Businesses renegotiating contracts to cope with COVID-19

June 6, 2020

Businesses are renegotiating contracts with multiple stakeholders as they are facing uncertain future due to COVID-19 pandemic.

A study, conducted by the Economic Research Group (ERG) on selected areas of contracts, revealed the information.

The findings of the study were presented at a webinar on Sunday attended by researchers and academia. Among others, ERG chairperson Dr Wahiduddin Mahmud was present at the webinar.

On behalf of the research team, the key presentation was made by ERG associate Mutasim Billah Mubde and the session was moderated by Executive Director of ERG Dr Sajjad Zohir.

A phone survey was administered on 102 firms during second half of May 2020. Those covered RMGs, electric and electronics, plastic, IT, agro-processing, food, etc, according to a brief statement of ERG.

The survey findings showed that office-based works have largely been shifted to home-based or a mix of both the office and home based activities.

“This may be further facilitated, but will have implications for both property rentals and employment of less skilled labor,” it added.

The study, however, did not look into the negotiations underway with client groups.

Taking work order reduction as given, the study found three coping strategies.

Delays in rent payment are observed, though some firms could renegotiate 10 to 50 per cent reduction, while few others went for deferred payment. Yet many have not made a move to resolve.

The survey participants suggested that social conflicts may surface unless these are amicably resolved during the present time when both property owners and tenants commonly face uncertainty and threat of Covid-19.

It was suggested that no rule be made. However, GO, NGO and community based organizations should facilitate conflict resolution and protect the weaker party.

The survey findings also showed that employment has been adversely affected in all sectors.

Relatively it was the least in IT sector, which lost large volume of work order from foreign markets, but got new clients in the domestic market, particularly, in health e-commerce and the government service sectors.

Uncertainty is revealing, given the finding that none of the surveyed firms could retain their workforce if no revenue was earned before October-November.

“More than 15.0 per cent reported of their inability to pay salaries in June,” it added.

Some 87.30 per cent of firms operating in rented or leased premises will have to delay rent payment while 43.10 per cent of firms operating in the same space were successful in renegotiating delayed rent payment.