Covid-19 and take or pay contracts

[Talay]

We have been asked to put forward costs to supply services to certain regional government departments if there is a further regional or national lockdown and at worst case scenarios, involving the largest number of people, we would need to have purchased supplies in advance which may, if there is no lockdown, not actually be required.

In essence, if we were asked, at the outside metrics, to cover 10,000 instances of supply, then if advance planning for that cost £100,000 we would not like to be holding those supplies if we are not required to deliver our services.

Certain elements of our service provision are variable and could be ramped up or stood down at only minor inconvenience but the supply of certain items cannot. Either they are pre purchased and available or they are simply not there to be made available if they are required.

In such instances, does anyone have any experience or thoughts on take or pay contracts.

As this came to my desk late on Friday evening and will likely need to be in place by early Monday, I do not really have an opportunity to get solicitors to draft an agreement and we will need to go with email only confirmation I suspect.

Thanks if anyone has any thoughts.

 

[bodgitt&scarperLTD]

I think the way it works with these government contracts (especially in these times) is that you bung the official a brown envelope and they pay you for the service up front. You then don’t bother to supply the service (or even have any history of supplying it). If it’s doesn’t turn out to be needed, nobody knows. If it does, then you walk away, a newspaper runs an article or two and with another brown envelope the whole thing blows over. Winner winner chicken dinner.

Brexit ferries, anyone?

 

[JustGettingOnWithIt]

I don't have experience of these things in particular so might be talking rubbish. I would negotiate a non refundable deposit that covers costs up front in this situation.

 

[Mr D]

Build your risk into the pricing.
And get part payment up front if needing to buy supply.

Or else refuse to take part. Let someone else get the contract then have to look for a boat.

 

[Mark T Jones]

If I'm reading you right, I had a customer who provided foodstuffs on a similar basis to a large UK operator.

The foodstuffs were non-perishable & non-exclusive, the the 'get out' was they could offload excess stock elsewhere

They were reasonably profitable, but had horrendous strain on cashflow at times - even with purchase finance in place.

When lockdown happened they were ****ed.

 

[CVRO]

Take or pay clauses will pretty much say that whether or not you take delivery of the goods, you are liable to pay for them.
It will also mention a timeframe. For example, it can say that 10,000 units would be purchased in the next 12 months. If you don't you'd still pay for them.
In some cases, it may also mention that in case you pay for them without taking delivery the supplier would need to supply them at a later date.

Now, the question is whether the government is offering to sign a take or pay contract, in which case you do not carry a massive risk in your advance planning. Or you are signing a take or pay contravt with your supplier. If the latter, you better have an alternative use for the 10,000 units as you will jave to pay for them under any scenario.

 

[Interestedobserver]

Dp