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Legal help for community organisations

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Contracts

What if our organisation can’t comply with contractual responsibilities because of the COVID-19 outbreak?

As a result of the COVID-19 health crisis, many organisations won’t be able to comply with contractual obligations.

Identify the contracts your community organisation is a party to. These contracts may be with clients, government departments, other community organisations (for example sub-contractors or auspicing agreements) or businesses.

Then consider your obligations under these contracts and work out which obligations you may be able to meet, and which ones you're unlikely to be able to meet or won’t be able to meet.

Now you have a clearer picture of your exposure, examine which of the following options can apply to each contract:

Option 1 - find another commercial solution

You may be able to find a commercial solution to meet your contractual responsibilities in a different or innovative way. For example, a community group that has government funding to deliver a service may be able to find alternative ways to continue service-delivery (for example, online delivery).

Option 2 - suspend the contract

Some contracts include a ‘force majeure’ clause which allows parties to be relieved of their contractual responsibilities where there are unavoidable or unforeseeable events. Not all contracts have a force majeure clause. Where applicable and necessary, community groups should seek legal advice about applying the force majeure clause to the outbreak of COVID-19.

Option 3 - change or vary the contract

Many contracts will contain a variation clause that sets out a process to vary contractual terms. This may be an option for organisations who want to renegotiate the timeline or substance of KPIs, or the mode of delivering a service.

Option 4 - end the contract

If no other option is available, you may need to terminate the contract. Some contracts include terms that allow a party to terminate the contract if performance has become excessively burdensome or if the contract can’t be performed due to an unforeseen event (called ‘frustration’). Your community organisation should seek legal advice about terminating a contract in either of these ways.

You will need to work out the best course of action for each contract, depending on the operational, financial and reputational impacts for your organisation. More often than not, the other party to the contract will need to agree to any change. Therefore, you should get specialist legal advice before suspending performance of contractual obligations, terminating the contract or trying to vary the terms of the contract.

 

Last Updated: 25 March 2020

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