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Updated Government guidance on responsible behaviour in the performance and enforcement of contracts impacted by COVID-19

30 July 2020
The UK Government has released further guidance setting out recommendations for parties to contracts materially affected by COVID-19.

The guidance builds upon the recommendations issued on 7 May 2020, to which our previous article relates.

The Cabinet Office's Guidance on responsible contractual behaviour published on 7 May 2020, has now been updated, with a focus on three specific areas:

  • Payment
  • Extensions of time
  • Avoidance and resolution of disputes

Payment

  • Parties are strongly encouraged to make prompt payments in accordance with contractual terms, particularly where suppliers are SMEs or individuals who do not have the same resources as large businesses. 
  • Payment should be made as quickly as possible to maintain cash flow and project jobs.

Extension of time (and associated costs)

  • It is recognised that some parties may not be able to perform in accordance with agreed contractual terms due to Covid-19 related issues (such as reduced workforces, restricted movement of people or goods and new ways of working). 
  • Parties should consider carefully and reasonably: 
    • what reliefs may be available, such as an extension of time for performance; and
    • whether terms should be renegotiated to preserve the viability of such contracts.

Avoidance and resolution of disputes

  • Equitable adjustment should be considered, with parties strongly encouraged to resolve issues responsibly, to avoid matters escalating into formal, intractable disputes, by way of: 
    • negotiation:
    • an early neutral evaluation; or
    • mediation.
  • Parties should consider their commercial practices and, where possible, sign up to relevant initiatives (for example, see the RICS Conflict Avoidance Pledge). 
  • Fast-track dispute resolution procedures are also being developed in response to Covid-19, such as CEDR Pandemic Business Dispute Resolution Service.
Additional/updated guidance is also referenced in relation to:

The future of contractual arrangements

  • The Government is continuing its review of how procurement processes and the contract terms it offers to suppliers can adapt to Covid-19 risks, the impact on supply chains and new ways of working and support towards economic recovery.
  • Parties to commercial contracts are strongly encouraged to reflect 3 key objectives: 
    • supporting the restart of the economy; 
    • preventing unnecessary insolvencies; and 
    • supporting the long-term viability of contracts and businesses.

If you have any questions, please get in touch with one of the below contacts.

Further Reading

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