At the start of April, we answered your questions about the Government's Procurement Policy Note 02/20 (PPN 02/20), which stated that academies and maintained schools should continue to pay suppliers.
In May we updated our advice to take account of the original guidance set out in PPN 02/20, the further FAQs published and the subsequent sector guidance issued by the Cabinet Office.
Since then we have been advising schools as to the pragmatic commercial approaches that are needed to navigate the ongoing challenges brought about by the COVID-19 outbreak.
This updated article takes into account the original PPN 02/20 (which was issued on 19 March and expired on 30 June 2020), subsequent guidance and the new PPN 04/20 (which was issued on 9 June 2020 and is valid from 1 July 2020 to 31 October 2020).
Under PPN 02/20, maintained schools and academy trusts were encouraged to continue to ensure key at risk suppliers were paid, even where supplies and services were either reduced or paused temporarily. The aim of the measures was to try and preserve the supply chain to help ensure service continuity "during and after the COVID-19 pandemic".
The Cabinet Office has now issued PPN 04/20 which updates and builds on PPN 02/20, recognising that, whilst the supplier relief provisions under PPN 02/20 may continue to be relevant, maintained schools and academy trusts and suppliers now need to work together to develop transition plans to exit from any support before 31 October 2020.
Yes it does. Maintained schools, academy trusts and non-maintained schools are specifically named in the guidance (being categorised as contracting authorities with the majority of income coming from state funding).
The policy note only applies to suppliers who have direct contracts with schools and academy trusts. It covers contracts for goods, services and works contracts (such as building works).
We are aware that there may be services which will be dependent upon schools being open, eg after school clubs and activities, and school bus services which are paid for by parents and carers and therefore not the direct responsibility of the school. Schools are only expected to pay suppliers with whom they have a direct contractual relationship under a procured contract.
Under these arrangements, schools are still spending public money and therefore caution should be taken to make sure it is not being used improperly. However, individual circumstances always need to be taken into account. For example, if a local bus route is critical to pupils attending a school and there is a risk that the buses will not be running in September (or whenever schools reopen), this will need to be taken into consideration.
Schools and academy trusts should have regard to the guidance and consider whether it is appropriate to its own circumstances.
The policy note is currently in force and applies until 31 October 2020.
The DfE has put in place a five-stage approach that it currently uses to evaluate and manage its own suppliers who are within the scope of the PPN. It is by no means prescriptive but may instead by used as guidance when implementing the PPN:
1. Can the supplier benefit from other measures put in place by the Government?
Schools should assess whether suppliers have considered other forms of support put in place by the Government and available to them, such as the Coronavirus Job Retention Scheme (CJRS). The aim of the policy is to try and ensure job continuity and retention. Suppliers cannot be paid in full and also be claiming from Government relief schemes such as the CJRS. This is to avoid duplication of funding. Similarly, suppliers should not be making their staff redundant if they are continuing to receive payment for public sector contracts. However, if staff are not needed to provide services because, for example schools are closed, then the supplier can 'furlough' these staff which should result in a substantial reduction in the costs payable by the schools/trusts.
2. Is the supplier critical to the School?
Schools should consider whether the goods or services provided by the supplier are critical to business continuity so as to require the schools to provide relief under the PPN.
3. Is the supplier financially at risk?
You should not wait until a supplier gets in touch with you to discuss payment terms but should consider this as part of your contract review. Small and medium sized companies are most likely to be affected, but the Government has said that it considers a supplier to be at risk where they are unable to fulfil their contractual obligations due to COVID-19 and are consequently experiencing financial difficulties.
4. What commercial interventions should schools consider putting in place?
The DfE has suggested a number of measures that may be considered, such as an extension of time for contract performance or adjusting lead times, considering supplementing delivery through the school's own resources and continuing to pay suppliers even where performance is somewhat affected.
5. What financial interventions should schools consider putting in place?
Suppliers should be prepared to act on an 'open book' basis. This means they should make available data from ledgers, cash flow forecasts, balance sheets and profit and loss accounts when requested. If it is found that suppliers are taking undue advantage, schools can take action to recover payments made. Suppliers should seek to mitigate their losses. The Department for Education (DfE) has stated that suppliers should not expect to make profits on elements of a contract that are undelivered during this period and all suppliers are expected to operate with integrity.
Further, the DfE has advised that schools should apply the necessary controls as set out in the Local Scheme for Financing Schools for Maintained Schools and the Academies Financial Handbook for Academy Trusts and (in the case of maintained schools) seek advice from local authorities as to how they are implementing the PPN.
You must also assess your risks and document your rationale for any approaches you take in implementing the PPN as these measures will form an important part of your audit trail.
The DfE has stated that all schools will continue to receive their core funding (as determined by the local authority in respect of maintained schools and through the general annual grant for academies) for the 2020 to 2021 financial year, regardless of any periods of closure or reduced operation.
Processes have been put in place allowing the DfE to reimburse schools for 'exceptional costs' they may be facing, for example if children are in receipt of free school meals but cannot attend school. The DfE is also putting in place additional funding to support schools that have additional unavoidable COVID-19 related costs that cannot otherwise be met from existing budgets. Further information was published in April and updated on 24 June. However schools should be aware that this exceptional funding cannot be used to support suppliers.
As part of your discussions with suppliers you may negotiate changes to your contracts, for example, relief from KPIs or making interim payments. Changes should be recorded in accordance with the contract variation method contained in the contract, and at the very least should be agreed by both parties and recorded in writing. There is also a template form of variation that can be used in the PPN pack.
The central theme of PPN 04/20 is transition planning. Where schools have agreed any form of supplier relief under PPN 02/20, you are now encouraged to work collaboratively with suppliers to develop transition plans (to be kept under review) for a planned exit date for any supplier relief granted. Any transition plan should give consideration to matters such as:
The full set of Procurement Policy Notes relating to COVID-19 can be found on the Gov.uk website.