Checklist: Supplier contracts and unforeseen events (UK)

Introduction

This checklist provides guidance to in-house counsel on how to assess and manage the risks and impact of force majeure and other unforeseen events on an organisation. It suggests how an organisation can seek to try and protect itself from possible risks, and following the occurrence of an unforeseen event, be able to continue to comply with contractual obligations, using contractual protections.

The checklist addresses the following steps:

1. Assess the impact to the business of force majeure or other unforeseen events
2. Decide whether the business has sufficient risk control measures in place
3. Conduct a review of key clauses in contracts to minimise the impact of force majeure or unforeseen events that affect the performance of the organisation’s obligations
4. Update standard templates and corporate policies

This checklist can be used in conjunction with the following How-to guides: How to draft a business continuity plan, How to draft a confidentiality agreement,  How to create a supplier code of conduct and How to manage the risk of contracting with a company in financial difficulty and Checklists:  Ensuring a contract is valid, What to consider when reviewing a confidentiality agreement, What to consider when terminating a contract, and What to consider when reviewing terms and conditions for the purchase of goods and services (buyer’s perspective) – B2B. 

The checklist is presented as a list of steps that can be ticked off as they are addressed. At the end of the document there are explanatory notes and specific notes corresponding to the relevant step in the checklist.

Step 1 - Assess the impact to the business of force majeure or other unforeseen events

Step 2 - Decide whether the business has sufficient risk control measures in place 

Step 3 - Conduct a review of the key clauses in contracts to minimise the impact of force majeure or unforeseen events that affect the performance of the organisation’s obligations

Step 4 - Update standard contract templates and corporate policies

Explanatory notes

Step 1 - Assess the impact to the business of force majeure or other unforeseen events

1.1 Consider the possible effects of force majeure or other unforeseen events on the business, such as a pandemic, and assess which would present the highest or most likely risk to the business

When drafting and negotiating a commercial contract, consider all possible force majeure events (for example inclement weather, fire, pandemics, strikes and government embargos) and unforeseen events that could occur, bearing in mind that not all unforeseen events fall into the category of a natural disaster or so-called ‘act of God’ but could instead be a deliberate act such as a terrorist or cyber-attack. 

After considering the possible events that could occur, take account of the potential duration of the force majeure or unforeseen event when considering the possible impact to the business. 

Considering both the type of event and the potential duration, consider the possible effects that such event may have for the organisation, eg, reputational damage, loss of custom or goodwill, as well as direct commercial loss related to damage to assets, data, personnel, or the inability to continue normal business operations.

Going through this exercise should help highlight any gaps and changes that may need to be made in terms of business continuity planning and to help identify any risks present in any supply chain arrangements, particularly those that may not necessarily be within the organisation’s control. Note any risks that may be managed through changes to contract terms such as force majeure provisions, performance measures or termination rights. For further information see Quick View: Force majeure.

1.2 Identify any business key dependencies on third parties

This should include third parties who provide support on the organisation’s behalf to its customers and key suppliers, as well as those who provide support services to the organisation itself, such as insurers and other professional advisors, as well as those suppliers who allow business operations to run smoothly, for example delivery service providers, component or spare part suppliers, or those providing asset maintenance and support services.

1.3 List the contractual measures or contingencies the business has in place with its customers to protect its business if it is unable to perform its contractual obligations  

If services are specified to be provided to agreed service levels, there should be some allowance made for unforeseen events that are beyond the reasonable control of the organisation. The business should be able to comfortably achieve the service levels that are agreed as part of a service level agreement with customers provided that there is a degree of contingency to allow for unforeseen events and unexpected disruptions. Ideally, the contract should state that any service credits that might be applied in the event of failure to achieve service levels should be subject to a specified financial cap (or maximum percentage) and relief criteria agreed for circumstances beyond the organisation’s control, such as the acts or omissions of third parties or even the customer itself. Similarly, if the organisation habitually agrees to delivery milestones and associated liquidated damages, rehearse what (if any) contingencies are built into those schedules or allowances made in the organisation’s pricing to take account of the commercial risk of late (or no) delivery as a result of an unforeseen event. Ideally, agree a cap for any liquidated damages and ensure that, where liquidated damages have been agreed, this is expressed in the contract to be the customer’s sole remedy for delay.

1.4 Confirm whether the organisation has a business continuity and disaster recovery plan for its business operations and whether this is properly maintained 

The purpose of a business continuity plan (BCP) is to set out the procedures to be followed to allow business operations to continue in the event of a major incident or disruption that affects the organisation’s ability to function on a normal day-to-day basis.

For a BCP to be effective it should have input from across the organisation and should be reviewed and tested on a regular basis. Ideally, you should have a BCP in place for all key customer contracts and, where a BCP is a contractual requirement, someone with appropriate authority should be appointed to oversee compliance, such as the customer account manager or the overall business continuity planning manager if there is one. Also ensure to put in place a BCP in support of any contracts with third parties performing support services that are essential to business operations, such as supply chain services for the delivery and collection of goods, and any outsourced or subcontracted services that form a part of the organisation’s manufacturing processes, such as testing. See How-to guide: How to draft a business continuity plan.  

Step 2 - Decide whether the business has sufficient risk control measures in place 

The ideal scenario in a contractual relationship is for risks to be apportioned between the parties so that the party best in a position to control them bears the greater risk. 

In a supply contract, whether for goods or services, it is generally the supplier who will be required to carry most of the risks as the party performing the services, so it is important to ensure that, wherever possible and as far as is appropriate, such risks are appropriately controlled or managed. For example, if acting as prime contractor (with several subcontractors) and responsible for the overall performance of a programme of services, ensure that any performance measures agreed with customers are flowed down to any subcontractors appointed to perform part of the services. Ensure that the performance measures are achievable and that adequate contingencies have been built in to cater for delays to performance caused by force majeure or other unforeseen events.

2.1 Consider the consequences of delays to performance and what contingencies the business has in place 

It is common in contracts for the supply of goods or services to include strict timelines for delivery. The consequences of late delivery may result in the supplier organisation having to apply service credits against future invoices sent to buyers or being required to pay liquidated damages. Where possible, it is advisable to minimise the organisation’s exposure to financial penalty by introducing a grace period prior to the application of any liquidated damages or services credits to enable the organisation a reasonable chance to be able to rectify the issue (where possible), or to try to take account of the cost of potential financial penalties for any potential late delivery into its pricing.

If there is no allowance for force majeure or other unforeseen events built into the organisation’s delivery lead times or it has not negotiated a grace period prior to the application of liquidated damages, then the organisation is likely to incur financial liability almost immediately, in the event of a force majeure or other unforeseen event, whether it was within that organisation’s control or not.

2.2 Identify alternative suppliers 

From a buyer’s perspective, it often makes commercial sense to source goods and services from a single supplier to benefit from economies of scale but, if that supplier is unable to fulfil its obligations, the risk to the buyer’s business can be high. Where a service is essential to a business or required in support of one of its key customer contracts, it is advisable to have in place more than one supplier contract (or a backup supplier) for that service. For example, having in place several agreements in support of the organisation’s delivery needs to ensure that, in the event of one supplier not being able to perform their obligations, it has the ability to switch reasonably and quickly to an alternative supplier. If there is already a framework (or master services) agreement in place with an alternative supplier, this can help the buyer organisation engage an alternative supplier at reasonably short notice.

2.3 Negotiating grace periods or relief from application of penalties

It is typical for there to be a short grace period prior to the application of liquidated damages. In relation to buyers who are unwilling to agree to the inclusion of a grace period to enable a supplier to fulfil its contractual obligations, consider introducing some contingency within the pricing to allow for the payment of liquidated damages in the event that the organisation is unable to deliver on time. Where delivering a programme of services over a significant period, it is advisable to identify key milestones for the application of liquidated damages so that whilst an organisation might miss performance or delivery of an interim milestone, it might have the ability to recover lost time prior to the next key milestone.

In relation to service credits, a supplier should retain the ability to seek relief from the imposition of service credits where the cause of failure is beyond the organisation’s control. Clearly define relief events which might typically include force majeure events relevant to the organisation and goods/services, delays due to third parties and/or the actions or omissions of the customer, as well as the process for claiming eligibility for relief for performance failures beyond the supplier’s (reasonable) control.

2.4 Check whether any contractual liabilities are sufficiently capped

Consider whether it would be beneficial to introduce separate caps on liability for various heads of loss such as data protection or other specific areas of risk depending on the nature of the relevant service provision. Are there any exclusions from caps on liability that pose a high risk to the organisation, for example liability for viruses, indemnities, liability for specific losses arising from breaches of confidentiality or data security? Check whether force majeure or other unforeseen events are carved out from any exclusions or caps. From the supplier’s perspective, it will want to ensure that these are included within the caps. Conversely the buyer will not want them included so that the supplier’s liability is uncapped for such events.

Step 3 - Conduct a review of the key clauses in contracts to minimise the impact of force majeure or unforeseen events that affect the performance of the organisation’s obligations

3.1 Identify key clauses that contain remedies if performance of the contract is delayed or prevented 

3.1.1 Termination

There are likely to be remedies available to either party in the event that performance of a contract is delayed or prevented. In relation to material or persistent performance failures in relation to a party’s obligations, the other party may have the right to terminate with immediate effect. For further guidance see Checklist: What to consider when terminating a contract. Where termination is because the event of force majeure or other unforeseen event is continuing over a certain period (as specified in the contract), consider whether termination is on a non-fault basis and/or if the buyer has the ability to also seek damages for breach of contract.

3.1.2 Service levels

Performance related penalties are not always contained within the main terms of a contract but instead may be found in either the service level agreement or within a schedule setting out details of the project plan or delivery schedule. These are often treated as commercial documents and risk being overlooked by the legal team. Ensure these are addressed during contract negotiations and any performance related penalties set out clearly within the contract if it is intended that these are to be legally binding on the parties.

From a supplier’s perspective, it will normally always want the buyer to only have the right to enforce service level credits, and not, for example, to be able to exercise any rights of termination or seek damages for breach of contract. Where the buyer has several remedies available to it under the contract, ensure each step is taken in turn considering all relevant circumstances. For example, it may be appropriate to first apply service levels, then to have a period of remediation, and only then for the buyer to be able to terminate and/or to seek damages.

3.1.3 Escalation and dispute resolution

In addition to any dispute resolution clause in the main terms of a contract, there may be separate escalation provisions related to performance elsewhere in the contract to address specific performance failures.

Sometimes a force majeure provision is intentionally omitted to prevent the supplier from seeking relief from its obligations in the event of force majeure. If there are force majeure provisions in the contracts, then consider whether any updates to definition of force majeure might be required to cover a broader range of events such as pandemics. Note the distinction between ‘pandemics’ and ‘effects of a pandemic’. The occurrence of a pandemic might itself not have any direct impact on the organisation other than, for example staff absence, but the effects of a pandemic may be far-reaching and could cover a much broader range of circumstances, such as governmental restrictions, embargos or global shortages of resources. A clause which includes ‘the effects of a pandemic’ as a force majeure event has broader scope for an organisation seeking to rely on the clause to excuse its performance as a result of the pandemic. 

Check whether either party has the right to terminate the contract for convenience or to make changes, such as, for example scaling back the scope of services should the force majeure or other unforeseen event mean that the requirement for services is reduced as a result. This may be prevented if there are minimum levels of commitment in the contracts.

A supplier of services may be liable to pay liquidated damages in the event of a delay to the delivery of goods or services or a failure to meet certain milestones. Service credits might be incurred due to failure by the supplier to meet service levels, for example because of a network outage or cyber-attack caused by a force majeure or other unforeseen event.

If issues arise that require escalation, check the contractual processes to be followed and any required timeframes and ensure that the organisation follows all required procedures, in particular in relation to any notices to be given, and to whom they should be sent.

Under the Procurement Act 2023 and the  Procurement Regulations 2024, suppliers bidding for public contracts must ensure force majeure clauses are precisely drafted to align with strict modification rules. Only unforeseeable events that do not alter the contract’s nature and stay within a 50% value increase threshold qualify for adjustment without re-tendering. Risks identified as ‘known’ in tender documents cannot later justify force majeure claims, and any contract changes must be publicly disclosed, exposing suppliers to reputational and eligibility risks. These obligations demand proactive risk management, contractual clarity, and full compliance with transparency and performance standards.

3.2 Identify whether there is a cap on liability for any liquidated damages or service credits for delays to performance

If there is no specific cap on liability, consider the effect if the organisation is unable to perform its obligations for an extended period of time. Whilst there may be an overall cap on the organisation’s liability in the contract, this is likely to be reflective of the overall value of the contract. It is therefore important that liability for delays to performance is capped to ensure that the organisation is able to manage the total financial exposure for delay, for example by making allowance for at least part of the potential financial loss within its pricing.

3.3 Verify whether there is a requirement in the contract to have a business continuity plan in place

Not all risks may be managed or controlled therefore it is important for both parties to make provision for business continuity planning in support of their respective obligations.

Some contracts explicitly require the supplier to have in place a BCP, but this may not necessarily be available upon contract signature and is often a document developed jointly with the customer over time.

When issues arise, such as a supplier failing to deliver goods on time, this may reveal a failure on the part of the supplier to comply with the BCP, such as not maintaining sufficient stock levels of goods or components to enable it to continue to deliver in the event of an unforeseen disruption to its supply chain. This may give rise to a potential breach of contract claim by the buyer. For further guidance see How-to guide: How to draft a business continuity plan. 

3.4 Consider what process obligations apply in relation to any key clauses on which the organisation may seek to rely during an unforeseen event

Clauses that allow relief from performance often require the party relying on them to follow a strict notification or reporting procedure.

Failure to follow an agreed procedure in a force majeure or other contractual provision, for example to seek relief from fixed penalties, may result in the organisation losing its entitlement to make a claim on the grounds of force majeure or other relief related provision.

Step 4 - Update standard contract templates and corporate policies

4.1 Consider whether the definition of a force majeure event should be updated

There may be a requirement to update not only standard business terms but also any contracts based on the customer’s standard terms. Ensure that the definition of a force majeure event is sufficiently comprehensive, taking into account the impact of previous unforeseen events on the business, eg referring to ‘the effects of a pandemic’ rather than just ‘pandemic’, embargos or governmental restrictions, whether temporary or otherwise.

A force majeure provision may only relieve the supplier from performance of its obligations but the obligation on the buyer to make payment can often be excluded from the scope of a force majeure provision as it tends to be focused on the supplier as the party bearing most of the risk. A force majeure clause that includes a 'reasonable endeavours' proviso does not extend to the other party having to accept alternative, non-contractual, performance unless the contract expressly states otherwise, as held in RTI Ltd v MUR Shipping BV 2024 UKSC 18.

From a customer’s perspective, this should be expressly set out to the extent it is not swept up in a general excusing of the performance of either party’s obligations under the force majeure clause in the contract. See Quick view: How is force majeure recognised around the world?

4.2 Consider whether changes to service levels should be made to account for any contingencies for delayed performance

Changes may be needed where the organisation has not allowed sufficient contingency within agreed service levels, for example where the organisation is consistently failing to meet them. It is advisable to include a financial cap on the total amount payable in-service credits (whether as a fixed amount or percentage) to cater for any long-term inability to meet service levels due to unforeseen circumstances. From the supplier’s perspective, check that service credits are the sole remedy to the customer for the supplier’s failure to attain agreed service levels so that the customer is not able to claim further compensation over and above any cap on service credits through reliance on other contractual provisions.

4.3 Review the application of caps on liability

Check specifically whether liability for late delivery or performance failures is adequately capped in any sales contracts. Ensure there are placeholders for the introduction of caps on liability within standard contract templates.

4.4 Decide whether a change in approach to negotiation of terms with third parties is needed

As a supplier, following review of the remedies available to it, it may be appropriate to introduce changes to its existing policies or its approach to third parties. Examples might include adding or amending force majeure clauses in customer contracts or changing agreed service levels for performance.

As a customer, in relation to an organisation’s suppliers, consider whether any changes may be required to the insurance and business continuity requirements to mitigate any risks that are not adequately managed under any existing agreements.

4.5 Assess whether any business continuity plans or clauses require updating

Ideally, there should be a central team managing business continuity planning for the organisation but, in any event, there should also be ongoing and regular reviews of business continuity plans for individual customer contracts. See How-to guide: How to draft a business continuity plan.

Additional resources

Related Lexology Pro Content

How-to guides: 

How to draft a confidentiality agreement
How to create a supplier code of conduct
How to manage the risk of contracting with a company in financial difficulty
How to draft a business continuity plan

Checklists: 

Ensuring a contract is valid
What to consider when reviewing a confidentiality agreement
What to consider when terminating a contract
What to consider when reviewing terms and conditions for the purchase of goods and services (buyer’s perspective) – B2B 

Quickview:

How is force majeure recognised around the world?

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