In response to the Covid-19 emergency, the Cabinet Office has released a non-statutory guidance note entitled “Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency” calling for parties to contracts to “act responsibly and fairly”.
The rationale behind the guidance is that responsible and fair behaviour in contracts now – in particular in dealing with potential disputes – will result in better long-term outcomes for jobs and our economy. In complex contracting arrangements, this should apply throughout the contracting chain. It will in the long term protect businesses, supply chains and opportunities in the economy.
What is the rationale behind the Government’s guidance?
The rationale behind the guidance is that reasonable and fair behaviour in contractual arrangements would contribute to the following objectives being met:
- where possible, maintaining contractual performance which is required to support the immediate response to Covid-19, protect public health, jobs and the economy;
- ensuring cashflow in those contracts is maintained, including to pay the workforce and individuals and businesses throughout the supply chain;
- where continued contractual performance is not possible or is not essential, ensuring those contracts, supply chains and markets can be preserved during the public health emergency, avoiding destructive disputes and insolvencies; and
- generally, ensuring that contractual and economic activity can be preserved and will be ready to continue in a sustainable way once the current emergency is over, supporting the restart of the economy and maximising UK productivity and growth.
What is reasonable and fair behaviour in contractual relations?
The Government are encouraging responsible and fair behaviour in performing and enforcing contracts where there has been a material impact from Covid-19. Indicative behaviour for contracting parties includes being “reasonable and proportionate in responding to performance issues and enforcing contracts (including dealing with any disputes)” and “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)”.
In particular, the Cabinet Office strongly encourages reasonable and fair behaviour in the following:
- requesting, and giving, relief for impaired performance, including in respect of the time for delivery and completion, the nature and scope of goods, works and services, the making of payments and the operation of payment and performance mechanisms;
- requesting, and allowing, extensions of time, substitute or alternative performance and compensation, including compensation for increased cost or additional performance;
- making, and responding to, force majeure, frustration, change in law, relief event, delay event, compensation event and excusing cause claims;
- requesting, and making, payment under the contract;
- making, and responding to, claims for damages, including under liquidated damages provisions;
- returning deposits or part payments;
- exercising remedies in respect of impaired performance, including 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;
- claiming breach of contract and enforcing events of default and termination provisions (including termination rights arising by reason of the insolvency or potential insolvency of a party);
- making, and responding to, requests for information and data under the contract;
- giving notices, keeping records and providing reports under the contract (recognising that the need to keep records of contractual behaviours and decisions));
- making, and responding to, requests for contract changes and variations;
- making, and responding to, requests for consents (including funder consents);
- commencing, and continuing, formal dispute resolution procedures, including proceedings in court;
- requesting, and responding to, requests for mediation or other alternative or fast-track dispute resolution; and
- enforcing judgments.
Is the guidance binding on parties to a contract?
No. This guidance is non-statutory and simply provides examples of good indicative behaviour for contracting parties with the overarching aim to act fairly and reasonably during Covid-19.
When does the guidance apply?
This guidance applied with immediate effect from 7 May 2020. This guidance will will be reviewed on or before 30 June 2020, together with any feedback on compliance with the behaviours set out in the note and the need for further measures.
Guidance Note on responsible contractual behaviour during COVID-19
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