On 7 May, the Cabinet Office issued guidance and recommendations for contractual behaviour where performance of a contract is materially impacted by the COVID-19 emergency.
The guidance applies with immediate effect and will be reviewed on or before 30 June 2020. The guidance does not apply in the devolved administrations (Scotland, Wales and Northern Ireland).
Key message: the key message in the guidance, which is non-statutory, is that parties to contracts impacted by the COVID-19 emergency in both the public and private sectors (including funders) should act responsibly and fairly, support the response to COVID-19 and protect jobs and the economy.
- Not intended to override specific guidance or legal duties. The guidance makes clear that, amongst other things, it isn’t intended to override specific guidance issued by the Government (or any public or regulatory authority); specific support or relief available under a contract, in law, custom or practice (including any equitable relief), or from the Government in response to the COVID-19 emergency; or other legal duties which bind the parties.
- Responsible and fair behaviour in contractual arrangements is expected. This includes being reasonable and proportionate in responding to performance issues and enforcing contracts (including dealing with any disputes), acting in a spirit of cooperation and aiming to achieve practical, just and equitable contractual outcomes having regard to the impact on the other party (or parties); the availability of financial resources; the protection of public health and the national interest. The guidance lists a number of situations in which such behaviour is “strongly encouraged” including:
- relief for impaired performance;
- extensions of time, substitute or alternative performance and compensation;
- potential force majeure and frustration claims;
- payment under a contract;
- claims for damages and termination for breach of contract;
- enforcement of security, forfeiture or repossession of property, calling of bonds or guarantees or the initiation or continuation of insolvency or winding up (or equivalent) proceedings;
- commencing, and continuing, formal dispute resolution procedures;
- requesting, and responding to, requests for mediation (with strong encouragement given for parties to seek to resolve any emerging contractual issues responsibly – through negotiation, mediation or other alternative or fast-track dispute resolution – before they escalate); and
- enforcing judgments.
- Future developments: the guidance recognises that this is a rapidly developing situation and provides that the guidance may therefore be revised and reissued and that further measures may be taken in respect of the guidance and recommendations, including legislation.