New guidance which applies to both private and public sector parties to contracts came into effect on 7 May and all parties to contracts should have regard to this in the performance and enforcement of contracts that have been impacted by the Covid-19 pandemic.
The essence of the guidance from the Cabinet Office is that contractual parties should act reasonably and fairly in their relationships, with the aim of protecting the economy in the longer-term. Responsible and fair behaviour is strongly encouraged in performing and enforcing contracts where there has been a material impact from Covid-19. This includes being proportionate in responding to performance issues and enforcing contracts, acting in a spirit of cooperation and aiming to achieve practical and equitable contractual outcomes. having regard to the impact on the other party, the availability of financial resources, the protection of public health and the national interest.
In particular, responsible and fair behaviour is strongly encouraged in relation to the following:
- requesting, and giving, relief for impaired performance, including in respect of the time for delivery and completion and the making of payments
- requesting, and allowing, extensions of time, substitute or alternative performance
- making, and responding to, force majeure, frustration and excusing cause claims
- returning deposits or part payments
- claiming breach of contract and enforcing termination provisions
- making, and responding to, requests for contract changes and variations.
It is non-statutory guidance and is not intended to override procurement policy notes or other legal contractual obligations. The government, however, strongly encourages parties to contracts to follow this guidance for their collective benefit and for the long-term benefit of the UK economy. The government has also indicated that it may take further measures, including legislation. If you have any questions on the potential implications for your organisation, please do not hesitate to contact us.