Why the contracts governing your supply relationships may be far less protective than you think - and what to do about it.
Most commercial contracts were not drafted for the world we're operating in now. That's not a criticism of the lawyers who drafted them or the businesses that signed them - it's just the nature of the thing. When two parties agree terms, they're basing their judgment on a reasonable version of the future - modest cost movements, stable supply chains and predictable regulatory environments.
I distinctly remember working on a particularly gritty contract at the beginning of 2022 and having a tussle in negotiations over what constituted a force majeure event and I recall the conversations over the remoteness of these possibilities. Not two full months later, we were relying on those clauses. More recently in working with large manufacturing clients I have been watching friction evolve when geopolitical instability drives supply chain disruption and cost pressure through contracts that were simply never built to absorb it. That pattern of friction is what prompted this blog.
What we're seeing, across trading relationships affected by the instability, is a mismatch between the assumptions baked into commercial contracts and the conditions those contracts are being asked to govern. Force majeure clauses built for storms and earthquakes don't insert cleanly into slow-burning cost crises, and contracts very often don’t cater for substitutions or replacements where there are genuine supply disruptions. Price adjustment mechanisms calibrated for modest inflation can't absorb genuine volatility, and volume commitments and liability frameworks that looked sensible at signing can feel completely disconnected from commercial reality two years later.
The friction isn't only legal, it's structural and behavioural. Contracts are often treated as settled documents rather than working frameworks. Governance cycles often run too slowly for fast-moving disruption, and the instinct to retreat to contractual positions often kicks in precisely when open conversation would be more useful. The parties who come through periods like this best are rarely the ones with the tightest drafting. They're the ones who were talking to each other early, flagging problems before they became crises, and finding practical solutions together.
This piece works through the four areas where we're seeing the most pressure right now.
Standard commercial contracts assume a relatively stable world. Right now, that assumption is failing in four areas: pricing mechanisms that can't absorb real volatility; force majeure clauses that don't protect suppliers facing gradual cost crises rather than sudden shocks; volume and substitution provisions that generate expensive disputes the moment markets shift; and governance structures too slow and static for fast-moving disruption.
The common thread is a gap between contractual assumptions and commercial reality. Closing that gap requires building genuine flexibility into contracts: hardship clauses that allow terms to be revisited, early-warning obligations that bring problems to the surface, and governance frameworks that reward transparency over entrenchment. A contract that forces one party into an unsustainable position serves neither side. The goal is a functioning and adaptable commercial relationship, not a legal document that can never be adjusted.
When two parties contract they usually account for current issues in a relatively stable environment, and templated protective positions such as passing through costs and force majeure are often treated as boilerplates rather than envisioning imminent doom. Fundamentally we have a problem where the commercial position of one of the parties to a contract shifts due to serious unforeseen circumstances such as the current geopolitical situation.
Passing through increased supply costs is relatively common in commercial agreements, and even where there's no explicit right to do so, suppliers often quietly build a buffer into their pricing to absorb the expected bumps. The problem is that these provisions were designed with relatively modest cost movements in mind (a few percent here or there for labour or raw materials) and were not built for extreme market volatility.
On the customer side, a supplier suddenly invoking a cost pass-through right can make a deal commercially unworkable overnight. On the supplier side, if there's no such right in the contract, or if the built-in buffer has been completely wiped out by real-world cost increases, continuing to perform might mean funding someone else's business at their expense.
Indexation is supposed to help with this by tying price adjustments to an objective external measure takes the arguing out of it. Linking to CPI sounds neutral and clean, but energy prices directly drive CPI, so it's not as insulated as it might appear. Linking to a commodity index like Brent crude is more direct, but also more exposed to sudden and extreme price movements that neither party might have modelled. When indices spike far beyond normal, the indexation mechanism stops being a fair balancing tool.
The more useful approach, though still underused, is a hardship or price review clause that kicks in when circumstances move beyond what either party could reasonably have anticipated, which can open a genuine conversation about restoring commercial balance rather than simply applying a formula that produces an absurd result.
Force majeure is treated as a boilerplate clause in almost every commercial contract and gets almost no attention until everything goes wrong. The general idea is straightforward: if something truly extraordinary and beyond your control makes it impossible for you to perform, you shouldn't be penalised for it. The catch is in the word impossible. Most force majeure clauses don't excuse performance that has merely become harder, or even significantly more expensive - it has to be genuinely beyond reach.
That creates a real problem where the impact on suppliers is often gradual rather than sudden. A supplier doesn't hit a wall on a specific date - instead, costs creep up, margins compress, and eventually the economics of continued performance become untenable. At what point does performance become objectively impossible? The answer will depend on several factors including the size of the vendor, and that results in ambiguity. A larger company might be able to absorb elevated costs or leverage its market position to secure supply at competitive prices even during a crisis. A smaller operator might genuinely have no viable path to continued performance. A force majeure clause may not offer a SME the protection it thinks it has.
Notification requirements add another layer of difficulty. Most force majeure clauses require prompt notice — sometimes immediately, sometimes as soon as reasonably practicable - once the triggering event occurs. But if the event is a slow-burning cost crisis rather than a discrete shock, when does that obligation arise? Notify too early and you may be raising a false alarm (or have a suspended contract which kills your business anyway); notify too late and you may have waived your rights entirely. A more reasonable approach is to ring the alarm gently on governance and prepare for any disruptions together. The reality is that unforeseen events will likely be affecting several vendors, and the customer would know about it anyway. Keeping mum might also present as being slow to react, or worse - untrustworthy.
Minimum volume commitments made sense when both parties expected demand and supply to remain reasonably stable. When markets shift dramatically - demand collapses, supply chains fragment, or geopolitical events cut off traditional routes - those commitments can become traps. The question of whether a serious demand or supply downturn can constitute grounds for volume relief (under a force majeure or similar provision) is genuinely contested and rarely resolved cleanly by contract language that was never written with that scenario in mind.
Substitution is where things get particularly messy. From a seller's perspective, being able to offer an equivalent product from a different source, or reroute through an alternative carrier or origin, is a practical necessity when the original arrangement becomes unworkable. From a buyer's perspective, that flexibility can create real problems: alternative supply routes may mean longer transit times, which matters enormously if there are tight delivery windows or the buyer is itself committed to downstream obligations. A "substitute" product that is technically similar but not identical may not be good enough where regulatory requirements or quality standards apply - and what counts as "equivalent quality" is exactly the kind of vague language that generates expensive arguments.
The broader issue is that substitution rights are often agreed in principle but defined loosely, with phrases like "or equivalent quality" doing a lot of heavy lifting. That works fine in normal times. It stops working the moment one party claims a substitute is equivalent and the other disagrees - and in a regulated industry or a just-in-time supply chain, those disagreements have consequences that go well beyond the value of the contract itself.
Perhaps the most underappreciated problem is that contracts are typically static documents governing a dynamic commercial relationship. The governance structures they create - notice periods, review cycles, escalation mechanisms - are calibrated for normal business conditions, where issues can wait for the next quarterly review or formal dispute process. In a fast-moving crisis, those timelines become obstacles rather than protections. By the time a formal notice has been given and a response period has run, the commercial damage is already done.
The reality on the ground is that the most resilient relationships during periods of disruption tend to be those where the parties are talking to each other early and often - sharing information, flagging problems before they become crises, and finding practical solutions collaboratively rather than retreating to their contractual positions. The contract should support that dynamic, not impede it. In my view, collaborative price review triggers, early-warning obligations, and governance frameworks that reward transparency over defensiveness are all massively underused tools.
Liability provisions are another area where the gap between the contract and commercial reality tends to be starkest. Liability caps are typically set relative to contract value, but the actual harm caused by non-performance in a supply chain can be dramatically larger — particularly where one party is deeply dependent on the other such as for monosourced raw materials, and has limited ability to mitigate quickly. Conversely, a supplier facing genuine crisis shouldn't be exposed to liability that bears no relationship to what they've been paid or what they could reasonably have foreseen. Calibrating liability to actual exposure and business dependency, rather than headline contract value, is more honest - and more likely to reflect what the parties would have agreed had they sat down and really thought through the scenarios. It must be remembered that liability caps serve to proportionately protect each party if something goes bump in the night, not to disproportionately penalize a party for their genuine inability to perform.
Regulatory change is its own problem. When a technical specification, environmental standard, or compliance requirement changes mid-contract, neither party typically wants to pick up the cost - and more often than not, the contract simply doesn't say who should. This is the kind of gap that gets papered over in good times and becomes a very expensive argument in bad ones. A popular workaround is to stipulate that costs be determined at the relevant time, or “ex ante” - where stakes (and potentially, tempers) are flaring, it’s unreasonable to expect a reasonable discussion. These considerations should be made beforehand whenever possible.
The common thread running through all of these pressure points is the same: standard contract templates were not built for changing landscapes. We’ve had enough worldwide crises in the last few years to indicate where we need at least some flexibility in agreements and we need to dispose of the age-old notion that a great contract is a completely rigid one.
The most practical response, both for drafting new contracts and for managing existing ones, is to build in genuine flexibility rather than assuming stability. A hardship clause that allows the parties to revisit and adapt the commercial terms when circumstances move beyond what was reasonably foreseeable isn't a sign of weakness in the original deal, or a floodgate to renegotiating terms without due cause; it's a recognition that a contract that forces one party into an unsustainable position ultimately serves neither side. The goal, after all, is a functioning commercial relationship - not a legal document that one party wins and the other endures.
You might be wondering what your next steps should be. Let us guide you with three easy options:
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