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08/22/2020

The purchase contract in times of crisis

Termination options in the event of payment problems

 

The coronavirus has shaken up supply chains worldwide. There are not only bottlenecks on the supplier side, but also liquidity problems on the buyer side. The legal possibilities to make provisions for times of crisis in purchasing contracts are limited and should therefore be fully exploited.

Contract adjustment possible
No production, no sales - buyers had to switch from "order" to "cancel" at breakneck speed. Professor Claudius Eisenberg from Pforzheim University knows that this is not always legally secure. "Even in the Corona crisis, liquidity problems basically do not give companies the right to withdraw from supply contracts with their suppliers," says the lecturer in business law. "Particular attention must be paid to the distribution of risk in supply contracts: the sales risk regularly lies with the buyer.

If no express provisions have been made in the contract, termination of supply contracts is only possible under the special conditions of the legal institution of the disturbance of the basis of the business according to §313 of the German Civil Code (BGB; see box). "In cases of force majeure - and the Corona crisis is generally regarded as such for contracts concluded before it became known - there may then be a contractual adjustment, such as a postponement of delivery and payment", explains university lecturer Eisenberg. By the way, this legal situation is not typically German, but arises similarly for international purchase contracts from UN purchase law.

No right of withdrawal or termination

Postponement yes - resignation and cancellation but only in very few exceptional cases. Claudius Eisenberg cites as an example, "if the buyer's sales markets break away to a large extent for an unforeseeable period of time because of the Corona crisis". Only in such an extreme scenario can it be assumed that the basis of business between supplier and buyer will completely disappear. It would be unreasonable for the purchaser to adhere to the contract, which is why in this extreme case there would probably be a right to withdraw from the contract or, in the case of a long-term supply contract, to terminate it.

Involve suppliers

However, it would be short-sighted of the supplier to insist rigidly on his legal position. "If his customer becomes insolvent, he will not be helped," says jurist Eisenberg, summing up the dilemma. Dr. Nikolaus Helbig, supply chain expert at the auditing and consulting firm Deloitte in Munich, therefore advises companies in distress: "Instead of getting lost in a legal battle of houses, it makes sense to seek dialogue with the contractual partner and find solutions together. Under certain circumstances, the supplier may have a larger liquidity cushion than the purchasing company". Especially in the case of long-term supply contracts in series business, as is common in the automotive industry, for example, reducing the quantities called off could help.

The BME survey shows that this is being actively used: 18 percent (previously seven) of those surveyed stated that materials ordered were no longer called off due to postponed customer orders. "It is helpful if the contractual partners talk to each other intensively and in a spirit of trust," says sourcing and procurement consultant Helbig. "Because after the crisis, the supplier network is needed again."

Strategic orientation of purchasing

In an extreme crisis situation such as the global corona pandemic, terms such as supplier management, risk management and strategic purchasing, which have often remained pale and theoretical up to now, suddenly take on a new shape. "Anyone who has done his homework does active risk and supplier management, especially with business partners who are critical for his own business", says Stephan Kunigk of Kerkhoff Indirect Procurement in Düsseldorf. "In many companies, purchasing is still measured very one-dimensionally exclusively by savings, but its role has changed significantly in recent years: away from the administrative procurer to the proactive business partner". A good relationship with its A-suppliers is worth its weight in gold and money in times of crisis.

If you want to deal more with suppliers, markets and the underlying risks, you need time for this. The necessary relief could also be an important step towards digitization: "There are IT solutions on the market today that largely automate and digitize the classic order processing," says consultant Kunigk. And the supply chain can also be better examined using digital tools. "This leaves more time for value creation in purchasing," says Kunigk.

Contractual precautions

As the pandemic has shown, each contracting party can get into (delivery or payment) difficulties. The contract should provide for cases of force majeure and find a solution acceptable to both parties. So-called force majeure clauses provide for an exemption from the obligation to accept and pay for the duration of the exceptional situation. Professor Eisenberg recommends that attention be paid to the time limit and that the supplier also be granted the exemption from performance. Similar to the legal regulation according to §313 BGB, a complete withdrawal from the contract by withdrawal or termination should be formulated as an absolute exception. "Due to the imponderables of the German AGB jurisdiction - because such regulations will almost always be general terms and conditions - great care must be taken in the formulation", advises the business law expert. It should also include what should actually be taken for granted by now: that buyers and suppliers inform and coordinate with each other in times of crisis. Better safe than sorry.

The author: Anja Falkenstein, lawyer, Karlsruhe

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