Steps Business Owners Can Take to Protect Themselves in the Face of the Coronavirus Pandemic

Unless you live under a rock, and these days that may be a good place to live, you are certainly feeling the impacts of the Coronavirus pandemic.  Schools are closing, sporting events cancelled, your college student is back in your house using up your limited supply of toilet paper!  It is clear this is turning all our personal lives topsy-turvy, but how is it going to impact our business lives? 

The interwoven nature of our economy will make it hard for any business to avoid a significant impact.  You likely have customers who are dependent on their own customers who may be dependent on suppliers who are dependent on employees.  Anywhere and everywhere in this chain there are likely to be impacts on the ability to perform the tasks you rely on for the success of your business.  And whether by choice or because there are no other choices, contracts will be breached.  As a litigator I have seen this on countless occasions. 

Most vividly we saw this play out in the aftermath of the financial crisis of 2008 in the construction industry.  When the cash flow stopped, everyone downstream felt the effect. Banks tightened up their lending practices, leaving owners unable to close on loans. Without these funds, developers, contractors, subcontractors, and materialmen were left unpaid. And most importantly, without funds, the planned projects were not built and the income that was supposed to pay for it all never arrived. Lawsuits ensued.  On far too many occasions during that crisis by the time the lawyers like me got involved the ability to turn save the project and limit the impact of the crisis had passed.  Lawsuits were won and lost, but in the end there was not enough money available to make everyone whole.

I learned some valuable lessons as a lawyer during that time.  Two of which are very applicable to what is happen today with the Coronavirus outbreak today: (1) Get Ahead of it!; and (2) Work with your business partners now to weather the storm together.   So, what should you do today?

  1. Review any contracts that are material to your business, both upstream and downstream.  Many of those contracts were likely prepared through the lens of robust economy.  Now look at the contracts through the lens of the Coronavirus. What are your rights?  What happens when one of the parties fails to perform?  Is there a dispute resolution procedure? Is there a force majeure clause?  Does it address infectious disease outbreaks or business interruption?
  2. Consider reaching out to those you do business with to discuss ways to continue the business relationship. 
    1. If you are concerned about getting paid, it is usually better to discuss a solution before the other party is in default.  You may be able to negotiate a restructured payment plan.
    2. You may be able to negotiate a broader scope or additional work as a way of spreading costs over time.
    3. If you are having difficulty performing your obligations, you may be able to change the timeline to perform to allow the quarantines and supply chain disturbances to pass.  Your business partner very well may desire the new timeline as well.

The main point, is that each of these discussions provides you the opportunity to rewrite your existing contracts to add new favorable terms to protect you in the event that the economy takes a turn for the worse and you end up in litigation.

Now is the time to prepare and make intelligent decisions to reduce the impact on your business.  If Blankingship & Keith’s team of commercial litigators, business attorneys or creditor-rights counsel can be of assistance, please let us know.