By Steve Nichol
On 7 May 2020 the UK Government published its “Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency”. Here are some of the key points arising and our analysis of the same.
It is not mandatory. The Guidance repeatedly stresses that the Government is merely strongly encouraging compliance with the Guidance, rather than suggesting that it is or should be mandatory. However, as with previous policy announcements by the UK Government, it seems likely that public and local authorities, and indeed potentially companies such as Network Rail who are exercising delegated governmental authority, will be compelled to give greater regard and attention to the Guidance than the private sector.
It seems to focus particularly on the construction sector. Whether this is deliberate or incidental, it is noteworthy that the only industry that warrants a mention in the Guidance is the construction industry, which is the primary focus of paragraphs 17 and 18 of the Guidance as part of the Government’s encouragement to parties to pursue alternative dispute resolution.
It requires parties to act fairly and responsibly. Some other legal commentators have suggested that the Government is encouraging parties to contracts to ignore their contractual rights and remedies. This is not in fact what the Guidance says; rather, the focus in the Guidance is on encouraging parties to exercise their contractual rights “fairly and responsibly”, and in a spirit of co-operation. There is nothing unfair or unreasonable in seeking contractual relief where it is available; however, the effect of the Guidance is to encourage parties to avoid opportunistic attitudes and approaches, and to engage in dialogue wherever possible, to avoid disputes where they can be avoided and manage them where they cannot.
It could be a response to the Government’s own liabilities. The Government’s recommended suite of contracts for construction work in the UK is the NEC suite. Most unamended NEC contracts grant relief to the contractor for “acts of prevention”, which is defined sufficiently broadly to cover most, if not all, of the consequences of the COVID-19 pandemic on the progress of construction works. This means that, at a time when the Government has made vast financial outlays to mitigate the effects of the COVID-19 pandemic, it could be faced with voluminous claims for relief that would place an additional impact and burden on the public purse. It is noteworthy in this regard that the Guidance stresses in paragraph 14 the need for parties to consider both “the availability of financial resources” and “the national interest”.
It will require reciprocation. The Guidance concords with this firm’s recommendations (published on LinkedIn on 26 March 2020) that parties to construction contracts should attempt to resolve disputes fairly and reasonably, rather than seeking to assign blame in the traditional fashion. However, if the Guidance is an attempt from the Government to curb the efforts of those seeking to bring claims against it, it may be a touch optimistic. All construction companies are under significant financial pressure at the moment and are unlikely to be able to forego relief in order to assist the Government. In reality, for this Guidance to have any effect, all parties to a contract will need to adopt the same approach and act in the spirit of fairness, reasonableness and co-operation, or else all parties will default to the traditional, adversarial position.
Consequently, even if the Guidance feels perhaps a little naïve and optimistic, it is absolutely a step in the right direction and should be embraced by all parties operating in the construction industry in order to avoid costly and punitive disputes. For those parties who do not currently have a material dialogue on these issues, the publication of the Guidance is an excellent opportunity to extend an olive branch to the other side and to do as much as it is possible to do to start talking and work towards narrowing the issues between the parties.
Nevertheless, it remains the case that parties will need to continue to comply with their contractual obligations going forward, including in respect of the notification of claims. Even if all parties to a contract agree to follow the Guidance, that by itself will not offer an excuse to any party who has failed to comply with the requirements of the contract.