Easing the impact of war on government contracts

The ongoing conflict in the Middle East is deeply concerning. It has disrupted, and will continue to disrupt, supply chains and increase costs across many industries.

This will impact human lives, business relationships and ongoing and future contracts. But we’ve been here before. The COVID-19 pandemic and the war in Ukraine have presented unparalleled challenges to global trade. The lessons learnt from those disruptive events should not be lost.

I would like to focus on the likely impact of this latest conflict on supplies, services and works contracts with the government of Malta, usually signed following a competitive public procurement procedure.

I have three simple recommendations of a structural and permanent nature that would likely alleviate pressures and reduce uncertainty in Malta when similar events occur. The underlying premise is that the risks associated with such events should not be borne solely by the private sector.

First, the standard terms in government contracts (commonly referred to as the General Conditions) should incorporate a hardship clause, a contractual provision that allows a party to request renegotiation or adjustment of the contract when circumstances change and performance becomes difficult or excessively burdensome.

A hardship clause is fully consistent with the implied duty in Maltese law to carry out contracts in good faith. It could even be argued that a written hardship clause is not strictly needed. But, in my experience, a written clause facilitates the resolution of claims and disputes and should make government contracts more attractive to the private sector, including foreign investors.

The reality is that force majeure clauses do not necessarily address the full impact caused by pandemics, armed conflict and other unforeseen events. Sometimes, the disruption to a supply chain caused by an unforeseen event does not make the performance of the core obligation impossible, it simply makes it more expensive or difficult. This is why a hardship clause, in addition to a force majeure, is more appropriate in today’s world with its challenges.

Such a hardship clause should give rise to structured negotiations or claim process which may either lead to an increase in the value of the contract (capped at a percentage to ensure it is a clear, precise and unequivocal modification) or to termination of the contract without any financial impact on the contractor.

“Malta, on its own, cannot address the challenges posed by volatile geopolitical tensions” added Clement Mifsud-Bonnici

The government may look to the standard hardship clauses proposed by the International Chamber of Commerce or in the UNIDROIT Principles as reference.

Second, the government should immediately consider the replication or extension of the Temporary Suspension of Certain Provisions Relating to Public Procurement Regulations (Legal Notice 203 of 2022) to cover any government contracts which may be impacted by recent events in the Middle East. The regulations provided a scheme under which contractors could request compensation because of the war in Ukraine.

Without entering into the legal basis of this scheme, the scheme had alleviated the hardships caused by that war.

Third, the government should have clear, written internal procedures, perhaps in the form of standard operating procedures, on how to handle claims by contractors directly caused by an armed conflict or similarly unforeseen disruptive events.

This procedure should provide guidance on how contracting authorities are to handle force majeure, hardship and variation or modification claims caused by such events.

The government should also consider the open publication of these procedures, perhaps in the form of a summary guidance, to ensure transparency and legal certainty.

These three recommendations, if implemented, will likely go a long way to reduce uncertainty in the initial phases of an unforeseen event. They are, however, short-term solutions designed to put out an immediate proverbial fire.

The reality is that Malta, on its own, cannot address the challenges posed by trade fragmentation and volatile geopolitical tensions. This is where the EU must step in. The EU must act, as it is indeed trying to do, to ensure its competitiveness in the years to come.

Building resilient supply chains, particularly for critical raw materials and essential medicines, is a stated priority in the Draghi Report and has been taken up by Union institutions, notably through the recently proposed Industrial Accelerator Act.

The above three recommendations set out above do not replace the overarching long-term industrial policy goals which must be pursued and achieved.

Disclaimer: This article was first published on ‘the Times of Malta’ on 26/03/2026.