I am a public contractor and am having difficulties performing a contract because of the coronavirus outbreak

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Updated on Monday 18 May 2020- 3pm

The coronavirus outbreak has seriously disturbed the economy, including the performance of public contracts. What if you are a contractor and you cannot guarantee social distancing? What if your employee who normally performs this contract must stay in quarantine? Or your supply chain has been disturbed and prices for a necessary product have skyrocketed? Public contracts contain specific rules on unforeseen circumstances, such as the coronavirus outbreak, which we will discuss below.

In principle, public contracts always contain review clauses for unforeseen circumstances that make the contract impossible/extremely difficult to perform. These clauses give the contractor the right to ask for an extension of the performance deadline, or, in the case of very serious detriment to the contractor, another kind of review of the contract (e.g. changing the price) or even terminating the contract. If the contractor has sub-contracted its obligations, and its subcontractor has difficulties in performing such obligations, then the contractor can also invoke the review clause vis-à-vis the public authorities.

The following conditions must be met, as set out in Article 38/9 of the Royal Decree of 14 January 2013:

  • The contractual balance between the obligations of the public authority (i.e. paying the price) and the contractor are disturbed: this concerns both so-called force majeure and hardship situations: e.g. your staff are quarantined and so performance is impossible, your supply chain is disturbed and you cannot supply the necessary product on time, prices for the necessary product are extremely high, etc.;
  • The unforeseen circumstances could not have been reasonably foreseen when the tender was submitted: the contractor should thus check the tender date and the date on which it was clear that performance of the contract became impossible/extremely difficult;
  • The unforeseen circumstances could not have been reasonably avoided: contractors should make a reasonable effort to perform the contract under the agreed conditions: e.g. by trying to find a replacement for a sick staff member;
  • The unwanted consequences cannot be reasonably ended by the contractor, in spite of taking all necessary measures to end it: a contractor should take reasonable efforts to end the contractual imbalance, e.g. by trying to find another supplier;
  • In order to request a review of the contract other than the mere extension of the performance deadline, the contractor must suffer a very serious detriment exceeding specific thresholds, e.g. for supply contracts, the very serious detriment must be greater than 15% of the initial contract value.

In practice, these situations will always need to be assessed in light of the specific circumstances of the case and of the exact wording of the contract at hand. Do not forget to check the contract and/or the tender documents, as they may deviate from the rules set out above. Public authorities can choose to exclude or adapt the standard review clause from their contracts, provided the tender documents contain an express justification.

Please note that contractors cannot decide by themselves to stop performing the contract or to change the performance deadline, but need to ask for this change. The request to invoke the review clause must be submitted in writing within 30 days after the unforeseen circumstances have occurred. In that request, the contractor must set out the circumstances and describe briefly the impact on the timing and the financial consequences. In a second stage, the contractor will need to submit a formal written request to review the contract, including a breakdown of the financial impact. It is important to check the contractual limitation periods by which this request must be submitted in the tender documents. Without notification, contracting authorities can in principle impose sanctions for non-performance, such as fines or termination of the contract.

The federal government recently issued guidelines on this matter that apply to its public contracts. The government indicates that they will not impose any fines for late performance of the contract, if the contractor has notified the late performance due to the coronavirus outbreak as described above. In addition, the federal government will not impose penalties for other shortcomings in the performance, if that the contractor can demonstrate that the shortcoming is due to the coronavirus outbreak. The federal government also stresses the importance to resume work on public contracts as soon as possible. Furthermore, payment of contractors will be accelerated. These measures also apply to concession agreements.

The Walloon Government has also issued a Ministerial Circular in which it recommends to Walloon contracting authorities not to impose fines for late performance. The Walloon Public Service has also put several template documents and a FAQ for contracting authorities on its website.

Update: The Flemish Government has also issued a Ministerial Circular in which they recommend not imposing fines for late performance of the contract, if it can be justified that the late performance is due to the coronavirus outbreak. They also recommend to not impose penalties for other shortcomings in the performance, if the contractor can demonstrate in detail that the shortcoming is due to the coronavirus outbreak. It is further stated that they will try to perform payments as soon as possible and to already pay advances where possible. Further guidelines and standard clauses are being developed, but these have not been published yet.

 

Do not hesitate to contact Vera Van Thuyne or William Timmermans for further information.

The above information is merely intended as comment on relevant issues of Belgian law and is not intended as legal advice. Before taking action or relying on the comments and the information given, please seek specific advice on the matters that are of concern to you.

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