Update to the Guidance on Responsible Contractual Behaviour During COVID-19

On 7 May 2020 the Government produced “Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency” (”the Guidance”).

We provided a commentary on the Guidance which can be found here.

The Guidance applied with immediate effect as was reviewed on 30 June 2020 and we are reminded that the guidelines and recommendations set out in the Guidance continue to apply and that parties to contracts should “act responsibly and fairly, support the response to Covid-19 and protect jobs and the economy” – emphasis is added by the Cabinet Office.

The updated Guidance (“Update”) can be found here however to follow is a summary of the key summary of the Update which relates to three areas, payment, extensions of time and avoidance and resolution of disputes.

Payment

The Update reminds us of the need for cash flow to be maintained in order to avoid disputes and financial hardship for contracting parties.

As readers will be aware the Government introduced a number of financial packages to support business and individuals preserve cash flow during the COVID-19 pandemic.

The Government also promotes and operates the Prompt Payment Code (“the Code”). Signatories to the Code undertake to:

• Pay suppliers on time;
• Give clear guidance to suppliers; and
• Encourage good practice

More detail on the Code can be found here.

The Update encourages parties to make payment promptly in accordance with their contractual obligations, any legal requirements and applicable guidelines where they apply.

The Update acknowledges that the Government recognises payment culture within the UK needs to improve and that steps are being taken to review what could be done in addition to change this culture positively.

Extensions of Time (and associated costs)

The Update recognises the difficulties COVID-19 and the associated regulations have on contracting parties and how some may find it difficult, or in some cases impossible, to perform their contractual obligations for a number of reasons including illness of workforce, or restrictions of movement of goods or revised working practices for the protection of public health.

The Update advises contracting parties to consider carefully and reasonably what reliefs may be available to them – for example an extension of time for performance – and how additional associated costs are to be dealt with, for example by a renegotiation of terms.

Avoidance and Resolution of Disputes

The Update is clear that an adjustment or accommodation that suits the contracting parties is preferable to a formal dispute. Negotiation and early mediation are both mentioned within the Update as the preferable way to deal with an early stage dispute as opposed to allowing the dispute to escalate to the stage where such procedures would be of little consequence.

Parties are encouraged in the Update to consider how they deal with disputes and mentions signing up to initiatives such as the RICS Conflict Avoidance Pledge.

In addition the use of fast track initiatives such as the Pandemic Business Dispute Resolution Service, a combined initiative between The Centre for Effective Dispute Resolution (CEDR) and the Chartered Institute of Arbitrators are encouraged.

Additional Guidance 

The Update concludes by signposting additional legislation and guidance for providing relief as follows:

• Reference to the practical guidanceissued by the Construction Leadership Council on 7 May 2020 on how to minimise disputes;
• A Government Code of Practiceissued on 19 June 2020 to assist commercial landlords and tenants during the COVID-19 pandemic; and
• The Corporate Insolvency and Governance Act which received Royal Assent on 25 June 2020 – further communication in relation to this Act will be forthcoming from Irwin Mitchell.

Further Measures

The need for further guidance and the impact of the Guidance and the Update will be kept under government review.

If you need any support with contracts or suppliers then please get in touch.