Properly prepared — contract law in the new security landscape

Imagine that your company has a subcontractor. In the middle of the project, the supplier announces that they cannot deliver — a government agency has decided that their production must be prioritised for state purposes, or a crucial piece of machinery is required for other purposes, or there is a shortage of fuel. Who should bear that risk, and what does your contract say?

How does your organisation handle such and similar disruptions? Presumably, there is a contingency plan. It sets out what to do if systems go down, key personnel are unavailable or deliveries fail to materialise. However, when the disruption occurs, it is not the contingency plan that determines the loss, but the contract. Given the new security landscape, continuity planning must also be integrated with the contracts.

These are some of the issues we will address in this series of articles. In this first article, we begin by clarifying the terminology to better understand the regulatory framework that must be adhered to.

Total defence and heightened preparedness — a brief overview

Total defence or comprehensive defence (Sw. totalförsvar) is the overarching term for all activities undertaken to prepare Sweden for serious crises, ultimately war, and to manage them. Total defence is divided into two branches:

1. Military defence, essentially the Swedish Armed Forces' ability to counter armed attack.

2. Civil preparedness or resilience (Sw. civilt försvar), i.e. society's ability to function during crises and war. Civil preparedness is not a government agency but rather a system that encompasses everything from healthcare and food supply to transport, energy and the private sector. Civil preparedness should in a Swedish context not be confused with civil defence (Sw. civilförsvar), an older term that was phased out in the 1990s and which encompasses what is now referred to as population protection and rescue services.

Heightened preparedness is a formal legal status decided upon by the government in the event of war or the threat of war, as opposed to peacetime crises such as a pandemic, a power outage or a natural disaster. Heightened preparedness has two levels: heightened alert (Sw. skärpt beredskap) and maximum alert (Sw. högsta beredskap). The level determines which laws and powers are activated. In the event of war, the country enters a state of highest alert, whilst in the event of a threat of war, the government may decide which level applies.

Which organisations are affected?

The civilian component of total defence is organised around a number of preparedness sectors, with different government agencies responsible for planning and coordination. Some examples include emergency services and civil protection, energy supply, food supply and drinking water, transport, health and medical care, electronic communications and postal services, financial services, industry, construction and trade, the provision of basic data, and public order and security.

In addition to the agencies and these designated sectors, there is a much broader network of companies that form part of the critical infrastructure. It is therefore within civil defence that most companies operate, whether they realise it or not. Companies that build infrastructure, supply the public sector, let premises to government agencies or form part of supply chains for goods vital to society are all part of the infrastructure that total defence requires to function in a crisis.

The laws that lie dormant — until they don't

Sweden has a number of so-called preparedness laws that do not apply under normal circumstances but are activated in the event of heightened preparedness. Here are some of the most relevant:

• The Rationing Act (Sw. ransoneringslagen) gives authorities the right to restrict access to goods and services such as fuel, building materials, raw materials and industrial inputs. The Government may also, in the event of other extraordinary circumstances, decide that the Act shall apply for a maximum of one year.

• The Requisition Act (Sw. förfogandelagen) gives authorities the right to requisition private property in return for compensation, for example, real estate, premises, vehicles, machinery, and other equipment.

• The Total Defence Service Act (Sw. lag om totalförsvarsplikt) means that individuals may be compelled to serve in the total defence forces.

What these laws have in common is that they can alter the terms of existing contracts without either party having done anything wrong or reprehensible.

In addition to these preparedness laws, there is also the Security Protection Act. It regulates preventive measures to protect national security against, among other things, espionage, sabotage and terrorism. Unlike the preparedness laws, it is applicable even under normal circumstances. Those engaged in security-sensitive activities are obliged to carry out a security protection analysis and take the necessary measures regarding information security, physical security and personnel security. When procuring goods or services or entering into agreements with external suppliers who may gain access to security-sensitive activities, a security protection agreement must be signed. In practice, this means that obligations under the Security Protection Act can extend far down the supply chain and affect companies that do not themselves carry out security-sensitive activities, but which supply goods, services or capacity to an entity that does.

From concept to consequence

Heightened preparedness is not merely a vague future scenario. It is a defined and legally regulated state that triggers a number of specific powers and obligations. In the event of heightened preparedness, the conditions for existing contracts, supply chains and ongoing projects change from one day to the next.

In the upcoming articles in this series, we will examine what this means in practice: for your commercial contracts and force majeure clauses, for ongoing and future construction projects and the standard agreements AB 04 and ABT 06, as well as for your overall contract law contingency planning.

Three things to start with right now

1. Assess your exposure. Does your company supply goods, services or capacity to the public sector, critical infrastructure or entities within the defence sector? If so, you are likely to be part of civil preparedness, with or without a formal commitment.

2. Identify which laws may apply. Legislation on rationing, requisition and security protection is not hypothetical. The Security Protection Act is already in force. The Rationing Act and the Requisition Act are activated during heightened preparedness and can directly affect your contracts and supply chains.

3. Ask yourself about your contracts. Do your most business-critical contracts cover the situation where a government agency intervenes under preparedness legislation? The answer is often no, and that will be the starting point for the rest of this series.