One year into the pandemic: How does COVID-19 impact service and supply contracts?

At the start of the COVID-19 outbreak in Europe, we noticed that many contracts did not specifically cover for situations related to epidemics, pandemics or health issues. Many questions arose, such as whether the COVID-19 outbreak itself could be regarded a force majeure event, whether the same applied for measures adopted by the government or other consequences of the COVID-19 outbreak, and what the impact was in respect of the rights and obligations of the parties.

It should thus not come as a surprise that since the outbreak of COVID-19, the virus and its consequences have become a particular point of attention in renewed or newly concluded contracts, and an important point of discussion during negotiations. Until now, the focus is still on whether or not the COVID-19 outbreak and its consequences qualify as force majeure. Additionally, parties may also be faced with other COVID-19 related challenges, depending on the type of the services or supply under the contract.

Force majeure clauses

Although by now it seems to be generally accepted that the COVID-19 pandemic as such is no longer regarded as an unforeseeable circumstance, the main question remains as to what extent the consequences or effects can qualify as force majeure events. Indeed, subsequent waves of COVID-19 and a progressive understanding of the virus have led (and continue to lead) to new government measures and restrictions, which in turn makes it  difficult for contract parties to foresee new measures that may be introduced in the future. Aside from predictability (or the lack thereof), another aspect is fairness: to what extent can a supplier be expected to cope with extreme consequences, even though these are no longer regarded as unforeseeable and unavoidable? For instance, to what extent must suppliers be prepared that, at any given moment, all of their staff (or a dedicated team or department) may all become ill at the same time? Or, that the supplier’s premises are placed in lockdown following a local outbreak?

To face this challenge, we have noticed that different approaches are applied in practice:

• At one end of the spectrum, there are clauses that state that the COVID-19 outbreak and its effects are unforeseeable and always qualify as a force majeure event.
• At the other end of the spectrum, there are clauses that state that COVID-19 and its effects are no longer unforeseeable for the parties and that these can thus in no event be invoked as force majeure.
• Then, in between, there are all types of different clauses applied. Some cases state, in general, that whilst the COVID-19 outbreak as such is no longer unforeseeable, it may still have unforeseeable effects. In other cases, the parties specify that neither the COVID-19 outbreak nor the associated government measures (which are introduced or reasonably anticipated at the contract date) can constitute force majeure as such, but that these can still have effects which are unforeseeable. Sometimes, a list of circumstances which are (or which are not) considered to be force majeure is included, such as limitations of social contact, travel restrictions, curfews, closure of borders, illness, quarantine, or lockdown. Such lists may either be exhaustive or (more commonly) contain a general definition of force majeure with a list of examples.
• There are also instances where the parties acknowledge a need for flexibility during these exceptional circumstances, and include a general clause in which the parties acknowledge that as the further evolution of COVID-19 and its consequences is unknown at the contract date, the parties commit to negotiate a solution in good faith whenever the situation would require.
• From the supplier’s side, it is now often explicitly agreed that force majeure cannot be invoked by the customer for non-payment of the agreed fees.

Whichever solution is adopted by the parties, the benefit is that, at least, it will provide some degree of certainty for the contract parties.

Other considerations

With service contracts, we see a new trend to include specific COVID-19-related clauses, such as provisions relating to the location of the services, or the extent to which the supplier’s staff can provide the services remotely. The latter is sometimes made subject to specific conditions (such as limitations on the use of personal devices or measures to safeguard the security of networks and systems), or linked to specific consequences (such as a temporary suspension of the services while a switch to remote working is made). Other provisions introduce specific arrangements for virtual meetings and workshops rather than on-site meetings.

Finally, it should be pointed out that the COVID-19 crisis has not only had an impact on the content of agreements, but also on the way they are negotiated and signed (and, eventually, performed). As the process has largely shifted to digital channels, it is useful to reflect on adjusted timings and processes. When drafting a request for proposals, for instance, it may be useful to add a requirement that the candidates must take into account the COVID-19 outbreak and all surrounding circumstances when preparing their offer, such as a limited possibility of on-site meetings and longer turnaround times.

If you require further information or legal advice in this respect, please contact the authors.