Coronaviurs: Impact on IT Contracts
The coronavirus "SARS-CoV-2" is becoming an increasing burden for human beings and the economy. In view of the rapid development, an illness of employees or an official quarantine of the business premises can also lead for IT contractors to the fact that obligations can no longer be met fully. This can give rise to claims of the principals.
In the light of recent events, we provide you with a brief overview of the main questions arising in the context of dealing with IT contracts for contractors. Below you will also find a list with recommendations which we have compiled based on the legal requirements and our experiences.
1. Information requirements
As soon as it becomes evident that the fulfilment of contracts is delayed or stopped, you should inform your contract partners immediately and as a precautionary measure.
IT contracts regularly contain information requirements of the contractor, for instance for the case that the contractor threatens to be in default with his/her provision of services or that impediments to the provision of services are foreseeable. If the contractor does not sufficiently fulfil these obligations, claims for damages may be impending for this reason alone.
If information requirements are not explicitly regulated in the IT contract, then they may also stem from statutory provisions. Since each contracting party is obliged to be considerate of the interests of the other party. This also includes informing the contracting party that a delay in the provision of the services is impending.
2. Obligation to provide services
For many contractors, the question arises at what point in time they are no longer obliged to provide services and whether this applies permanently or only temporarily.
As is so often the case: It depends on the particular case. Under any circumstances, however, contractors should not assume in general that they are no longer obliged to provide services. In such case, not only claims for damages may be impending, but in the worst case the reversed transaction of the entire contract or a substitute performance by a competitor at your expense.
2.1 Impossibility to provide services
German law initially provides that a debtor does no longer have to provide a service if the provision of the service is impossible for him/her. This can also apply temporarily. The debtor may also refuse the provision of services if the debtor´s necessary expenditure is grossly disproportionate to the interest in the provision of services of the creditor. The law recognizes several case groups here in detail, but all of them are subject to high requirements. An impossibility will be rather the exception than the rule.
IT projects may be quickly jeopardised as a result of a loss of personnel. It also involves a lot of effort to find suitable replacement staff and this is usually not suitable to be able to prevent a delay in time due to the necessary training period of replacement staff when schedules are tight. Also due to other circumstances, the implementation of IT projects can currently be disrupted or - allegedly - be made impossible.
Nevertheless, the principle applies here: For your own safety, do not assume in general that you are not obliged to the provision of services. The legal requirements for an "impossibility" or a disproportionate effort of the provision of services are high, in most cases too high. Precisely in the IT area, most of the services can be provided "remotely" from all over the world, i.e. even an official quarantine order does not necessarily have to lead - thanks to home office - to the fact that the provision of services becomes impossible. If you wrongly refuse the provision of services, you may be exposed to claims for damages - and apart from that you may be further obliged to provide services.
2.2 A question of fault
But only since a temporary impossibility and, thus, also a release from the obligation to provide services are not given, this does not yet mean that the current exceptional situation is completely disregarded. Most of the adverse legal consequences (claims for damages and similar) require a fault. A fault is in principle assumed in case of a breach of a service obligation, but the contractor can exculpate himself/herself here, i.e. he/she can prove that he/she is not at fault for the delay in the provision of services and he/she is not even slightly negligent.
2.3 Contractual guarantees
But caution is recommended here, too. In many cases, contractors have assumed a contractual guarantee for the provision of services, in particular a provision of critical milestone services no later than at a certain point in time. Depending on the structuring of such a guarantee, this can result in a liability without fault in the event of services not provided or not provided in time and thus the breach of the guarantee provided. In such cases, also an exculpation cannot be considered.
2.4 Contractual clauses on force majeure
But even in case of the apparent breach of guarantees, contractual clauses may possibly still help, which are designed to address exceptional situations such as epidemics or other catastrophes. Many agreements provide for such so-called force majeure clauses. In the event of force majeure, these clauses should exempt the parties from their service obligations partially or entirely, often limited to the duration of the event.
Force majeure is an event inflicted from outside which cannot be averted even with the utmost diligence that can reasonably be expected and which cannot be attributed to the spheres of the contracting parties. The consequences of epidemics may lead to the assumption of force majeure in individual regions. Whether and when you are actually exempt from a service obligation - and to which rights your contract partner is entitled in this case - depends, however, on the wording of the specific clause, the applicable law and the details of the case. There are countless modifications for these clauses so that an individual assessment is always required here. It can also make a difference whether such clause is only part of the GTC or whether it was negotiated in an individual contract.
Relevant IT contracts should therefore be examined for the existence and the effectiveness of force majeure clauses. However, you should not hastily rely on a force majeure clause under any circumstances.
3. Liability, rescission, termination, contractual adjustments
If you cannot meet your service obligations under an IT contract, this may result in claims for damages of the principal or also in a termination or reversed transaction of the contract. In the worst case, a warning of the principal is not even necessary for this purpose.
We therefore strongly recommend that you take all measures available in order to maintain the operating capability of your company. This includes in particular personnel matters as well as preventive measures for the containment of the coronavirus. Please document all measures, decisions and other proceedings such as internal discussions etc. in order to be able to provide evidence in the case of dispute that you are not at fault if you are no longer able to provide a service.
In doing so, also caution is recommended: Too far-reaching prevention measures, such as the deliberate decision to no longer execute certain orders temporarily for the welfare of the employees, may lead to an intentional breach of contract in the worst case, whereby you also deprive yourself of all limitations of liability. Preparedness and response measures of a company are one´s own enterpreneurial decisions and do not necessarily lead to the assumption of force majeure. Here, at least an increased need for justification exists.
Should it therefore be apparent that certain works can no longer be completed with a good conscience, you should always attempt here to find at first an adequate solution together with your contract partner. In the individual case, even a - mutual - right to contractual adjustments may exist.
- Examine whether a timely provision of services actually has become objectively impossible.
- Examine your contractual relationships for the existence and the arrangement of
- Information requirements
- Force majeure clauses
- Contractual penalties without fault or other sanctions
- Inform your contract partners early on threatening failures to provide services and delays.
- By contacting your principals early, a constructive environment and solutions for both sides can be created.
- Under any circumstances, do not hastily assume that you are no longer obliged to provide services.
- Take and document all operational precautionary measures to contain the coronavirus and to maintain your business operations.
- Always distinguish whether impediments to the provision of services actually originated from force majeure or whether entrepreneurial decisions lead to the impediment to the provision of services.
- Examine whether for the case of a closure of the company or failures to provide services an insurance exists which covers possible damages on your part.
Dr Florian Jäkel-Gottmann