Coronavirus and the Payment of Suppliers - Procurement Policy Update
The Cabinet Office has issued a new procurement policy note setting out guidance on how the public sector should work with suppliers to move towards long term sustainable public contracts following coronavirus (COVID-19).
PPN4/20 Recovery and Transition from COVID-19
The guidance applies to all contracting authorities as from 1 July to 30 October 2020.
This PPN will replace PPN 2/20, which requires contracting authorities to work with suppliers to continue to pay suppliers, notwithstanding their ability to perform might be affected by the closure of public infrastructure and facilities, reduced demand and interruptions in the supply chain. The aim of PPN 2/20 is to help ensure service continuity "during and after the COVID-19 pandemic" and to protect the supply chain.
Under PPN 2/20, contracting authorities are required to:
- Identify key contracts for goods, services and works within their portfolios and consequently those suppliers which are likely to be at risk as a result of the COVID-19 pandemic.
- Pay suppliers as quickly as possible and agree measures to ensure supplier cash flow. This could mean making advance payments or agreeing to pay suppliers’ unrecoverable costs incurred on an open book basis.
Transitional Arrangements
The new PPN encourages contracting authorities and suppliers to work in partnership to develop transition plans to re-establish business as normal, as far as is possible. The underlying objective remains the same - to ensure that, where appropriate, suppliers are able to resume performance as quickly as possible.
Going forward, it acknowledges that there may be a number of outcomes:
- Continuing to provide supplier relief
- Agreeing contract variations if operational requirements have changed significantly
- Carrying out a review of the current contract and options to assess whether it is still relevant and sustainable and able to deliver value for money over the medium to long term.
These outcomes will depend upon the individual circumstances of each contract.
Varying the Terms of Contracts
Where amendments have been made to payment terms, we have been advising of the need to negotiate ancillary changes at the same time, eg changes to performance milestones or relief from KPIs. For example, it will be important for suppliers bidding for future public sector contracts that they do not inadvertently trigger default provisions. In some cases it may be appropriate to extend the term of the contract.
PPN 4/20 suggest that a wider contract review should be carried out at the same time.
Care should be taken that any changes carried out also comply with the procurement rules. These prevent substantial modifications being made to a contract which has been the subject of a regulated procurement process, particularly changes to scope or the economic balance of the contract in favour of the supplier.
Where changes are agreed, these should be recorded in accordance with the contract variation method contained in the contract together with a justification for the changes. Guidance on the terms of variation can also be found in the PPN pack which accompanies PPN 2/20.
What Should You Be Doing Now?
The key advice is to start dialogue as soon as possible to discuss the way forward and to discuss practical alternatives. The Government's intention is not that contracting authorities should 'bail out' private sector companies, but that all parties should work together collaboratively.
The full set of Procurement Policy Notes relating to COVID-19 can be found on the Gov.uk website.