Amending and extending contracts affected by the Covid-19 outbreak
30th April 2020
The three Procurement Policy Notes issued by the Cabinet Office provide, amongst other helpful information, useful guidance to authorities to enable them to procure goods, services and works in the urgent situation created by the Covid-19 outbreak, to ensure service continuity both during and after the outbreak and to support at risk suppliers so that they are in a position to resume normal delivery once the outbreak is over.
Amending and extending contracts
The Notes include guidance that enables contracting authorities, including NHS bodies and local authorities, to extend or modify contracts during their term to meet an urgent requirement for goods, services or works due to the Covid-19 outbreak or where needed to support suppliers and ensure that they are better able to cope with the current crisis and return to normal service and fulfil contracts once it is over.
Modifications can be made to contracts without a new procurement where:
- The need for the modification has been brought about by unforeseen circumstances, such as the current crisis;
- The modification doesn’t alter the overall nature of the contract
- Any increase in price doesn’t exceed 50% of the value of the original contract
A contract can also be amended or extended where specifically provided for by the contract or where the modification is not substantial
Authorities are required to:
- Pay at risk suppliers normally until the end of June, even if there is a disruption or suspension of service delivery. This is regardless of provisions in the contract that links payments to performance or similar measures
- Consider other payment mechanisms to provide support to suppliers where needed, such as making advance or interim payments or making payments with order
- Pay invoices immediately on receipt
To avoid uncertainty or future arguments, particularly when the current Covid-19 disruption ends and business returns to normal, contracting authorities should:
- Keep a written record to show that the modification of a contract was justified and the conditions were satisfied
- Limit any extension or modification to what is absolutely necessary, and for no longer than necessary
- Be able to show that the decision to extend or modify a contract was related to the Covid-19 outbreak
- Publish the modification by way on an OJEU notice
- Require suppliers that receive payments under the scheme to operate on an open book basis to demonstrate that payments made have been used in the intended manner
- Prepare written variation agreements that document the contract modification or extension and cover the arrangements agreed with suppliers covering issues such as extending time limits or suspending the performance of supplier obligations, waiving rights to claim liquidated damages or service credits, changing payment terms and invoice query mechanisms.
- Ensure that any rights that the authority has to make claims at a future date for failures or underperformance by suppliers that are not linked to the current situation are maintained in case needed in the future
- Check contracts that contain force majeure clauses and agree with suppliers any changes needed to the contract to avoid the use of this clause being triggered or, in extreme cases, a supplier claiming that the contract has been frustrated and it should no long have to comply with its terms
How we can help
Ward Hadaway can help you to review any contracts that are affected by the Covid-19 crisis or where issues with a supplier have arisen, advise on your options in modifying or extending the contract and the grounds on which this can be justified and help to prepare and negotiate a written variation agreement to document the agreed changes.
Where a supplier is struggling to meet its obligations under a contract or a dispute has arisen concerning the interpretation of the contract and the authority’s rights under it then we can advise you on your position and help to resolve the issue. This might include disputes that arise in the future over payments made to supplier that are later found to be incorrect.
For further information, please get in touch.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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