as day-to-day restrictions continue to be imposed on businesses to varying degrees, it is vital that such contracts are reviewed.

What to consider reviewing or adding to your existing agreements

Termination for convenience - you will have, or are likely, to have seen more customers bargaining for the right to terminate for convenience in light of the unpredictable economic landscape in which we find ourselves. This may require renegotiation of a notice period, transition of services or introduction of a termination fee.

Material adverse change - you are also likely to see parties negotiating for the right to terminate or suspend services upon a material adverse change or event. Suppliers may also want rights to increase charges if their costs increase due to a material adverse change.

Termination rights for insolvency related events - naturally, COVID-19 has resulted in many businesses refinancing, taking out loans or similar, and so some insolvency-related termination clauses may need to be updated.

CORPORATE INSOLVENCY & GOVERNANCE ACT 2020

This is new legislation that came into force on 26 June 2020 directly as a result of the COVID-19 pandemic. It seeks to assist companies in financial difficulty caused by the pandemic and subsequent economic crisis by introducing a number of new insolvency and moratorium procedures. It is notably very 'debtor friendly'.

Pre-pandemic, when companies enter into insolvency or restructuring procedures, their suppliers generally had the right to terminate any contract they had with that company as per a standard termination clause in supply...