As we look ahead to 2022, there are a range of commercial law issues which organisations from across industry sectors need to be mindful of. Here, we examine the top three, and explore what steps businesses can take to ensure they are doing all they can to be prepared.
- Supply chains
Supply chains have been disrupted by a range of factors throughout 2021. Rising demand for oil and issues with gas supply mean higher fuel prices. The pandemic has also made demand forecasting very difficult. There are also staff shortages across many sectors and, of course, the continuing impact of Brexit.
These issues are expected to continue throughout 2022. Given this uncertainty, business owners are naturally looking for ways to better protect their supply chains and would be wise to be extra vigilant in terms of drawing up and checking all supplier agreements to help guard against these issues as much as possible.
This can be done in a number of ways, for example:
- Payment terms - If you are a buyer you may wish to negotiate that you pay on receipt of goods rather than pay fully up front. If you have paid up front and your supply fails then it might be difficult to get your money back. If you are a supplier then of course, you might prefer being paid up front to pay for unexpected delivery, storage or insurance costs or to avoid the risk of your buyer becoming unable to pay. Parties may wish to try and balance risk by negotiating a middle ground such as staged payment dates.
- Force Majeure clause - this says what happens to the parties’ obligations if an extraordinary event occurs, particularly where this is outside of their control. For example, you probably wouldn’t want to be held to your obligations if your business was destroyed by a storm or terrorist attack or if you could not provide goods or services due to a pandemic. Read force majeure clauses carefully to see what may still be expected of you if an extraordinary event occurs.
- Length of supply chain - the longer your supply chain, the more risk of disruption along the way. Supply chains can be extensive and pass through many different jurisdictions. Further, insolvency practices vary in different jurisdictions. Knowing the limitations of different countries’ regimes can help you pre-empt issues, allocate risk and formulate coping strategies.
- Alternative suppliers - it is harder for some businesses to find alternative suppliers than others. Specialist industries will have fewer suppliers of parts which may be bespoke and only created by key machinery, or may not be reproduced elsewhere due to intellectual property protection. These considerations should be made well in advance in order to be ready for when supply chain issues hit.
- Sustainability
COP26 has brought sustainability issues to the forefront of the global stage once more. While some argue that agreements made at the summit do not go far enough, others are encouraged by the progress made.
What is certain is that there will be continued pressure on all organisations to have a renewed focus on sustainability, and this will filter down to commercial contracts and supply chains.
Indeed, many organisations may be keen to embed environmental and climate change targets into contractual relationships throughout their supply chain. There are a number of ways businesses can approach this, including:
- Getting off on the right foot - ensuring that environmental and sustainability commitments are discussed at the very early stages of a commercial relationship;
- Invitation to tender - those organisations which procure services using a formal bid process can include requirements for certain sustainability criteria as part of this. Those businesses responding to such tenders should therefore be mindful of a potential for increased need to demonstrate their environmental credentials when responding to tenders; and
- Sustainability clauses – these can be included as part of the contract negotiation stage and can cover a range of issues. For example, contractual obligations could be included to make sure a supplier keeps to certain environmental standards. A ‘green termination’ clause could be included to allow a business to exit the contract if these standards are not met
- Social responsibility
In a similar vein to environmental and sustainability issues, there is likely to be added focus on businesses demonstrating enhanced social responsibility throughout 2022. This will be pushed forward by two key events.
Firstly, from 1 April 2022, The National Living Wage will rise to £9.50. Secondly, the Modern Slavery Amendment Bill is currently working its way through Parliament. It aims to prohibit the falsification of slavery and human trafficking statements; to establish minimum standards of transparency in supply chains in relation to modern slavery and human trafficking; and to prohibit companies using supply chains which fail to demonstrate minimum standards of transparency.
If approved, the bill would enable the independent anti-slavery commissioner to issue formal warnings to businesses if they fail to correctly publish and verify information about the country of origin of its supply chain, or arrange external supplier audits.
This marks a strengthening of the current approach, which requires certain organisations to publish an annual statement setting out the steps they take to prevent modern slavery in their business and their supply chains.
Although the bill may not pass, there does seem to be a shift in attitude towards greater transparency in supply chains towards social responsibility and it would be wise for businesses to ensure they can meet any changing requirements here.
