The Government has issued guidance requesting parties to contracts act reasonably and fairly, in a spirit of working together in these unusual times, for the national interest and to protect jobs and the economy.
Many parties to contracts will have been impacted by Covid-19 to the extent that they are finding it difficult or impossible to meet the terms of their contracts, whether they are businesses or individuals. This guidance has been introduced to try to assist.
The guidance is aimed at introducing an element of “good faith” to the contract, avoiding opportunistic behaviour and assisting with business continuity whilst Covid-19 continues to have an impact.
Whilst the guidance is not law and does not itself change or undermine the contractual positions you may have with parties under your contracts, it comes with a strong Government recommendation and is something that mediators, adjudicators and arbitrators may well consider if Covid-19 contractual disputes are referred to them.
What is the guidance asking you to do?
In short, you are being asked to play fair and be understanding of the circumstances and not rush to strictly enforce contractual terms.
Key points:
- Be reasonable and proportionate in dealing with performance issues and enforcing contracts;
- Aim to agree practical, just and equitable outcomes when dealing with issues under your contracts – consider the impact on the other parties, the availability of financial resources, and Covid-19 restrictions and protections;
- The guidance includes a list of contractual matters where responsible and fair behaviour is being particularly encouraged by the Government, the list is comprehensive and covers much of the key terms of many commercial contracts, including:
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- Impaired performance
- Extensions of time, alternative performance of a contract and compensation, including compensation for increased cost or additional performance;
- Claims for force majeure, change in law and other “event” triggered provisions
- Payments
- Claims for damages
- Returning deposits or part payments
- Enforcing contractual remedies, e.g. enforcing security
- Claims for breach of contract and enforcing events of default and termination provisions;
- Information and data requests
- Giving notices, record keeping and reporting
- Contract changes and variations
- Consent requests
- Commencing and continuing formal dispute resolution procedures
- Requests for mediation or other alternative dispute resolution methods
- Enforcing judgments
The Government has also refined its guidance on three key contractual issues:
1. Payment
The Government is encouraging parties to try to maintain payment terms – payment is a key factor in supporting the performance and viability of contracts. The Governments mantra here is prompt payment maintains cash flow and protects jobs, particularly where supply chains include SMEs.
2. Extensions of time (and associated costs)
The Government is encouraging parties to consider what reliefs on timescales and extensions they can reasonably agree and consider and discuss how the parties will deal with the associated costs of changes to timescales. Parties to also consider whether variations should be made to the contract to help ensure it can continue in the Covid-19 world.
3. Avoidance and resolutions of disputes
The Government is strongly encouraging parties to try to resolve contractual issues they are facing due to Covid-19 responsibly – try to negotiate, don’t jump to escalating issues to formal disputes.
Business are also being asked to consider their policies on how they deal with potential disputes as an organisation and consider signing up to dispute avoidance initiatives, including RICS Conflict Avoidance Pledge.
Our Company Commercial team is available to assist with any contractual issues you may be facing, Covid-19 related or otherwise, and can be contacted here.
The Government guidance is available at:
Covid-19 and Responsible Contractual Behaviour – 7th May 2020
Covid-19 and Responsible Contractual Behaviour – 30th June 2020
If you need help with your contracts, please get in contact with our team of experts, who’ll be more than happy to assist.
