The Cabinet Office issued new practical guidance on 7th May 2020 on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency.
The guidance is intended to apply to all current contracts which are materially impacted by COVID-19. Parties are encouraged to be reasonable, proportionate and co-operative to ensure just outcomes in light of the current public health emergency.
Who does the guidance apply to?
The guidance applies in both the public and the private sector. However, it does not apply to the devolved administrations, financial market transactions or speculative contracts.
It is not intended to act as a replacement for the law, specific government guidance, procurement policy notices or specific support or relief already available under the contract.
What does the guidance aim to achieve?
It is acknowledged that contractual arrangements are vital to the functioning of the economy and parties may have difficulty in performing their contractual obligations as a result of COVID-19.
It is envisaged that the guidance will assist to maintain performance of obligations under contracts where it is required to support the immediate response to the public health emergency, protect jobs, the economy and public health. The guidance aims to ensure that cash flow is maintained and if performance of obligations is not possible or essential, then the contracts and supply chains are preserved.
What is considered responsible and fair contractual behaviour?
The guidance encourages responsible and fair behaviour from parties when performing or enforcing contracts.
The guidance provides a number of specific examples of when the Government would encourage responsible and fair behaviour. This includes when making and responding to claims (or prospective claims) relating to force majeure, frustration, change in law, and relief, delay or compensation.
It also applies to requesting and allowing extensions of time, substitute or alternative performance and compensation.
The guidance also encourages parties to resolve disputes responsibly looking at alternative dispute resolution measures, such as negotiation and mediation.
The practical impact of the guidance
As the guidance is non-statutory its legal impact is limited. However, if you are struggling to perform a contractual obligation due to COVID-19 and you cannot rely on a force majeure clause or frustration you should consider raising the Government guidance in your negotiations.
It will be important to remind the other party that they should act responsibly and fairly, particularly in dealing with disputes in order to achieve a practical, just and fair outcome.
In considering these matters, particular attention should be paid to the financial resources available to the parties, protection of public health, the national interest and the impact on the parties.
The Government’s rationale behind the guidance appears to be for parties to act in the national interest which will result in positive long term outcomes for jobs and the economy. While the guidance cannot change the contractual terms that parties have already agreed, a party who disregards the guidance and seeks to enforce their strict contractual rights may run the risk of suffering negative and potentially significant reputational harm.
If you would like further information on performance or enforcement of contractual obligations, please see our detailed guidance note here or contact Rob Oakley or Mindy Jhittay.