The UK government has terminated its contract with P&O. This was due to P&O replacing 786 staff with cheaper agency workers in March to "modernise and become competitive". 

When the news broke, there were calls for the CEO Peter Hebblethwaite to resign and a House of Commons committee questioned him. He then admitted the failure to consult was unlawful and said was "incredibly sorry" for the impact. But he also said it was "the route we only deemed possible". And P&O owners, DP World, praised him for doing “an amazing job” by saving the company.

The government initially revoked P&O’s licences for its normal operations due to concerns over safety arising from the replacement of so many staff. It has also promised to reform maritime law “to stop firms exploiting legal loopholes and protect workers’ rights”. Further, according to reports, the Insolvency Service is carrying out criminal and civil investigations. 

And now it has terminated its contract with P&O. Under that contract it was providing travel services for British staff that worked in Belgium and France as border control, checking passengers and freight headed to the UK. A home office spokesperson said:

“In response to P&O Ferries’ unacceptable behaviour, Border Force has terminated its agreement with P&O to provide contingency travel services to juxtaposed ports with immediate effect.” 

Obvious questions

That statement leads to some obvious questions:

  • Is the government terminating for P&O’s breach of contract? It's not clear. The government is relying upon P&O’s “unacceptable behaviour” regarding the handling of its staff rather than a failure to deliver the service properly to Border Force. But P&O might have breached a policy requiring it to treat its staff ethically.
  • Is the government terminating without cause? Presumably not as this normally requires you to serve a notice period but here the government is terminating with “immediate effect”.
  • If the government doesn’t have legitimate grounds to terminate, what will this cost the taxpayer? After all, it’s not that long ago that the government incurred £50m cancelling ferry contracts signed in the event of a no-deal Brexit. 
  • Who will pick up the contract at short notice? Presumably the government will rely upon emergency powers to appoint a new provider?

What lessons can we learn?

  1. You should be able to terminate for a party's breach. But, unless you have expressly provided for it in the contract, you can't terminate because you are cross about an event not connected to your contract. 
  2. If you can't terminate for the other party's breach, you might be able to terminate without cause. You might have to buy your way out of the contract if you don't want to serve the notice period.
  3. And if you don't have any grounds to terminate, your purported termination is itself a breach. This is what IBM found recently, and could cost you dearly.
  4. So, check your contracts to see what your rights are to terminate. You might want to add a reputation or behaviour clause.

If you need advice, contact me or +44 (0) 20 7611 2338.