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Post-lockdown planning with suppliers

Simple steps for a collaborative approach with your suppliers around post-lockdown planning

The coming weeks could bring difficult conversations as companies adapt to continuing relationships. Following a few simple steps could help avoid disagreements with suppliers and support the transition out of the lockdown. 

Three tasks

The initial response to COVID-19 by many organisations was – quite rightly – based on good will. Things moved so quickly that decision-making between suppliers and clients was extremely reactive and often relied on good faith; normal processes and governance often fell by the wayside. That has been the right response - both to keep people safe, and to keep things working in the short term. Infrastructure and real estate assets have been able to demonstrate fantastic resilience in the face of these unprecedented conditions. 

Now, though, people are starting to come up for air, and coming out of the immediate crisis response phase into a reconfigure phase. In the coming months many organisations will face difficult conversations about agreements made during this period, but taking a few simple steps will help to mitigate these, and avoid financial liabilities and disputes. 

Most organisations will need to consider three areas – tasks they don’t need doing anymore and which they have asked their suppliers to stop; new or additional tasks that they have commissioned; and tasks that suppliers have been unable to perform during the COVID-19 situation. 

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Capture decision-making

Capturing both new and – retrospectively – older decisions is crucial. Organisations’ biggest pitfall will be poor record keeping while things are so fast moving. For each decision, the aim should be to record whatever message was given to suppliers in terms of the changes required, the date this was communicated and who it was communicated to. Without records, it will be difficult to remember who said what three weeks ago, let alone in three months’ time. 

If possible, it’s important to also record what would have happened had you been acting in accordance with the contract, instead of in a crisis. If necessary, you can then explain what happened and why it deviated from the norm. 

Normally, for instance, most contracts will include ‘contract change notices’. These are generally several pages long, need to be seen by lawyers on both sides, and signed by the correct people. In reality, few people have been doing the ‘right’ contracted thing – or if the right thing has been done, it might have been done by the wrong person. Keeping records of what happened and why will be the best way to help things get back to normal.

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Plan for all eventualities

One of the best ways to start to regain control is to plan for the coming weeks and months. This is not just for ‘business as usual’, either – organisations should also focus on planning for the end of the lock down and for the possibility of a secondary wave of COVID-19 cases later in the year.

One of the biggest mistakes people are making is not communicating with their suppliers about what they’re doing and their intentions. It’s a good idea to sit down with suppliers and agree a plan for the next few months. 

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Consider what’s been stopped, as well as what’s still going

If businesses are stopping activity now, how will they ramp it back up? What process should be followed to restart projects and programmes, and what are credible timelines for doing so?  Similarly, how will parties deal with the delays and identify new tasks once people are back at work? 

In some instances, this will be a case of putting the correct processes in place. Retailers, for instance, whose store cleaning and maintenance programmes have stopped during lockdown, will need to have a plan in place that covers restarting and what to prioritise. 

In other cases, organisations might need to think carefully about whether they continue to pay suppliers as the longer term consequences may outway any short term savings.  For example if a supplier ceases trading due to the crisis, once the lock down is over you will face having to either provide the service yourself or find another supplier at short notice. It might make more sense and be less expensive in the long run to pay the supplier for the service even while you are not receiving it. That way, you ensure there will be a supplier available once the lock down is over. A good example might be a catering company providing school meals. 

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Be as transparent as possible

Many areas of potential dispute can be avoided simply by being transparent. An office-based firm may have pledged to continue paying its cleaning company as a commitment to the relationship, to ensure it can survive the lockdown. But the cleaning company has also furloughed its staff, meaning its costs are far lower. Should the cleaning company offer their client a discount during lockdown? Should ‘over payments’ now be reflected in discounts later? Contractually they don’t have to, but a transparent conversation may help both organisations come to a satisfactory conclusion with optimal long term outcomes for both. 

Nobody wants to be perceived as approaching these issues in an overly commercial or mercenary way during such a difficult time. But as the situation evolves, there’s a difference between introducing transparency to a situation and acting unilaterally in your own immediate interests. Having a discussion around terms and payments isn’t unreasonable. Even if the conclusion is still that the office-based firm should pay their cleaning company, at least it knows why and what for and will do so within agreed parameters. 

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Be flexible around governance

The governance mechanisms and processes for agreeing these things is going to change. Previously, it would have needed a specific group of people meeting. Now, it will need to be done online, via email, and through deputising to other people. Even something as simple as keeping minutes of a meeting – which might now mean recording video calls – will need to change. A flexible, transparent and in some cases imaginative approach will be needed as companies continue to deal with the upheaval the coming weeks will bring.

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Contact us

Derrick Tate

Derrick Tate

Director, Real Estate Advisory, PwC United Kingdom

Tel: +44 (0)7718 340363

Nick Lane

Nick Lane

Infrastructure and Government Director, Corporate Finance, PwC United Kingdom

Tel: +44 (0)7838 143989

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