COVID-19 Template Recovery Deed assisting SMEs working in Defence

By Mark MacLennan

15 July 2020

The Recovery Deed

The Template Recovery Deed (Recovery Deed) is a document which was recently created to legally bind currently contracted parties with the Commonwealth, who work with the Department of Defence to assist it in providing services during the COVID-19 pandemic. It thus affects contracting i.e. small and medium-sized enterprises (SMEs). The Recovery Deed provides assurance for SMEs regarding any real or potential COVID-19 related impacts and ensures that there is a process that allows mitigation planning along all stages of the production line. Part of compliance with the Recovery Deed includes completion of a ‘Recovery Plan Workbook’, which helps contracted parties understand the larger demands of all the sub-contractors during the applicable time.

Timing

While in force, the Recovery Deed has application from 3 April 2020 to 31 December 2020. However, due to clause 1.1.1, the term of application of the Recovery Deed can be amended if agreed by the Commonwealth in writing.

Purpose

The Commonwealth has intended the Recovery Deed to:

• preserve the original contract rights of each party for the duration of the Recovery Period;
• give SMEs a sense of relief during COVID-19;
• enable each contractor to develop Recovery Plans;
• enable consideration of the cash flow to the supply chain;
• ensure the contractors receive additional compensation of additional works; and
• suspend the exercise of certain contractual rights (as defined in the Deed) during the Recovery Period.

Law

The law of Australian Capital Territory will apply (cl 10.4.1).

Parties

The signatories of the Deed are the representatives from the Commonwealth and the ‘contractor group’. This ‘group’ in the supply chain consists of all the sub-contractors which ‘directly or indirectly’ supply goods or services to the ‘Prime’ contractor or any other person in the supply chain.

1. The group is required to be listed as a part of Schedule 1.
2. The representative from the Prime contract signing on behalf of the contractor group acts as an agent for all the members of that group (cl 1.3), and as such warrants it has been appointed and is authorised to act as agent (cl 1.3.2 and 1.3.3.).

   2.1 This may require a review and/or amendments to the original contracts between sub-contractors and the Prime contractor to determine any pre-existing applicable agency clauses; or

   2.2 it may require new agreements to be made in order to comply with the above.

3. Pursuant to cl 5.3.2, any amendments made to the original contract (as made between the Commonwealth and a member of the contractor group, likely the Prime contractor) requires a contract change proposal or deed of variation.

Enforceability

Under cl 10.8.2 any party, (including third parties as under the Deed) are able to enforce their rights under the Deed even if there is failure by either the Commonwealth or the Prime contractor to enforce a condition of the Deed.

Rights during Recovery Period

During the Recovery Period, the Commonwealth (or any other party) will not formalise any claim for relief including any of the following:

• claim for adjustment to the contract schedule;
• claim for performance relief;
• claim for relief from or suspension of obligations;
• stop or suspend any payment;
• claim for additional costs or adjustment to contract rice;
• interrupt the contract and instruct a third party to perform work;
• claim for damages for breach or liquidated damages; or
• terminate the contract or reduce the scope of the contract except a termination or reduction in respect of change of control of the contractor or a breach of Defence security requirements.)

Any claim for relief must be submitted to the Commonwealth within 60 days after the Recovery Period. (cl 5.2.2) Each party shall continue their obligations under their contracts (except if that party is delayed or prevented from doing so due to the impacts of COVID-19).

Payment is not affected by the Recovery Deed except to the extent of the time-period, which is stated to be “as soon as possible” and no later than the due date under the subcontracts. (cl 4.1.1(d))

Recovery Plan Requirement

The parties to the affected contract (as between Prime contractor and the Commonwealth) are to prepare Recovery Plans to keep the Commonwealth updated as to the likely impact of COVID-19 on their service.

Any perceived confusion as to the binding nature of this requirement (see the optional wording in cl 5.1.1. as opposed to the mandatory language in 5.1.2 and 5.1.7) is likely to be diminished as recently, the Commonwealth has provided guidelines on completing the Recovery Plan.

Completion of the Recovery Plan includes inputting details as to potential delay, relief, work affected, mitigation steps and any assessments on the scheduling of services.

Conclusion

SMEs currently contracted with the Department of Defence are now able to gain a sense of security while they work during the COVID-19 pandemic. The Recovery Deed will assist SMEs to protect their rights whilst their ‘agent’ and Prime contractor works with Defence to mitigate any delays or negative cost consequences.

Disclaimer: The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.