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:
- Extensions of time
- Avoidance and resolution of disputes
- 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:
- an early neutral evaluation; or
- 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.
- Public bodies
- Construction sector
- Commercial property relationships
- Insolvency legislation
- Reporting a business behaving unfairly
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.