As the March 2019 Brexit deadline approaches, we recognize that this regulatory change will define the “new normal” of operating multi-national, cross border businesses. For many companies, Brexit represents a seismic regulatory event, the likes of which hasn’t been seen in the UK since the Government passed the European Communities Act in 1972.
In a sea of Brexit uncertainty, one thing companies can be sure of is that contracts – the very building blocks of businesses – will be impacted. For UK and European-based businesses a first step on the road to Brexit readiness is understanding what business relationships are potentially impacted by assessing their existing contractual population.
Brexit impacts a host of contractual clauses including, but not limited to: choice of law and jurisdiction, force majeure, payment terms and currency provisions, contracting parties and performance obligations.
With these challenges in mind, below are four critical steps companies should take to ensure that post-March 2019, the very nature of their business relationships is not adversely impacted by the UK’s withdrawal from the EU.
Review, Identify and Analyze In-Scope Contracts
Depending on the size, location and business relationships of a company, there could be a high volume of contracts to review and potentially amend. Using an AI/machine-learning contract review tool, such as Kira can greatly speed the process of identifying active and inactive agreements, abstracting relevant contract provisions and pinpointing contract types that will require remediation in the post Brexit business world. In this stage, companies will want to:
- Narrow the initial contractual population by sorting legacy contracts first by whether they are active or in-active. Only contracts which will continue beyond March 2019 should be further reviewed to identify if they are in-scope or out-of-scope for Brexit readiness purposes.
- Prioritize initially the highest risk, active, in-scope contracts for review and potential remediation.
- Identify the specific contractual terms that require amendment.
Develop a “Brexit Readiness Playbook” for Moving Forward
Parallel with the identification of the in-scope contract pool, organizations must develop comprehensive Brexit readiness playbooks to guide the end-to-end contract drafting and contract amendment process both for legacy contracts and contracting on a go-forward basis.
In addition to setting out the processes that need to be followed, the playbooks should include Brexit amendment model clauses together with guidance for contract negotiators on how to deal with likely pushbacks from counterparties. Best practices will be used to redline and negotiate amendments or any counterparty templates received by the company. Given the vast array of clauses potentially impacted by Brexit, the creation of playbooks, incorporating these gold-standard model clauses will help minimize the risks and reduce the costs associated with achieving Brexit readiness by standardizing the approach to contract remediation and setting out clearly the approved templates and clause language required.
Draft and Send Amendments
After the initial contract review is complete, companies should draft amendments incorporating updated Brexit compliant terms and send these out to the in-scope counter-parties. Keep in mind that some counter-parties may be unresponsive and require multiple follow ups. Also, don’t assume that all customers and vendors will be up to speed with the implications of Brexit. Some amendment negotiations will run extremely smoothly and others may be more difficult and prolonged. These eventualities and guidance for contract negotiators will be detailed in the playbooks.
Finalize and Execute Contracts
With agreed language in place, finalize and execute the amended contracts and upload or store them in your contract lifecycle management platform or repository with the key terms entered in a structured data format. This way companies will have an auditable “source of truth.”
Now is the Time to Begin
While there will be new regulations designed to minimize the negative impact of Brexit, companies that have not yet started a comprehensive Brexit contract readiness review would be wise to start as soon as possible. This is an intricate, time-consuming process that should not be left to the last minute. A rushed job, or one that does not follow a thoughtful, strategic path, could lead to significant business disruption.
Legal advisors, including law firms and alternative legal services providers, are offering specialized, proactive and technology enabled Brexit readiness assistance. We encourage companies to begin partnering with their legal advisors today in order to prepare for Europe’s “new normal” of tomorrow.