COVID-19 supply chain disruptions and how suppliers and service providers have handled such disruptions have prompted procurement teams to reconsider whether business should be shifted away from suppliers that have performed unsatisfactorily during the pandemic. In this connection, the request for proposal (“RFP”) process continues to be a valuable tool for buyers of goods and services to evaluate new supply and service solutions. There is no better time to consider whether a buyer’s RFP approach, and the form contracts submitted with the RFPs, can be improved.
When a buyer has control of the RFP process, it is in a favorable position to negotiate aspects of a contract that may have been glossed over in the pre-pandemic world. A few provisions that buyers should pay particular attention to going forward are force majeure, termination for convenience, and suspension.
Buyers should ensure that the force majeure provision requires their supplier to provide prompt notice of a force majeure event.The force majeure section should also allow for termination of the contract in the event the supplier cannot resume performance within a reasonable amount of time.Additionally, the buyer will want to ensure that the scope of what constitutes a force majeure event is appropriately limited.
Termination for Convenience
COVID-19 has highlighted the need for flexibility in approaches to supply and service contracts. While termination for convenience has always been important to purchasers of goods and services, the need for one-way termination for convenience in favor of the buyer with a reasonable notice period for the termination should be viewed as a critical term when selecting a supplier in the RFP process, particularly when the supply relationship is exclusive or includes a requirement to supply a particular volume.
A suspension clause may accomplish the goal of delaying a supplier’s performance without having to resort to the strict language of a force majeure section.Ideally, from the buyer’s perspective, a suspension clause would be drafted in the buyer’s favor to allow the buyer to suspend performance under a supply or service contract for any reason, and would provide for resumption of performance under the contract upon notice by the buyer.
More than ever, it is essential that the buyer’s form contract is sent simultaneously with the RFP document. Due to the urgency of certain supplier selection processes, there is a temptation to send out the RFP document and follow up with the form contract later, and in some instances, the form contract is not provided until the new supplier has been selected. Providing the form contract early in the RFP process and requiring the supplier’s redline as part of the response to the RFP will give the buyer more leverage in negotiating the contract, will identify at an early stage any potential major contractual hurdles, and will provide a glimpse into how easy or difficult it will be to work with the supplier on a go-forward basis.