Dealing with Vendors and Suppliers: Disaster Planning and Recovery

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May 04, 2018

Disaster Planning and Recovery
In this context, I define a “disaster” as any unexpected and disruptive event that materially impacts the cost or difficulty of performance on the part of either or both the vendor or the customer. By nature and definition, disasters are unplanned and often unavoidable to an extent. However, there are contractual means to avoid having the disaster event have an unnecessarily large disruptive impact after the event is over.

If an event is disruptive enough, even without explicit contractual treatment, there are common law doctrines that may relieve one or both parties of their contractual obligations. Examples include the doctrine of frustration of purpose (see, e.g., U.S. v. Moulder, 141 F.3d 568
(5th Cir. 1998) (supra) (examining doctrine of impossibility of performance) impossibility (see, e.g., Harvey v. Lake Buena Vista Resort, LLC, 306 Fed.Appx. 471 (11th Cir. 2009) (holding that the doctrine of impossibility exists “where the purposes, for which the contract was made, have, on one side, become impossible to perform”), or mutual mistake (see, e.g., Masco Corp. v. Zurich American Ins. Co., 382 F.3d 624 (6th Cir. 2004) (holding that the doctrine of mutual mistake requires that the mistake [as to law or fact] exist at the time the contract is negotiated.”) Despite their potential availability as a source of relief, application of these doctrines in litigation tends to be fact specific, uncertain and uneven, however. The better practice is to provide more clarity as to those circumstances that the parties intend should relieve one or both from their contractual obligations, or at least suspend them.

One common method of achieving this result is by way of a force majeure, or “Act of God”provis ion. This type of provision usually enumerates a number of types of disruptions, such as natural disasters, labor stoppages and other occurrences that the parties agree in advance will suspend the affected party’s obligations. In other situations it may be appropriate to specify adjustments in the vendor’s compensation if cost conditions vary by more than some prescribed amount. In all such situations there is a benefit to advance contractual treatment, so that the customer can better plan and prepare for these contingencies.

Further, depending on the nature of the contemplated relationship, it may be appropriate andwell-ad vised to negotiate in advance with the vendor the nature and intensity of the assistance, if any, that the vendor will provide. This assistance could be in the form of personnel dispatched to the customer’s site to render assistance, providing the customer with access to agreed upon resources, or other items. Regardless of the exact nature of the assistance involved, the customer will typically find it advantageous to not have to negotiate these matters with a vendor in the middle of the disaster and its aftermath.

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