It goes without saying that facilities managers have had their hands full since news of Covid first emerged. Having to manage offices, warehouses, stores and other business premises in a time of lockdown, and then throughout a period of ever-changing government guidance to manage the risks, has been an incredible juggling act.
However, it has also provided us with a learning opportunity. Considering the types of issues that we have had to deal with as a result of Covid, what do you need to be looking at in FM contracts to ensure you have the flexibility and protections you need? Here are some of my top tips.
Can we help? Get in touch with us for help in assessing the contractual aspects of your facilities management and business operations, and identifying the steps you need to take to tailor solutions to your business and work environment. Here are a few steps to consider initially:
1. Force majeure provisions
At a high level, force majeure is an exceptional or unforeseeable event beyond the parties' control, which renders performance of the parties’ obligations either impossible or impracticable. The intention is to avoid a party being in breach of an agreement by not complying with its obligations through no fault of its own. Relief for the party affected may come in the form of suspending performance obligations whilst the force majeure event continues, extending the time for performance, and where the event continues for an extended period of time, rights for one party or both parties to terminate the contract.
It is important to understand that under English law, there is no general principle of force majeure. As such, a party may only rely on force majeure if there is an express contractual provision allowing it to do so, and where those provisions apply to the circumstances at hand.
Therefore, make sure you pay close attention to the force majeure provisions in your contract. Which events are expressly covered? If a broad definition is provided, would that be sufficient to cover pandemics, as an example? Which party has a right to terminate, if there is a termination right granted? Quite often in contracts only the party whose obligations have been affected by a force majeure event has a right to terminate. However, if you are a customer not receiving services, it may be in your interests to have a termination right also. And what happens to a customer’s obligations to pay throughout the force majeure event – are they expressly suspended?
At the end of the day, a customer simply wants to receive the services. This leads on to my next tip.
2. Business continuity
There’s nothing like a pandemic to prompt everyone to read their suppliers’ business continuity and disaster recovery clauses and related plans in detail! Many contracts include obligations on a supplier to have a BCDR plan in place, and invariably these plans are initially designed after transition and service supply has commenced. Without a strong contract governance regime, it would be easy to overlook both finalisation of the plans, and regular BCDR plan testing. Furthermore, it would be unrealistic to suggest that every BCDR plan drafted to date had anticipated and adequately catered for an issue like Covid.
With that in mind, make sure that you have robust BCDR plans in place with all of your key suppliers. Do a deep dive of all plans to check, firstly, when the plans are intended to be implemented and then once implemented, that they provide you with sufficient continuity of service. Check the assumptions on which the BCDR plans are drafted. Does the plan still give you the coverage you need if we have further lockdowns? What services need to continue throughout a period of lockdown or a phased reopening of premises? And are all critical support functions covered?
Finally, don’t look at a single supplier’s BCDR plans in isolation. Carry out an internal overarching business impact assessment that focuses on all of your core business processes, and map any impact of likely events on those business processes back to each relevant supplier and their plans.
3. Exit management
Contracts tend be getting shorter in duration, and I can see that trend continuing. This places more importance on a clean and complete handover from one supplier to another simply because handovers will be happening on a more regular basis. To minimise impact of service provision changes, your exit management planning needs to be in place from the time you enter into the contract. Exit management schedules are key in setting out the assistance that a supplier will provide to a customer and the replacement supplier on termination or expiry of the agreement. Most exit management schedules will require the parties to create and agree an exit management plan, which can be updated on a regular basis throughout the term of the agreement. Like the BCDR plans, these exit plans should be reviewed as part of the ongoing contract governance regime so that they are always ready to be rolled out if the need arises.
Now is a great time to review existing exit plans also. Do they need to be amended to reflect the current ways in which services are being provided? And can the parties comply with their obligations in the current working from home environment?
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4. Governance and reporting
Given the number of changes over the last few months to the ways in which services can and must be provided, parties to a contract are likely to be needing much more regular and flexible governance structures. “Little and often” should be the mantra for contract reviews, so that the parties are speaking on a regular basis in particular about the services, service levels, and any difficulties that have arisen or might arise in respect of service performance. That way, any issues can be dealt with quickly. The parties may agree that additional ad hoc meetings can be convened as and when necessary so that more pressing problems are resolved quickly. In addition, a clear escalation path to senior management to enable the review and resolution of issues in a timely manner is also vital.
If you don’t have contractual obligations requiring your supplier to notify you of issues as and when they arise, then look at adding those. Examples of matters that you may wish to know about promptly include service delivery snags, and can also extend to concerns as to the supplier’s financial standing, breach of the agreement by the supplier which may have a compliance, regulatory or reputational impact on the customer, and security breaches. The rationale is that the sooner a customer is aware of a problem, the sooner it can be resolved, with hopefully less impact on all parties.
If you are a supplier of FM services, check that there is no disparity between your obligations to a customer, and your rights and remedies in relation to your subcontractors and suppliers. For example, make sure that the drafting is clear in your contracts with customers that if your subcontractor is affected by a force majeure event, you also have relief. You don’t want to be in a position where your subcontractor is excused from performance in relation to you, but you are still on the hook to provide services to your customer.
Contracts, and the related BCDR plans and exit management plans, should also be clear as to the role subcontractors are filling. Customers will want to include express obligations on a supplier to flow down relevant obligations in relation to the preparation and implementation of these plans to all subcontractors, and to know that all BCDR and exit management plans can be put into practice seamlessly.
And finally, it is in both parties’ interest to ensure that where subcontractors are providing vital aspects of the services, governance and reporting provisions are flowed down to the subcontractor also. Giving key subcontractors a seat at the table may very well speed up resolution of issues.
If you haven’t already done so lately, it would be worthwhile reviewing each of your existing FM contracts, bearing in mind recent events and with an eye on the matters I have raised. If you choose to discuss with the other party the steps to be taken to fill any gaps, follow the contractual change control procedure to document any agreed amendments.
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