Navigating fixed price or long-term supply contracts within the manufacturing sector

With the manufacturing sector experiencing ongoing supply issues with labour shortages and the never-ending price increases across fuel and raw materials, many businesses are finding themselves in difficult circumstances and are struggling to keep up with supply and demand.

There are a number of leading factors outside the control of businesses contributing to the acceleration of cost rises, namely Brexit, the Coronavirus pandemic and the war in Ukraine. However, most businesses' can control the new contracts it puts in place with its suppliers and its customers to mitigate the effect of rising costs. Entering into fixed price or long-term supply contracts and contracts with clear and robust terms and conditions can assist.

As the current challenges appear to be likely to continue for some time, many businesses may find that the contracts they entered into historically are now problematic and are no longer commercially viable however it is often not possible to simply walk away from a contract without triggering a dispute.

The first question we ask when considering such a dispute is 'what did you agree with the other party?' This is easiest to answer if the contract is in writing but may also be explained by a series of emails or discussions.

It is important to seek expert legal advice as soon as a business starts to consider that an existing arrangement with a supplier or customer should be reviewed and possibly terminated. If a contract is terminated there is the potential for a claim for breach and this can have a huge knock-on effect, disrupting everyday business and costing very significant sums to navigate through. Seeking advice can prevent any further issues arising and an attempt to resolve the dispute at the earliest possible stage will avoid the matter escalating and further costs being incurred.

Should the dispute not be resolved at this stage, further action may be necessary, however, as a general rule, litigation should be considered as a last resort and other forms of dispute resolution should be considered, including mediation, arbitration or adjudication. It is important to seek legal advice to assist you in making a decision that is best for your business both from a legal and commercial perspective.