Managing delivery disputes under your contracts

Covid-19 has resulted, on the whole, in a marked co-operation between contracting authorities and their suppliers as everybody focuses on maintaining delivery as far as possible.

Encouraged by a series of non-binding Public Procurement Notes, contracting authorities have taken an active role in supporting their contractors to ensure that in the “new normal” their supply chains remain intact and that essential public services can be discharged.

Disputes are never ideal, but they often allow for a re-evaluation of relationships that can be for the better in the long term. As contracting authorities and their suppliers continue their emergence from survival into recovery mode, it is highly likely that the experience of the pandemic and how it has left the country will prompt a number of discussions. 

There might be negotiation about how the contract operates and, in some cases, there may well be a dispute.  That dispute may never progress to a formal process, but it will need to be resolved. 

From our extensive experience of advising contracting authorities and their suppliers across of range of informal negotiation and informal/formal disputes, we have set out below a range of considerations for managing this dialogue with suppliers:

The issue

• Be very clear what the engagement with the supplier is about. 
• What is the issue – operational changes/concerns, the payment mechanism, a change to the market? 
• Make sure that you and the supplier are in agreement on this.

The contract

• Was the contract finally agreed, signed and dated? 
• Do you have a full copy of it? 
• What does the contract say about the issues in question? 
• Have you and the supplier been acting – in practice – in accordance with the contract?  If you have not, have the departures been formally recorded variations? 
• What is the dispute resolution process and are all structures (e.g. a disputes panel) set up?

Public procurement

• Changes to public contracts must be authorised under Regulation 72, Public Contracts Regulations 2015. 
• Have all variations (whether documented or otherwise) to date been lawful under the Regulations? 
• If variations may be needed, what existing flexibility is there in the contract (e.g. options that can be triggered and were provided for in the original procurement). 
• Public procurement compliance needs to be kept in mind as you seek a commercial settlement.

Redlines

• Do you know what your redlines are that you will/cannot go below? 
• On the flip side, do you understand what your supplier’s redlines are likely to be – think about the market they are operating in, their financial performance overall and corporate structure?

Ideal outcome(s) 
Once you are clear what your redlines are, establish what your ideal outcome or outcomes would be. These will form the basis of your negotiation strategy.

Negotiation strategy
With the redlines and ideal outcomes in mind, decide how you are going to present this to the supplier. 

• How many rounds of negotiation could there be? 
• Who is going to be in “room”? 
• Do you need specialist professional advisers (lawyers, accountants, technical service specialists)? 
• Decide who is going to say what and don’t depart from that in the “room” – you can always take a break to adjust your approach.

Governance
When setting your negotiation strategy, be clear what authority you have to negotiate/agree. 

• Do you need to engage with your Board, SMT or elected members to agree the approach and/or the final settlement? 
• Ensure all decisions (including the final one) are fully documented with all reasons and professional advice taken into account.

Write it down

• When you have a commercial agreement, make sure it is documented and takes effect, if necessary, as a variation to the existing contract. 
• Make sure that your monitoring clauses give you sufficient scope to oversee the implementation of the changes so that they are enforced.

For more information

If you have any queries arising from this article, please contact Emma Riley or Alex Lawrence.

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