27 March 2020 | Comment | Article by Emily Powell
The impact of the unprecedented COVID-19 pandemic is being felt across the globe by individuals and businesses alike. As many businesses struggle to survive, the UK Government has now imposed an obligation on the public sector to provide support and relief to their supply chains. We take a look at what this means for contracting authorities going forward, with particular focus on what considerations and safeguards will be necessary when providing such support.
Public Procurement Notices
On 20 March 2020, the UK Government issued a Public Procurement Notice (PPN 02/20) which highlights the considerable pressure that suppliers will be under in terms of contract delivery and financial viability. The PPN was published only two days after it issued PPN 01/20 that dealt with regulation 32 of the PCR 2015 and procuring goods and services with extreme urgency. PPN 02/20 recognises that contracting authorities will need to act in order to mitigate the risks which are currently faced by suppliers. Not only will this provide much needed support in the economy, but it will also ensure an element of service continuity both during and after these uncertain times.
Who is it applicable to?
PPN 02/20 is applicable to all contracting authorities in England. The PPN 02/20 is not applicable to devolved administrations. However, the Welsh government’s advice surrounding procurement has closely followed the advice of Cabinet Office thus far which suggests that similar requirements may follow for Welsh contracting authorities.
We recommend that Welsh contracting authorities consider preparing now to make the arrangements set out in PPN 02/20 in order to a get a head-start on obtaining essential contract security and providing the much-needed support to local supply chains.
What should contracting authorities do?
- As many suppliers will struggle to fulfil their contractual obligations, there is a real possibility many will seek contractual relief by relying on clauses such as force majeure. To avoid suppliers having to invoke such terms, contracting authorities should actively work with suppliers and enter into discussions regarding relief before these measures are taken.
- Consider continuing to pay suppliers, even if service delivery is interrupted or suspended. The contracting authority should immediately review all contracts in order to identify suppliers which are at risk. It should then liaise with the suppliers and inform them that all payments will continue.
- Adopt payment measures which will provide additional support and increase the supplier’s cash flow. This can include forward ordering, advance payment/pre-payment, interim payments and payment on order (not receipt).
- Avoid any delay in payment by immediately paying any invoices received by suppliers. Whilst procurement law stipulates that payment should be made within 30 days, contracting authorities should accelerate the payment of invoices where possible. The contract authority should also ensure that it has appropriate contingency measures in place with efficient payment procedures.
- If particular contracts are ‘payment by result’ then where possible the contracting authority should consider making payments based on an average of the last three invoices.
- Contracting authorities can re-deploy the capacity of suppliers unable to fulfil their contracts as a result of COVID-19 to other areas of need. This can be facilitated by a time-bound contract variation under regulation 72 of the Public Contract Regulations – in conjunction with regulation 32 if necessary.
What should the contracting authority expect from the Supplier?
Contracting authorities should request transparency from suppliers which will ensure support is used for its intended purpose and/or provided where it is truly needed.
Suppliers will need to agree to work on an ‘open-book basis’ and provide all relevant cost data to the contracting authorities. Such data includes ledgers, cash-flow forecasts, balance sheets and profit and loss accounts. In all relevant invoices, suppliers are expected to clearly set out (and differentiate) which elements of the services have been unaffected by COVID-19 and therefore ordinarily provided, from those which have been affected (if there has been a delay, disruption or temporary suspension).
Contracting authorities will need to be mindful of contract performance prior to the effects of COVID-19 when calculating the extent of payments. Any agreed relief on contractual terms should be considered on a case by case basis, with particular consideration given to the nature of the contract and the situation of the supplier. We recommend contracting authorities give careful consideration to the suppliers they identify as being at risk - having a full understanding of the supplier’s individual circumstances will allow the contracting authority to make well informed decisions in accordance with need.
For more information or advice surrounding the possible issues faced by public bodies during this time, please get in touch with our procurement and state aid team.
t: 029 2267 5540