New government guidance is advising parties to contracts to act responsibly and fairly and support the Covid-19 response.
The impact of Covid-19 on all sectors has been substantial, and the long term effects are still unknown. IT services have become more important than ever, and many of these are underpinned by contractual arrangements (ranging from simple click-wrap agreements, to complex strategic sourcing arrangements). If you are a party to a tech (or other) contract that has been impacted by Covid-19 then the UK Government is encouraging you to ‘act responsibly and fairly, support the response to Covid-19 and protect jobs and the economy’.
What does this mean inpractice?
Responsible and fair behaviour, according to the guidance, includes being ‘reasonable and proportionate in responding to performance issues and enforcing contracts (including dealing with any disputes), acting in a spirit of cooperation and aiming to achieve practical, just and equitable contractual outcomes.’
The guidance lists fifteen examples where such behaviour is strongly encouraged. They include issues such as relief for impaired performance, extensions of time, payments, data requests, record keeping and exercising contractual remedies (including in relation to force majeure, frustration, change in law and relief events). The government highlights disputes as an area of particular concern. It includes claiming for breach of contract, commencing formal dispute resolution procedures (including proceedings in court and mediations) and enforcing judgments in its list of examples and “strongly” encourages parties to seek to resolve any emerging contractual issue responsibly.
The guidance also points to the proposed changes to the insolvency framework intended to help businesses impacted by Covid-19, which specifically deal with termination clauses in supply contracts. The bill for this (together with an explanatory memorandum) was introduced into the House of Commons yesterday. Special rules restricting insolvency related terminations in certain circumstances for essential services such as IT have, however, been in place for a number of years now.
Scope of the new guidance and next steps
The guidance has general application (it is not tech specific) and is aimed at both the public and private sector. However, it is non-statutory guidance and is not intended to override: (i) specific governmental/regulatory guidance or procurement policy notes; (ii) any specific support or relief available - e.g. relief given in the contract or in law, custom or practice (including any equitable relief), or any government relief provided in response to the Covid-19 emergency; or (iii) any other binding legal duties or obligations and any national security interests. This, together with the difficult financial circumstances in which many contractual parties find themselves, may limit its practical impact in the general B2B community. However, those involved in public sector arrangements are likely to consider it more closely.
The guidance, which applied with immediate effect from 7 May 2020, will be reviewed on or before 30 June 2020 together with any feedback on compliance and the need for further measures.
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. (Guidance on responsible contractual behaviour in theperformance and enforcement of contracts impacted by the Covid-19 emergency)