New Guidance Published on Responsible Contractual Behaviour
It is easy to get swamped by the deluge of information about how best to deal with the challenges posed by the Coronavirus. However on 7 May 2020, two sets of guidance were published which ought to be flagged to those who work in the construction sector.
The first set of guidance, published by the Cabinet Office, is entitled “Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency”. A copy may be found here.
The second set of guidance, published by the Construction Leadership Council, is entitled “Covid-19 Contractual Best Practice Guidance”. A copy can be found here.
A clear theme runs through both documents. Unless parties to contracts are prepared to adapt and modify their behaviour, and cooperate with each other in ways not required by their contracts, jobs and the economy will suffer. In the case of the CLC guidance, the advice to the construction industry is stark: an attitude of collaboration “must be reflected across the whole of the industry for it to survive for the long-term.”
The Cabinet Office guidance calls for all businesses to adopt “responsible and fair behaviour”. This could involve significant changes to the way many construction contracts operate. The examples of such behaviour provided by the government include:
“(a) requesting, and giving, relief for impaired performance, including in respect of the time for delivery and completion, the nature and scope of goods, works and services, the making of payments and the operation of payment and performance mechanisms;
(b) requesting, and allowing, extensions of time, substitute or alternative performance and compensation, including compensation for increased cost or additional performance;
(c) making, and responding to, force majeure, frustration, change in law, relief event, delay event, compensation event and excusing cause claims;
(d) requesting, and making, payment under the contract; [and]
(e) making, and responding to, claims for damages, including under liquidated damages provisions.”
Many of the above points have particular significance in the context of construction contracts. When one considers what such changes would mean in practice, they would involve employers making additional payments to contractors, and agreeing to waive their right to levy liquidated damages for delay. Some employers may be willing to do so; others may not be able to. These are not easy choices.
An article highlighting the implications of the CLC guidance, and issues for contractors to consider when thinking about collaborative working may be found here. There are definite pitfalls for the unwary. Although a spirit of co-operation and fair dealing is definitely a worthy aspiration, changing contract terms too quickly may result in unintended consequences. As the above extract from the Cabinet Office guidance shows, the concept of “responsible and fair behaviour” may potentially involve some radical departures from established contractual rights.
Very helpfully, the CLC guidance attaches copies of model ‘without prejudice’ letters which it suggests that contractors and employers can use when considering whether to engage in collaborative working, and the letters giving notice of delay under both JCT and NEC contracts. The need to give proper notice under a construction contract continues even in a pandemic, and there is now a serious concern that this practice is not being followed in many, if not most, projects. One might hope that where a contractor has not complied with the contractual mechanisms, such an oversight may be overlooked by employers in the context of the current crisis. Doing so might be a good example of the “responsible and fair behaviour” which the government wishes to encourage.
Written by Richard Sage.