The rapid spread of the Coronavirus Disease 2019 (COVID-19) in China is already impacting the global supply chain. Industry experts are predicting the impact on the global supply chain will peak in mid to late March, forcing thousands of companies to slow or temporarily shut down production. Departures from Chinese ports are already down 20 percent from the pre-outbreak levels.

Manufacturers, distributors, dealers, and parts suppliers who want to avoid or minimize the business impacts and exposure to liability due to the impacts of the virus on the supply chain should consider taking the following steps:

  1. Downstream Supply Agreements. Have counsel review your downstream supply agreements with attention to force majeure and/or Act of God clauses to determine what courses of action are available to you. Can you switch suppliers for the short term without incurring liability? When and how do you put your suppliers on notice of a breach? Should you send a demand for an assurance of performance to your suppliers?
  2. Upstream Supply or Sales Agreements. Have counsel review your upstream supply or sales agreements with attention to force majeure and/or Act of God clauses to determine how best to protect yourself. Can you prioritize your most important accounts? What terms excuse performance of any requirements contracts you are bound by? When and how should you provide notice of an interruption to your customers?
  3. Distribution Agreements. Have counsel review your distribution and/or dealership agreements and any applicable state laws. Many states have laws that require notification to your dealers and distributors of any material change in the business relationship. You need to consider whether notice of a supply chain interruption is required, and if so when should you provide it.
  4. Business Interruption Insurance. Counsel should review any potentially available insurance policies to determine whether coverage exists and when and how you should provide notice to your insurer.
  5. Long Term Planning. The current supply chain issues creates an opportunity for your business to evaluate its risk exposure to supply chain disruptions and take practical and legal steps to mitigate those risks in the future.

This is a dynamic situation and your business should begin preparing now to adapt to changing circumstances. For assistance with these issues and help answering any questions that may arise, please contact one of the authors or your regular Michael Best attorney.