COVID-19 & Your Defence & Security Contracts

The Defence & Security sector is beginning to feel impacts as COVID-19 disrupts both procurement projects and supply chains. The sector is heavily reliant on both an available specialist workforce to manufacture and maintain equipment and on global supply chains for raw materials and components. The continued supply of defence & security services is very often critical to our national security. Ensuring any closed sites are safe and secure is a fundamental issue.

Examples of the practical impacts COVID-19 is having in the global defence and security sector are:

  • Manufacturing and test facilities closing/reducing output – countries are adopting differing approaches as to whether or not production must halt. For example, in Italy the new Decree was enacted on 22 March 2020, which orders work stoppage at factories until 3 April 2020, unless the relevant activity is an Excluded Activity or is part of the supply chain of an Excluded Activity. In England, as at 25 March 2020, production can continue on the basis that it can be done safely and in accordance with Government guidance. Even where Governments are not mandating closures, some OEMs are halting production. For example on 23 March Boeing announced that it was temporarily suspending all production operations at its sites in the Seattle Puget Sound area, with the 14-day shutdown commencing on 25 March. The facilities supply the P-8A Poseidon maritime multimission aircraft (MMA) for the UK Royal Air Force (RAF).

  • Imports/Exports stopped - countries are enacting different measures concerning import of goods and services from COVID-19 high risk countries. The European Commission has allowed each Member State to adopt measures (proportionate and not prejudicial) aimed at safeguarding the health of its citizens and to prevent the spread of the virus COVID-19.

  • Reduced workforce – employees not coming to their place of work due to self-isolation, sickness or fear of risks. This can cause particular difficulties in this sector where staff are often highly specialist and not easily replaced. There are also instances of customers refusing access to contractors owing to health and safety concerns.

  • Travel bans – many countries have closed borders and more closures may come. Certain work in the sector (such as specialist installation or operation and maintenance) may require overseas-based specialists who are unable to get to the location of work due to travel restrictions. 

Examples of the measures European governments are taking to help suppliers to them cope with the impact of COVID-19 are:

  • The UK government has taken a policy decision (set out in a Public Policy Note 02/20 [1]) which is aimed to help suppliers' cash flow during the pandemic to ensure programmes can continue to run or can be reignited as soon as restrictions are lifted. This relief will be welcome by suppliers, albeit many are now looking to their customers to help them understand whether they will be considered an 'at risk supplier'. They are also still keen to understand their liabilities under their contracts should COVID-19 cause delay, and to work collaboratively to find solutions. Of particular interest is whether relief is available to suppliers and whether this could be passed down the supply chain.

  • In the UK, the MOD Permanent Secretary Sir Steven Lovegrove has also written to the defence industry [2]  to outline how the department is applying the new COVID-19 key workers guidance across the relevant programmes and projects the department runs, and how is applies to defence contractors working to support those activities.

  • In France, the Government issued an Ordinance No. 2020-319 dated 25 March 2020 (the "Ordinance") to facilitate the performance of public contracts and concessions during the COVID-19 situation. The Ordinance applies to public procurement contract, to concessions and to other public contracts, which are in effect on 12 March 2020 and will be signed up to two months after the end of the COVID-19 state of health emergency (Art. 1 of the Ordinance).

  • In Italy, the Government has suspended the deadline for any administrative procedure, including those related to the issuance of the authorizations to import/export military items.

The above all means that customers and suppliers are keen to understand their contractual position under COVID-19, both with regards to force majeure and also what other options are available to them such as suspension, termination or entitlement to increased costs under the change in law clause.

This note looks at how each of English, Italian, French, Polish and German contract law on force majeure and frustration applies to the COVID-19 pandemic, and highlights other contractual hints and tips that both customers and suppliers should be aware of.

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