Responsible contractual behaviour during the COVID-19 emergency

On 07 May 2020, the Cabinet Office published new guidance on the general expectations of businesses as they manage and enforce B2B contracts during the COVID-19 emergency. The guidance calls for ‘responsible and fair behaviour’ by parties to active contractual arrangements which are materially affected by COVID-19, in an effort to support the national response to COVID-19 and protect jobs and the economy. As non-statutory guidance, it is not intended to override specific guidance or procurement policy notes, nor any specific support or relief available in the relevant contract or in law.

According to the guidance, responsible and fair contractual behaviour includes being reasonable and proportionate in responding to any performance issues and enforcing contracts and taking into consideration the impact on the other party (or parties), the availability of financial resources, the protection of public health and the national interest.

The responsible and fair behaviour described in the guidance is set to help businesses contribute to four main objectives:

1. where possible, maintaining contractual performance which is
   required to support the immediate response to COVID-19, protect
   public health, jobs and the economy;

2. ensuring cashflow in those contracts is maintained;

3. where contractual performance is not possible or is not essential,
   ensuring those contracts, supply chains and markets can be preserved
   during the COVID-19 emergency, avoiding destructive disputes and
   insolvencies; and

4. ensuring contractual and economic activity can be preserved so it
   can support the restart of the economy once the emergency is over.

The guidance sets out specific circumstances where such behaviour is strongly encouraged, including in the following key areas:

• requesting and giving relief for impaired performance;
• requesting and allowing for extensions of time, substitute or
  alternative performance and compensation;
• requesting and making payment under a contract;
• making and responding to claims for damages, including under
  liquidated damages provisions;
• exercising remedies in respect of impaired performance;
• claiming breach of contract and enforcing events of default and
  termination provisions;
• making and responding to requests for information and data under the
  contract.

In addition to the above, the guidance stresses that disputes can be particularly destructive during this time, and that parties should seek to resolve any emerging issues through negotiation, mediation, or other alternatives, before escalating to formal intractable disputes.

Next steps

This guidance applies with immediate effect and will be reviewed on or before 30 June 2020. Organisations should ensure to take this new guidance into consideration when managing or enforcing any contractual arrangements which are materially impacted by the COVID-19 emergency, particularly in those key areas listed. As this is a rapidly developing situation, organisations should also aim to keep aware of any further updates made in relation to this guidance in the coming weeks.