Impact of Brexit on Procurement: Contracts
We explored the impact of Brexit for procurement on Supplier Management in our last blog. We continued the discussion with procurement expert Peter Smith, Managing Director, Procurement Excellence about the impact on various areas of procurement. In this blog we focus on his responses to questions on the topic of contracts.
Q1. What approaches to contracting have you seen that can be used to mitigate uncertainty around supply and tariffs (when companies have cross-national jurisdictions)?
Peter Smith: This comes down to risk management and power. Certainly, some retailers are using their power with smaller suppliers to insist that the supplier will pick up the cost of tariffs and duties following any Brexit changes. For example, Lidl issued the following statement: “All existing Lidl contracts contain a DDP (Delivered Duty Paid) clause. In an effort to understand the level of preparedness of key UK suppliers we are communicating proactively with them and working together to resolve any potential barriers to supply.”
Not every supplier will agree to this of course. It will probably come down to individual negotiations in the case of major supply relationships; where suppliers hold the power, they will push any tariff burden onto the buyer, in all likelihood.
Q2. What are the main legislative and compliance issues that procurement will have to deal with during any transition period?
Peter Smith: It is likely that a transition period would not see many changes immediately by its very nature. It is probably more a case of using that time to get ready for exit. That covers many issues of course – from obvious ones like having the systems and process in place to deal with additional information-gathering around purchases where necessary and looking at employment issues for staff and contractors, through to more esoteric issues such as data management and hosting.
Q3. During the legislation transition period, should businesses add Brexit-specific clauses to contracts to safeguard against possible risks?
Peter Smith: This may well be sensible. It is unlikely that a contract can be “Brexit-proof” (i.e. getting a supplier to accept all the Brexit risks) so it is likely to be similar to a general “change” clause or set of clauses as this article explains. That could either trigger definite actions, or else define a procedure to come into effect when the change event takes place. For instance, buyers may well want the right to terminate if tariffs make the contract / supplier uneconomic post Brexit.
Watch out for our next article on how Brexit can also bring great opportunities!