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The government has issued updated guidance to help companies caught up in commercial disputes as a result of the coronavirus pandemic. It wants businesses to behave responsibly and fairly in enforcing contracts impacted by Covid-19 to protect jobs and the economy.

The government says it is impossible for some businesses to perform contracts in accordance with the agreed terms – due to closure of businesses, workforce illness, restrictions on the movement of people and goods and revised ways of working to protect health and safety.

The Cabinet Office issued its ‘Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency’ on 7 May.  An update, published on 30 June focuses on the steps businesses should take in relation to payments, extensions of time to complete contracts and the avoidance and resolution of disputes.

The guidance is not legally binding, but sets out strong recommendations about how parties should behave when the performance of contracts is materially affected by COVID-19.  Among a wide range of recommendations, the government says that businesses are encouraged to request, and give, relief when contracts cannot be fulfilled and to allow for extensions of time or alternative performance of the contract.

New recommendations, announced in June, encourage businesses to make payments as quickly as possible to maintain cash flow and protect jobs.  In particular payments should be made promptly where suppliers are SMEs or individuals who do not have the same resources as large businesses.  In addition, the government wants reasonable extensions of time to be made available where contracts cannot be fulfilled.  It is also encouraging the use of mediation to settle disputes, including the new Pandemic Business Dispute Resolution Service (See Brunel News here).

The government’s approach of encouraging businesses to take a step back from legal action and adopt a balanced approach to settling disputes during the pandemic is to be commended,”  said James Burgoyne, Director – Claims & Technical, of Brunel Professions. “We know from our long experience in working with firms involved in professional disputes that claims can quickly escalate, causing commercial damage to both sides. Working together will help more businesses to survive the pandemic and thrive in the future.”

The Cabinet Office’s guidance issued on 7 May and updated guidance issued on 30 June are available on the government’s website.  Reports on the updated guidance have been published by DWF and Fieldfisher.  Articles on the original guidance have been published by DWF and Norton Rose Fulbright.

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