The Force Majeure Pandemic

The Force Majeure Pandemic

Before the pandemic, most people didn’t pay too much attention to force majeure in their contracts — until lockdowns, worker shortages and extended transport times interrupted supply chains. Since then, force majeure has become “one of the most invoked and highly-analyzed terms out there,” says Katherine L. Pullen, attorney at Warner Norcross + Judd LLP.

But are we abusing it? And as auto supply chain leaders, what can we do to adapt our contracts to the post-pandemic world and avoid using force majeure

As a litigator who works with automotive suppliers, Katie has significant experience working with this issue. In this episode of Auto Supply Chain Prophets, we get knee-deep with Katie into the legal side of the industry, force majeure, and best practices for drawing up terms and conditions.

Themes discussed in this episode: 

  • When force majeure is legally applicable, and how to avoid invoking it.
  • How to manage risk within contracts.
  • Why supply chain leaders need to understand their — and their customers’ — contracts.
  • How contract negotiations are changing in the post-pandemic world.

Featured on this Episode  

Name: Katherine L. Pullen

Title: Attorney, Warner Norcross + Judd LLP

About: Katherine “Katie” Pullen is a litigator with the Michigan-based Warner Norcross + Judd, which represents automotive suppliers and other businesses in a variety of issues, including supply chain contracting issues, litigation, corporate and more.

Connect: LinkedIn

Episode Highlights

Timestamped inflection points from the show

[2:28] The force majeure pandemic: Before the COVID-19 pandemic, force majeure was a legal term that no one really paid attention to. Guest Katie Pullen talks about how the pandemic has since made it one of the “most invoked and highly analyzed contractual terms out there.”

[5:37] The gray areas: Katie breaks down the types of situations that commonly fall under force majeure, including, most commonly, transport issues.

[6:55] Prepare for the unexpected: We’re living in a new post-pandemic world, so the automotive industry needs to make appropriate adjustments and changes. Taking a second look at contracts can mean avoiding unnecessary visits to court.  


[8:11] Managing supply chain risks: Katie talks with host Cathy Fisher about what automotive suppliers can do to manage risks within their contracts and avoid having to use force majeure.


[10:13] Contracts are part of the business: Too often, those within the automotive industry avoid paying attention to the legal side because they believe it’s not relevant to them. Katie explains why it’s crucial to know your terms and conditions, even if you’re not a lawyer. 


[11:17] Map your processes: The hosts talk with Katie about what managers can do when they aren’t able to meet certain certifications or requirements within a supplier contract. 


[13:24] A changing industry: The pandemic has changed the way we do business, and the pressures of the past few years have pushed original equipment manufacturers (OEMs) to be more engaged in contract negotiations. Katie shares her outlook on the future of the industry.


[15:05] Best practices: For new entrants into the automotive industry who want to learn more about the legal and contractual landscape, check out Warner Norcross + Judd’s Lunch-and-Learn Series.


[15:53] The one thing: Katie’s biggest piece of advice to supply chain leaders is simple: Pay attention. “We're in a new world. Make sure that the terms that you're agreeing to reflect that certain things that were previously unforeseeable may now be foreseeable,” she says.

Top quotes


[4:45] Katie: “Some suppliers are leaning on force majeure to justify suspending performance due to some unexpected increased costs. But then in the next breath, they demand a price increase and say, ‘We'll keep performing if you pay these higher prices.’ … There are very rare exceptions, but the general rule is that you cannot rely on a force majeure provision to try and get price relief.” 


[7:10] Katie: “Expect the unexpected. I know that might be overused, but it's certainly true. But also, prepare for the unexpected is a key lesson.” 


[10:14] Jan: “People get confused between business terms and legal terms. And sometimes in their mind, they say, Oh, that's just legal stuff. That's just boilerplate stuff. I don't need to mess with that. And the answer is, Yeah, you do. It's all interwoven together, you cannot separate certain terms and conditions and say, That's [for] legal people. It's all part of the business relationship. And if you're contracting with another company, you better understand it.”


[12:51] Katie: “You don't want to be stuck in the middle. [This means] you don't want to agree to one thing with your supplier but then promise something more to your customer. All of a sudden, you're stuck and you are stopping shipments to your customer, or you're in some sort of emergency situation. So we always encourage our clients to make sure that you analyze all terms and conditions throughout the supply chain to make sure you're not in that position.”


[16:06] Katie: “Pay close attention to the new contracts that you are signing. We're in a new world. Make sure that the terms you're agreeing to reflect that certain things that were previously unforeseeable may now be foreseeable.”

DOWNLOADABLE RESOURCES

Delivering on the Promise of Delivery: Automotive Sustainability and Profitability

Download here

White Paper for Leveraging Risk Management in Automotive

Download here

Operational Restart Readiness
Checklist

Download here

The 24 Essential Supply Chain
Processes

Download here

STAY IN TOUCH

Keep in touch with Auto Supply Chain Prophet's co-hosts Terry Onica and Jan Griffiths on LinkedIn.

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