As we head into 2021, are you prepared to navigate vendor contract compliance? Let’s take a look at how the pandemic impacted compliance and what to be mindful of as you continue your relationships into the new year.
Vendor contract compliance before the pandemic
How did you manage or evaluate vendor contract compliance?
Before the pandemic, we prioritized getting the best deal and terms that covered mutual indemnification and limitation of liabilities, as well as making sure proper security certifications were in place — to make everyone feel comfortable with integrations.
As in-house Legal, you don’t want to roadblock business partners. But it’s our responsibility to mitigate risk. You have to balance the two, even during a time crunch.
Were there regulations or other forces complicating the company’s supply chain or vendors prior to COVID-19?
Depending on the business and vendor, security and data privacy has always been a concern. SOC 2 has become the standard if you want a vendor to integrate with an API — I always include it in a vendor agreement. Certain suppliers or vendors will actually require you to have certain terms and/or requirements in other vendor agreements. It depends on due diligence requirements your company sets plus any additional requirements placed by companies you have contracts with. It’s important to have the foundation and a standard already in place so you can make adjustments as you grow rather than agreeing to new terms and possible restrictions from another’s standard.
Has there been anything out of left field come up because of the pandemic that you didn’t anticipate?
This whole pandemic was out of left field and something none of us anticipated. Certain standard terms most of us didn’t spend time redlining or negotiating, such as force majeure, became one of the most important provisions this year. We noticed that certain contracts have an exhaustive list of events covered and others only with a simple provision covering “acts of God.” And what about government actions and mandates?
Most U.S. state laws require force majeure to be interpreted narrowly. So issues can arise from both sides of this spectrum. Having a list of triggering events but not mentioning other events that appear to not have been in contemplation of the contracting parties will not be interpreted as force majeure events. On the other hand, ambiguous language leaves interpretation open for the court, and case law precedent seems to be contradictory. It’s important to evaluate the needs of the business and choose proper language that would excuse performance or obligations if needed.
The impact of COVID on vendor relationships
Every company has been affected by this year’s global pandemic. How did COVID-19 impact companies’ supply chains, especially with overseas suppliers?
Companies scrambled to find different suppliers to meet deadlines and expectations. As consumers, we started shopping online and had the same expectations on delivery times without really understanding the issues these companies faced with vendors and suppliers. Issues with product creation, shipment and returns. In-house counsel faced the challenge (as we always have) of balancing closing deals within deadlines while still mitigating risk despite pressure from global uncertainties.
How did clauses in supplier contracts or other measures help your companies during the pandemic? What are things to look out for?
Payment obligations, renewal terms, and our new favorite: force majeure. The most important aspect, however, is maintaining positive relationships with your vendors and suppliers. As in-house counsel, our responsibility does not end when the contract is signed. The relationships we build during contract negotiations set the tone for the remainder of the working relationship. There will always be a renewal period, an amendment or addendum to the contract that’s needed — it’s important to maintain relationships so that legal issues are resolved seamlessly.
Did you or would you pursue litigation against every vendor or supplier that breached a contract during the pandemic?
I have not and would not recommend it — and risk severing vendor or supplier relationships — unless there was a material breach that negatively impacted your company. As I’ve mentioned, we tried to maintain positive relationships during a time when everyone was just trying their best to stay afloat.
Lessons in vendor contract compliance
Did COVID-19 highlight any previous gaps the legal team had regarding maintaining a supply chain?
COVID-19 has shed light on the importance of legal tech! Having a contract management system, resources and tools that can be accessed remotely have always been important, but now more than ever.
You would be surprised how many companies (even tech companies) do not have proper record keeping. When COVID hit and vendors or suppliers could not deliver on their obligations, everyone was reading through old contracts and searching for terms to protect themselves. Imagine how much easier that would be if everything was streamlined and all in one place.
Do you (a) see changes both in terms of the architecture of supply chains and your responsibilities becoming permanent, and (b) is there a lesson or two you can share about being nimble in the face of a sudden global economic shock?
To answer your first question, yes the focus on various terms and language changes within the contracts will become the standard template for companies. Everything is moving towards digital and certain changes need to be made to accommodate that.
As for your second question, understanding the needs and goals of the business as a whole and acting as a business partner — not just legal counsel — is important in times like these. Our goal is to mitigate risk, but what about the unforeseeable? Attention to detail and having the flexibility to adapt to business needs is important.
Last summer also sparked discussions concerning racial minorities. How can companies add more minority-owned vendors into its supply chain?
One thing I’ve seen is a diversity and inclusion questionnaire included during the RFI or contract phase, it’s simple and effective. If you think about having two vendors or suppliers with similar pricings and contract terms, and diversity and inclusion is important to your company, you can choose to go with the company that makes the effort to implement the same protocols.
Ironclad is the #1 contract lifecycle management platform for innovative companies. L’Oréal, Staples, Mastercard, and other leading innovators use Ironclad to collaborate and negotiate on contracts, accelerate contracting while maintaining compliance, and turn contracts into critical carriers of operational business intelligence. It’s the only platform flexible enough to handle every type of contract workflow, whether a sales agreement, an HR agreement or a complex NDA. The company was named one of the 20 Rising Stars on the Forbes 2019 Cloud 100 list, and is backed by leading investors like Accel, Y Combinator, Sequoia, and BOND. For more information, visit www.ironcladapp.com or follow us on LinkedIn and Twitter.
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