Responsible contractual behaviour during the COVID-19 pandemic

As the COVID-19 pandemic continues to disrupt daily life, the ability of commercial partners to deliver on their contractual obligations has been put under increasing amounts of stress. To avoid disputes escalating all parties are being encouraged to act “responsibly” and “fairly”.

Cabinet Office Guidance

The Cabinet Office has issued further updated guidance on what is described as ‘responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency’ (available here).

Whilst the updated guidance issued on 30 June 2020 should be read in conjunction with the initial guidance issued on 7 May 2020 (available here), the updated guidance offers additional commentary on the following issues:

Payment

Parties are encouraged to adopt ‘fair behaviour’ in contractual arrangements impacted by COVID-19 as it is likely that such conduct will ‘support the performance and viability of contracts’. Where possible, parties should seek to be mindful of cash flow and the government encourages ‘prompt payments in accordance with contractual terms, legal requirements and applicable guidance’ – it also encourages that where possible and appropriate, parties should avoid disputes and causing unnecessary financial distress.

The Prompt Payment Code continues to be promoted by the government and the Public Procurement Review Service will investigate complaints of late payment in contracts with public bodies.

Extensions of Time

Whilst acknowledging that the performance of some contracts under their agreed terms may be difficult or, in some circumstances, impossible – parties are advised to carefully and reasonably consider what reliefs are available to them. This includes an extension of time for performance, how additional costs should be dealt with and whether terms should be renegotiated to ‘preserve the viability of the contract’.

Dispute Resolution/Avoidance

The guidance suggests there is support for adjustment to contractual arrangements affected by the COVID-19 pandemic.

The government also strongly supports parties seeking a resolution to emerging contractual issues ‘responsibly’, through ‘negotiation, early neutral evaluation or mediation’, as opposed to first seeking to invoke formal dispute procedures.

Fast-track dispute resolution procedures have been developed in response to the COVID-19 pandemic, and include:

• the Low Value Disputes Model Adjudication Procedure
• the Pandemic Business Dispute Resolution Service.

Further information

We are here to support your business through this difficult time and in the future. To give you the best opportunity to protect the success of your business, taking early and specialist advice is crucial.

If you have any queries, please contact Craig Fiddaman directly by email craig.fiddaman@ashtonslegal.co.uk or by phone 07841 996684.

Alternatively, if you or your business require advice or need assistance for any corporate matters – coronavirus related or not – please get in touch with our specialist Corporate & Commercial team through this website or by calling 0330 404 0778.