Government guidance on responsible contractual behaviour

Written on 14 May 2020

Overview and analysis of the new guidance from The Cabinet Office and the Infrastructure and Projects Authority

The Cabinet Office and the Infrastructure and Projects Authority recently published a jointly prepared document entitled "Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency". This is non-statutory guidance for parties to contracts impacted by Covid-19.

Guidance overview

The Guidance is non-binding. It applies with immediate effect to both the private and public sectors in England (but not to the devolved administrations).

In essence, the government is strongly encouraging all individuals, businesses and public authorities to act responsibly and fairly in the national interest in performing and enforcing their contracts. The Guidance outlines what the government considers responsible and fair behaviour will look like.

The key requests being made of parties are:

  • to be reasonable and proportionate in responding to performance issues and enforcement (including disputes);
  • to act in a spirit of co-operation; and
  • to aim to achieve practical, just and equitable contractual outcomes having regard to the impact on the other party and availability of financial resources as well as protecting public health and the national interest.

Responsible and fair behaviour is strongly encouraged in respect of a range of contractual considerations of particular relevance in the current climate, including:

  • requesting and giving relief for impaired performance – including time for delivery and completion and making payment;
  • requesting and allowing extensions of time, and substitute or alternative performance;
  • making and responding to force majeure, change in law, frustration and similar claims;
  • claims for breach of contract and enforcement of termination or default contractual remedies;
  • claims for liquidated damages;
  • requests for variations; and
  • disputes and the enforcement of judgments.

Good faith?

The Guidance does not expressly refer to "good faith". However, the use of the language of fair and reasonable behaviour does raise an obvious connection.

There is no general concept of good faith implied into commercial contracts under English law. Broadly, parties have autonomy to pursue their own commercial interests and while, in certain circumstances, a duty of good faith may be implied, such as in relational contracts, generally good faith will not fetter a party's behaviour.

The Guidance might nonetheless suggest that the government's expectation is that contractual parties will operate in the present circumstances as if owing a general duty of good faith to one another.

Effect and compliance

Crucially, as noted, the Guidance is non-binding. It does not have the force of law and does not override the general law, nor the parties' legal rights and obligations as set out in the relevant contract. It is also expressed to be subordinate to government issued policy notes (such as in the field of public procurement).

The starting point on any issue therefore remains the contract wording. However, when an issue does arise, parties can expect the Guidance to be raised, if nothing else by way of moral pressure. Failing to follow the Guidance and its recommendations could also give rise to public relations, corporate social responsibility and other considerations. The Guidance will no doubt be raised in correspondence and discussions by parties seeking relief and looking for a "fair and reasonable" response.

In addition, where a contract contains express obligations in relation to, for example, the exercise of a discretion to act fairly or reasonably, the Guidance arguably will have greater weight given it sets out what the government feels responsible and fair contractual behaviour in the current climate looks like.

It is also possible that it may be considered by third parties involved in the resolution of contractual disputes  – for example, adjudicators.

As such, it is important that businesses and their advisers are aware of and consider the Guidance, whichever side of an issue they are on.

Future developments?

The nature of the Guidance means that it is unlikely much will change in the short term, but it is open for the government to follow-up with more strongly worded and interventionist provisions. Pressure may be levied on industry bodies to adopt their own policies in line with the Guidance.

The Guidance makes it clear that the government will continue to review contractual behaviour and may take further measures in respect of the Guidance’s recommendations, including legislation. It is presently very difficult to predict what will happen to the economy over the next few months, but a severe downturn and a slow return to economic normality will add to pressure for more protection and assistance for struggling businesses.

Does this Guidance suggest that businesses will face an added element of uncertainty – that the present legal approach to utilising and enforcing contractual rights and obligations may be different in these unprecedented circumstances? Potentially so, and, as such, this has an impact on risk assessment and management. It will be important to keep contractual wording under review, especially in any contract involving an extended relationship or period of performance, and to document any contractual variation which may be agreed between parties acting in the spirit of this Guidance.

Finally, the Guidance suggests that it may be updated with a frequently asked questions supplement in due course and will be reviewed again before the end of June 2020.

This commentary is by way of general guidance only. Legal advice should be taken in relation to specific circumstances. We shall be very happy to discuss any queries with you.