Chain Reaction: Your Supply Chain Contracts Weren’t Built for This

In-house lawyers and contracts teams should be reviewing their existing contractual architecture to build resilience into their supply chain. Why is this so important? Geopolitical volatility, regulatory fragmentation, tariffs, sanctions, AI-driven demand shifts, cyber threats, and climate disruption are compressing margins and multiplying supply chain risk. Traditional cost-focused operating models are no longer sufficient and many contracts are not keeping pace. Resilience has become a source of competitive advantage, and legal teams should play a central role in strengthening it.

In this briefing we discuss:

1. What action can you take? 

2. What is the risk to your business?

3. Are your contracts keeping pace?

4. Priority audit areas

What action can you take:

1. Review your top 20 supply agreements for tariff exposure — who bears the cost, and what variation mechanisms exist?
2. Stress-test force majeure, Material Adverse Change (MAC), and change-in-law provisions against current geopolitical scenarios—not hypothetical ones
3. Map exit exposure across legacy relationships before restructuring: quantify minimum commitments, IP dependencies, and insolvency risk
4. Audit new supplier onboarding for sanctions, ESG, cyber security, and regulatory compliance gaps
5. Map out your risk exposure from your position in the supply chain and assess impact of knock-on effects of economic shocks
6. UK wise, monitor developments from the new Supply Chain Centre—its 14-point action plan and risk intelligence may provide early warning of sector-specific vulnerabilities and support for resilience planning

Early engagement with legal advisers in these discussions can help ensure a coordinated approach, with the review encompassing both legacy contracts and new agreements under negotiation.

The risk is real — and quantified

Government initiatives, published reports and market research have collectively identified the key pressure points in supply chains and confirmed what is now top of the commercial agenda for businesses when it comes to risk mitigation. Legacy contracts, many drafted on pre-2020 assumptions, are ill-equipped to respond to the demands and complexities of today’s commercial landscape.

The ground is shifting — but are your contracts keeping pace?

Raw material costs are rising. Established supply routes can become nonviable overnight. Suppliers are increasing prices to the maximum extent that contracts permit. Legacy contracts may well lack adequate response mechanisms, and renegotiating from a weak bargaining position can be difficult.

Key risk areas:

• Reactive supplier onboarding under time pressure, without adequate due diligence—heightening ESG and compliance risk flowing from due diligence failures
• Sanctions screening gaps in extended supply chains
• UK/EU regulatory divergence post-Brexit
• Geopolitical volatility forcing real-time supply chain decisions
• Inadequate supply chain interruption insurance—particularly where force majeure clauses in policies are wider than those in the affected contracts

First steps - audit your contract architecture

Weak or absent contractual machinery leaves organisations exposed. Therefore it’s important to redesign contracts for resilience, not just efficiency.

Priority audit areas:

• Variation and MAC clauses: What rights exist to vary the contract? Are there Material Adverse Change or hardship triggers? We are seeing increased demand for these clauses—particularly in European operations—to address unpredictable events.

• Force majeure: Legacy definitions are being tested. Many clauses within legacy contracts are more suitable for natural disasters, not sanctions or geopolitical fracturing. Parties are seeking to carve out pre-existing conflicts in new contracts.

• Price adjustment: English case law indicates force majeure clauses will not cover changes in economic circumstances—tariffs make performance more expensive, not impossible. Focus on price variation and cost-pass-through mechanisms. For further guidance on pricing, see our series ‘Building resilience in your contracts: Part 1, Part 2 and part 3’.

• Records and audit: Suppliers face increased customer scrutiny, with demands for reporting and record-keeping often exceeding internal policies and contract terms. Do your clauses match the reality of the operating environment?

• Diversified sourcing: Alternative supply pathways help absorb disruption impact. The Government Office for Science Foresight report recommends looking beyond direct suppliers to assess upstream dependencies, critical chokepoints and shared risks. Businesses should consider a three-step resilience cycle: (1) identify risks through early mapping; (2) design targeted and proportionate resilience approaches; and (3) test and refine interventions using scenario planning.

• AI and digital transformation: digital technology can be used as an enabler of supply chain intelligence and resilience. Businesses should enhance supply chain resilience by mapping suppliers across multiple tiers and deploying continuous digital monitoring tools. This improves visibility, supports earlier detection of disruption risk, and enables more proactive mitigation. AI-driven logistics and planning solutions can further strengthen this approach by enabling predictive risk analysis and faster operational response.

• Termination rights: Rights to terminate for convenience are valuable where contracts become unviable. But bear in mind that exiting legacy relationships without preparation can create substantial exposure; for example loss of minimum volume commitments or exclusivity arrangements, IP and tooling ownership disputes.

• Supplier insolvency: Clients are considering support packages for critical but distressed suppliers while exploring termination options in parallel. The operational reality: accepting an unauthorised price increase to maintain production is often preferable to termination—but sets a precedent that is difficult to reverse. Approaches vary by jurisdiction so caution is required. Map your full supply chain (or key tiers) to inform risk assessments, negotiation strategy, and early warning systems. Due diligence needs to be ongoing, not pre-contract only.

• Choice of law and jurisdiction clauses: Don’t treat these as boilerplate. Inconsistent dispute resolution provisions across your supply chain risk parallel proceedings, inconsistent outcomes, and substantially increased costs. Consider which forum provides the best relief.

 Additional resources

• Competition and Markets Authority Supply chains and market power corporate report published 12 May 2026
• UK Government Office for Science published a Global Supply Chains: A Foresight report on risk and resilience
• UK Department for Business and Trade Supply Chain mission statement and action plan
• DG GROW’s Supply Chain Analytics Hub - EU Agenda
• EU supply chains in the era of trade fragmentation
• US National Association of Manufacturer’s Q1 Survey: Trade Business Challenges Persist, but Optimism Up
• US Office of the United States Trade Representative Policy Paper Series on Supply Chain Resilience
• Global Supply Chain Horizons – March 2026
• Global Supply Chain Horizons – January 2026