Government urges businesses to behave responsibly

In March the Cabinet Office issued a Procurement Policy Note providing information and guidance to public bodies in relation to the payment of their suppliers. The note contained a number of measures aimed at ensuring continuity of services both during and after the coronavirus outbreak.

On 7 May the Government extended this principle to all individuals, businesses, funders and public authorities by publishing Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency.

The Guidance encourages parties to act responsibly and fairly in the national interest when performing and enforcing their contracts, and in particular when dealing with disputes, in order to support the response to Covid-19, to protect jobs and the economy.

The key objectives of the Guidance are:

1. Maintaining contractual performance which is required to support the immediate response to Covid-19, protect public health, jobs and the economy.
2. Ensuring cash flow is maintained, including paying the workforce, individuals and businesses throughout the supply chain.
3. If contractual performance is not possible or not essential, ensuring those contracts, supply chains and markets can be preserved.
4. Generally ensuring that contractual and economic activity can be preserved.

It is inevitable that both now and as lockdown restrictions continue to ease, that there are going to be many businesses who are faced with contracts which either they cannot perform or which their suppliers are unable to perform. For some, the usual approach may be to look at the breach and dispute provisions of the contract and consider their termination options. This Guidance actively encourages parties not to go down this route but rather to consider other options.

Examples of the types of behaviour which are encouraged include making and responding to requests for variations under the contract, requesting and making payments under the contract and requesting relief for impaired performance including in relation to delivery and key performance indicators.

The Guidance specifically highlights what parties should consider in relation to disputes. In particular, responsible and fair behaviour is strongly encouraged in relation to commencing and continuing formal dispute resolution procedures, requesting and responding to requests for mediation or other forms of alternative dispute resolution and enforcing judgements.

For many, issuing legal proceedings is always the last resort when all else has failed. For those, following the Guidance will be part and parcel of their standard approach to contracting. However, for others, where the first port of call is the dispute and termination provisions of a contract, the Guidance may encourage them to take a step back and consider other options first.

A party cannot be compelled to comply with the Guidance and it does not override contractual terms. However, we do not know what will be the consequences, if any, of a failure to have regard to the Guidance, for a party who issues legal proceedings. Will this result in a look of shame and a slap over the wrist by a Judge or will it be considered unreasonable conduct with costs consequences for the party? Only time will tell.

In the last few months we have seen a shift in emphasis, for the better, towards a more caring and considerate community. It seems that the Government hopes the approach being taken by people in their private lives will flow through into their businesses.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.