Effect of COVID-19 on Victorian State Government contracts
By James Smart• 06 April 2020 • 5 min read
Governments and businesses are acting to protect the community from the spread of COVID-19 which is changing the way we work and interact. The COVID-19 outbreak is also having a serious impact on supply contracts and the situation is likely to worsen over time if overseas experience is a guide.
Unique government position
A lot of articles are being published about the impact of COVID-19 on contracts. The articles generally focus on the force majeure clauses, suspension rights and the doctrine of frustration. While these issues are relevant to government contracts, there are two main differences for Victorian government departments and agencies:
- The articles are generally written from a supplier perspective when government is almost always the customer; and
- The nature of the work the Victorian government does (eg education, health, emergency services, transport) and the goods and services it purchases means the government will almost always not be looking for ways to end a contract (eg by exercising rights under a force majeure clause) but instead for ways to ensure the contract can continue. Many government contracts are crucial to the community and business, especially at this time.
While it is important that government clients understand the implications of COVID-19 on the force majeure or suspension clauses in their contracts, government clients are generally looking for ways to work with suppliers irrespective of any strict contractual rights. The government is therefore likely to look to support any of its suppliers who are struggling to find alternative solutions to ensure core services continue to be delivered and value for money outcomes continue to be achieved.
Some of the actions our Victorian government clients have been taking over the past few weeks include:
- Reviewing force majeure or suspension clauses in their contracts and understanding the implications of COVID-19 on those clauses.
- Reviewing clauses allowing the supplier the right to delay performance, eg if the government body is unable to provide certain information, access to a site or an approval because staff are unavailable.
- Temporarily relaxing service levels or waiving abatements for suppliers who are struggling to deliver due to an increased service demand or a reduced workforce (eg IT contracts).
- Relaxing delivery timeframes where suppliers are having issues with subcontractor performance (eg deliveries of equipment).
- Suspending a requirement to provide goods or services where suppliers have higher needs clients which need to be prioritised (eg emergency services or aged care services).
- Donating or loaning equipment or stock.
- Adapting qualification requirements for personnel to allow suppliers to bring in additional resources (eg call centre staff such as nurses could be supplemented with other health professionals to manage excessive call volumes).
- Adapting service delivery processes (eg not requiring face to face meetings, waiving reporting requirements for non-essential information or allowing information to be provided online rather than in person).
- Where possible, supporting suppliers to perform work from home (eg for call centre workers or project managers).
- Relaxing delivery times for goods (eg to avoid peak times or to allow personnel to work outside of normal business hours).
- Placing orders early to ensure suppliers have time to prepare and to guarantee continuity of service.
- Paying invoices regularly and early to support suppliers who may be struggling with cash flow issues or agreeing to more relaxed payment terms.
- Ensuring that suppliers’ business continuity plans are up to date and requesting copies of those plans for key supplier contracts.
- Ensuring you have in house knowledge of core services and copies of key documentation (eg training and instruction manuals) that can be used if a supplier cannot continue to perform a contract or if an alternative supplier needs to be brought in to provide additional capacity.
- Undertaking market due diligence to identify alternative suppliers with capacity to provide the relevant goods or services.
An agreement to change the terms of a contract should be documented carefully in accordance with the variation procedure in the contract. The preferred approach is generally to give effect to the variation by deed. This may be impractical during crisis times as key personnel may be unavailable to negotiate or execute documents. Where this is an issue, consider sending letters to suppliers to confirm changes (or waivers of requirements) so that there is at least a contemporaneous record of discussions. Such letters should always state that any changes to service delivery or requirements should continue to be approved by you and should contain relevant parameters to protect you (eg stating a waiver will have effect until further notice is provided).
You should also ensure you have identified all risks associated with any change to the contract, eg community impact if the contract is no longer performed as required, delays to your project or cost impacts.
We are all working in circumstances that are changing almost daily. If you would like any assistance with a review of your key supplier contracts, documenting contract changes or to have a discussion about how best to ensure the ongoing supply of your core goods and services, please get in touch.
Maddocks has produced guides to a range of legal issues raised by the coronavirus (COVID-19). You can access these guides here.
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