In the light of the Covid-19 pandemic, parties have been burrowing into the depths of their small print like never before. I am not convinced this is the answer.
For once, I am NOT alone!
parties to contracts should act responsibly and fairly, support the response to Covid-19 and protect jobs and the economyCabinet Office Guidance issued 7 May 2020
It says it is ‘right‘ that parties whose contracts are ‘materially impacted‘ by Covid-19 should ‘consider their behaviour‘ as part of the national response to this public health emergency. It repeats the mantra that these circumstances are ‘unprecedented and exceptional‘.
The UK government recommends this three-pronged approach:
- maintain performance where possible and ensure cashflow
- perserve contractual and economic activity even if activity is suspended to support any restart
- avoid destructive disputes and insolvencies.
The Construction Leadership Council has similarly published guidance on contractual best practice. It reiterates:
the real concern that the construction industry will become embroiled in costly and long-running disputes over the effect of Covid-19 on projects if it does not look to engage in collaborative discussions to try and resolve such issues as and when they ariseCLC Covid-19 Contractual Best Practice Guidance issued 7 May 2020
It states that ‘notwithstanding the contractual provisions‘ parties should collaborate for the success of the project; mechanisms should be followed but dialogue must take place and agreement should be sought on the impact of Covid-19 on the project. It recommends virtual discussions which are without prejudice and subject to contract.
What should you do?
The government is not suggesting derogating from or ignoring what your contract says. It is strongly encouraging you, your contractual partners, and your contract administrators, to act responsibly and fairly in relation to these contractual mechanisms:
- Payment, extensions of time, impaired performance,
- Compensation, force majeure, relief events, delay damages,
- Contractual remedies and breaches of contract
- Data exchange and record keeping
- Changes to the contract (and third party consents)
- Dispute resolution procedures.
Is this akin to a duty of good faith? If your contract was not collaborative, then this guidance may not comply with its underlying spirit. Nonetheless, I believe trust not terms is a better approach to this pandemic.
This post is correct at 8 May 2020