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Peter Snaith, Head of the Chemicals and Pharmaceuticals Group at Dickinson Dees LLP,
examines how to survive the downturn.
              hese are desperately worrying economic times! The
              credit crunch and uncertainty in the world financial
              markets continue to play havoc with the global economy.
              Pharmaceutical companies will be well aware of the
potential for some of their suppliers to go into liquidation, with
devastating, domino-effect consequences. To survive the downturn,
companies are going to have to be focused and prepared. To
begin with, robust contracts are crucial. Longstanding informal
relationships and understandings are unlikely to provide the certainty
required if a purchaser or supplier needs to exercise its rights. Both
parties need to know their exact obligations and entitlements within
the contract and the quantity and timing of goods or services that
are to be provided. This will prevent future uncertainty and potential
litigation. The industry has recently witnessed a number of purchase
                                                                           Peter Snaith
orders being cancelled. If your customer cancels a vital campaign or
if a presumed steady flow of demand dries up, are you confident you       contracts by examining the terms to search for a breach. As a
know where you stand?                                                     result, your paperwork must be kept in order. Contractual claims
    If you are dependent on third party suppliers who may be unable       regularly fail because the exact nature of the contract cannot be
to deliver, you must consider the extent to which you can commit          proved. Increased awareness of the individual clauses in a contract
to supplying the goods at the same price. A rise in the price of raw      can help to prevent this. Whilst a force majeure clause wouldn’t
materials and petrol prices could increase your costs. A force majeure    ordinarily offer protection against increased costs, it can allow a
clause allows contracts to be wavered if circumstances beyond the         company to suspend its obligations or break the terms of a contract
control of the parties render the contract undeliverable, but this will   in circumstances beyond the control of both parties, such as war,
not protect you from an increase in production costs. No matter how       strike or a natural disaster. By clarifying the terms of this often
significant the rise may be, such “hardship” clauses rarely have the      overlooked clause, companies may be able to invoke it in the case
teeth they need to guarantee the protection they allude to. Whilst the    of supplier liquidation. To argue that the economic downturn in itself
downturn has driven everybody to very carefully assess the extent of      constitutes an event of force majeure would be s
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