Fulfilment of Construction Contracts during Covid 19
9th Apr 2020
We are all in the same boat, everyone has been effected by Covid 19/Coronavirus. It is time to re-check your contracts for payment terms and potentially to re-negotiate. And of course in the Construction world, do not forget to issue your Payment Notices and Pay Less Notices, on time and fully compliant with the Construction Act (especially sections 110 and 111).
What is the position in relation to Public Services?
Procurement Policy Note (PPN) 02/20 is asking contracting authorities within England to play their part in keeping businesses up and running, by continuing to pay suppliers, even where, in some cases, the services, goods or works being delivered will not be the same. The PPN is asking for emergency changes to be made to contracts, where necessary, to ensure sensible payment arrangements are made. This PPN comes into effect immediately and, for now, runs until 30 June 2020, but that will be kept under review.
- For everyone including those involved in Public Services, check your contracts and establish the position of the other parties. Are they working remotely? Can they fulfil their obligations or has the contract been frustrated?
- Whose terms apply? Is there a Force Majeure clause and if so what does it mean?
- Assess the payment provisions of those contracts and see how a reduced performance would impact payments. For example, if a contract is payment by results, then could those payment provisions be changed so that until the end of June 2020 for public procurement matters in particular, they are paid a monthly or weekly payment based on an average of the last three months payments? Can you press for such payments if you are a contractor?
- The PPN suggests reviewing business continuity for the at risk suppliers and ensure that wherever possible business continuity is supported and encouraged over the use of other contractual provisions that would allow the supplier to either permanently or temporarily suspend performance. If the latter happened then there is the knock-on effect on the supply chain of lack of payment. So contracting authorities should be discussing business continuity of some sort with their suppliers and looking to amend contract terms to allow for continued service provision wherever possible.
- For PNN matters, payments due should be “accelerated”, meaning that invoices should be paid quicker than the usual contractual timescales wherever possible. In particular, high value invoices should be targeted to ensure they are paid as soon as possible. Potentially, suppliers should be asked to invoice on a weekly, rather than monthly, basis to keep cash flow going. For the rest of us, we need to press hard on cash flow but also look beyond the short term joys of that as we long to do business with our partners long term.
- For Public Procurement contracts, the burden is on the supplier to state that it is suffering “Covid Related Hardship” and propose a change to the payment terms because of this, called an Interim Payment Proposal. This needs to state clearly what it needs and why;
- The Interim Payment Proposal could include advance payment against goods or services, changes to milestone delivery dates and continuing to be paid even when performance is not meeting the thresholds in the contract;
- The contracting authority has three working days to review and either agree or propose amendments to the Interim Payment Proposal;
- Where possible the wording asks the parties to use other methods of relief under the contract;
- The supplier cannot include any elements of profit in the Interim Payment Proposal and it must be able to show, through the use of open book accounting what it is asking for related to Coronavirus impacts;
- The contracting authority retains the right to challenge the supplier against any claims for payment during this period and to review whether the supplier is still eligible for payment if it does not perform as agreed in the Interim Payment Proposal.
Any amendments and variations need to be recording in writing, emails are admissible in evidence if there is a dispute.
At Rogers and Norton, we can advise on your contracts and claims, especially construction and engineering contracts. Contact me at firstname.lastname@example.org or on 01603 675639.