We are approaching the end of February. This is the time of year when many providers and commissioners are considering contract review, a part of that process is, very often, considering the appropriate level of fee increase.
Care contracts are unusual in that their currency is for the medium and long term. A major consequence of that is that all these contracts will require change from time to time to keep services, prices and margins reflecting the current operational market position.
The first point of review is the contract for the supply of accommodation and service. These contracts will usually contain simple provisions detailing the steps needed to change the contract. The process for change is itself a contract term.
In our experience all privately funded contracts contain such provisions.
Many providers do not realise that there are similar provisions in most local authority and NHS contracts. These contracts are usually much larger and the provisions much more complex. So providers may need to search and read carefully. A failure by a commissioner to respond constructively to a request for change can be a breach of contract, but, very often triggers a form of dispute resolution e.g. arbitration or mediation.
Most public bodies will simply refuse to engage in any constructive review process. They will state that important changes are at their discretion. That is wrong, but, it is not lawful for one party to change a contract without the consent of the other party/ies.
The provider will have to drive the process carefully.
This will require formal requests to change terms e.g. price, and, a process of chasing so as to be able to establish that a dispute has arisen. That dispute will then be in a position to move to formal external adjudication. It is not enough simply to demand increases on the basis of fairness. The dispute needs to move into a formal process which can be articulated/ litigated like any other dispute.
Obviously this takes time but the process can back date the award to the start of the process or contractual review date – rather like a rent review in a lease.
What If There Is No Contract Or The Contract Contains No Provision?
There are a number of steps than can be taken:
1. Implied Term
The courts will imply a term that is necessary to achieve commercial sense in an agreement. This is a high burden but achievable. It is not enough to regret a bargain or wish to get a better deal on reflection. However, in care contracts, the medium/long term nature of the contract is very helpful.
We consider it clear that, absent a review provision, it is necessary to imply such a provision otherwise terms would freeze e.g. on price with no remedy. This is not a term to award one party their demand but to establish a fair review process opening up resolution by third party/ies e.g. the courts.
On price, there is legal precedent that prices paid must be sufficient to enable the provider viably to deliver the contracted service. We will address this later.
A second implied term is where the bargain between the parties is adversely affected by external circumstances beyond the control of either party e.g. change of law or a significant change in external market conditions.
A good example is the National Minimum Wage which was imposed and is regularly increased by statute and is beyond the party/ies’ control. Why should the provider bear all that risk? It is more likely that the commissioners should bear the risk but it should at least be shared.
In such a case the demand for an increase in price needs to be managed through establishing a contract dispute.
2. Termination and Re-Contract
In most cases it is always open to any party to a medium/long term contract to terminate that contract by written notice as set out in the contract, or, if there is no such process, on reasonable notice, generally a period of 3 months is sufficient, as, this gives both parties adequate time to make alternative arrangements. But! Do consider individual circumstances, a larger or shorter period may be appropriate.
The notice terminating the contract should state that the resident is expected to have been moved on and out by the end of the notice period. If that has not occurred then the commissioners will be advised that continued occupation will only be upon the new terms offered which will have been accepted by the commissioner having left the resident in place.
Public commissioners often just ignore such notices but, if that occurs, they are most likely to be ordered to pay the new price or honour the new terms, they had and have the option to contract elsewhere.
One Word Of Warning
Many of these disputes will centre upon historic fees being challenged as they fail to preserve margins evoked by increases in the cost of living. A central part of the provider’s argument will be a lack of financial viability caused by this constant squeeze on profitability. Providers will need to be prepared to share (within the cloak of confidentiality to parties to the dispute) detailed figures showing the input of inflation and external cost increases on their profit and loss account.
Failure to share this candidly will severely impact on the credibility of the charge/ increase requested. We know that people are sensitive about sharing financial information, but, failure to do so will cast doubt on arguments about the true financial position of the service,
We, at Ridouts, are very experienced at handling these disputes and can help by advising how to manage the process, or, conducting the process for our client.
Do call us on 0207 317 0340 to talk through your issues or email us at, firstname.lastname@example.org