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New Government Advice to PFI Contractors: Supporting vital service provision in PFI/PF2 (and related) contracts during the COVID-19 emergency

The impact of the coronavirus pandemic on operational PFI projects is coming into sharp focus, from concerns in connection with the availability of key staff and supplies, to lack of insurance cover for pandemics.

The available contractual relief to mitigate the impacts of COVID-19 will depend on the terms of each individual contract; the nature of the project; the circumstances of any delay or disruption to the provision of any works or services, or to the supply chain; whether the delay or disruption can be avoided, overcome or mitigated; and the approach taken by the contracting parties.

On 2 April 2020, the Government issued guidance to PFI contractors about supporting vital service provision in PFI/PF2 (and related) contracts during the COVID-19 emergency. In summary, the message from the Government is:

  • PFI contractors should consider themselves to be part of the public sector response to the current COVID-19 emergency.
  • PFI contracting counterparties should co-operate to ensure the continued delivery of public services.
  • PFI contractors should ensure contingency plans are up to date and have been reviewed and discussed with contracting authorities to enable continuity of full services as far as possible to respond to the emergency and maintain vital public services, particularly across the NHS.
  • Contracting authorities should work closely with PFI contractors to use all available options to maintain public services during the emergency period.

This will include maintaining unitary charge payments (enabling PFI contractors to pay their workforce and suppliers), revising contract requirements/standards (including scope changes where necessary) and moderating payment and performance mechanism regimes where appropriate.

The Government advice includes resolute guidance on the hot topic of the applicability of force majeure:-

As a matter of contract, Government does not regard COVID-19 as an event of force majeure and therefore expects that best efforts are made by all parties for the continuation of service provision under PFI contracts at this critical time for the country

The drafting of force majeure clauses in ‘normal’ market standard project agreements is based on catastrophic events which, at the time, were considered highly unlikely to occur: war, terrorism, nuclear contamination, chemical or biological contamination. This exhaustive list does not contain pandemics such as the COVID-19 virus.

Since force majeure is a creature of contract rather than a rule imposed by the general law, if there is no force majeure clause, an affected party will have to look to other provisions of the contract for potential routes out of its difficulties, such as clauses which deal with relief events, excusing causes, change of law, or emergencies.

For advice on PFI/PF2 and related contracts, please contact Brian Farrell or visit the Coronavirus/ COVID-19 area on our website.

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