We have summarised the government guidance on how public sector contracts should respond to the Covid-19 pandemic – including urgent awards and protection for suppliers. This provides practical and useful guidance to authorities and suppliers alike in dealing with current challenges.
Protection for suppliers
As part of its wide-ranging response to Covid-19, the Government is encouraging all contracting authorities to review their public contracts and provide suitable protection to suppliers. This includes enhanced payment terms to help suppliers through these unprecedented times.
The proposed measures apply to all public contracts, for goods, services and works, and to all contracting authorities. This note summarises the key points which contracting authorities need to be aware of (and which will be useful for suppliers to appreciate) and provides additional guidance and tips on implementing the guidance.
PPNs and guidance
On 18 March 2020, the Crown Commercial Service (CCS) published Procurement Policy Note (PPN) 01/02 and on 20 March 2020 it published PPN 02/20. The PPNs provide further guidance and model clauses for interim payment processes for public supplies and services contracts, and payments to contingent workers. An FAQ document was released on 27 March 2020.
Many contracting authorities have already begun acting on this and looking to put in place interim measures for their key contracts and we expect that many others will follow suit in the coming days and weeks and start implementing their own priorities.
The European Commission also published a communication on 1 April 2020 (2020/C 108 I/01) (available here) which provides similar guidance to that included in PPN 01/20 and encourages interaction with the market to stimulate supply for urgent needs such as "hackathons" for new concepts that, for example, enable reusing of protective masks after cleaning.
This PPN provides guidance to contracting authorities in responding to urgent procurement needs. Contracting authorities and suppliers will find the PPN useful as a quick reference guide to enabling supply on an urgent basis.
Whereas some procurements will clearly fall within an exemption, care should be taken for those which are less clear. The scope and duration of contracts will be key, as well as record-keeping of decisions.
PPN 02/20 - Supplier Relief to covid19
This PPN provides practical guidance to contracting authorities and suppliers on keeping payments flowing through the supply chain and encourages all contracting authorities to provide support to their suppliers during the disruption arising from Covid-19.
This support includes continuing to pay suppliers throughout and / or making appropriate adaptations to payment terms. It may also include relaxing KPIs, service credit regimes and delivery dates. It is intended that any agreed changes to the supply contract will be implemented through a temporary variation agreement.
Whilst this PPN applies to contracting authorities carrying out utility activities, it does not apply to utilities that are not contracting authorities (the same as PPN 01/02).
Further guidance is expected in respect of public works contracts and we will update this note when this becomes available.
On 6 April 2020 the Cabinet Office released further FAQs and model deeds of variation for construction contracts. The model deeds are drafted for the NEC3 and JCT forms of contract but the FAQs and guidance are expressed to be applicable across all forms of construction contract.
The main types of relief focused on are:
- Accelerated payment of invoices.
- Certification of interim valuations where work has not been undertaken, based on previous valuations.
- Amendment to existing payment mechanism to make regular payments or re-order existing payment schedule.
- Provision of advance payment(s) to the supplier.
Recognising the complexity of payment clauses in construction contracts, the FAQs specifically recommend obtaining legal advice in relation to any agreed relief and contract variations.
Key points from the PPN
- The PPN's focus is to ensure continuation of payments "as normal" notwithstanding the Covid-19 outbreak until "at least" 30 June 2020 for "at risk" suppliers. The underlying concern is to ensure continuity of service and to protect infrastructure, supply chains and jobs. There is no definition of "at risk" and each situation should be taken on a case-by-case basis. The Cabinet Office anticipates that "the majority of suppliers will be at risk" and expects authorities to apply the approach to payments as set out in the PPN as broadly as possible.
- Double-relief is to be avoided. Where a supplier is in receipt of other relevant Covid-19 funding/relief then payments of the nature recommended by the PPN should not be made.
- Payment of invoices must be made as quickly as possible, prioritising high value invoices and high risk suppliers.
- The Cabinet Office suggests the following methods to maintain payment flows:
- continue to pay at usual contractual rates;
- payment against revised/extended milestones or timescales;
- interim payments;
- forward ordering;
- payment on order or payment in advance/prepayment.
- Contracting authorities are still required to conduct appropriate and proportionate due diligence to ensure payments in advance of need are necessary for continuity of supply of critical services.
- Payments should not be made where there is no guarantee of volume under the contract. For example, it may be that a framework agreement does not guarantee that any level of work will be placed so payments should not be made under it in response to this PPN.
- Payments made for undelivered parts of the contract should not include supplier profit margins. This relies on open-book accounting and paying only overheads and pass-through costs.
- Before resorting to suspension of service or termination, the parties should explore other forms of contractual relief. For example can KPIs/service credits be relaxed; can milestones be extended; can the place of or form of delivery be amended?
- Suppliers should ensure that payments are flowed down the supply chain. Note that Regulation 113 of Public Contracts Regulations 2015 is implied into all public contracts which requires the supplier to include in all sub-contracts 30 day payment terms.
- The model clauses that have been provided with the PPN offer an example of how the parties may capture additional payment terms specific to Covid-19 relief.
- However, contracting authorities and suppliers will need to agree their own bespoke arrangements and, as part of that, need to be mindful of any side effects of any action taken. For example, does a payment infer that there is an acceptance of quality; have certain rights been waived as a result of payments being made; what is the effect of changing the form of delivery; do other matters need to be considered such as whether existing data protection clauses are sufficient for moving services online?
- Contracting authorities and suppliers will need to consider any additional drafting and carefully cross-check this with the main contract.
Since writing this briefing the Cabinet Office has published Public Procurement Note (PPN) 04/20 which updates and builds on PPN 02/20 with further information and guidance for public bodies on payment of their suppliers in the ongoing response to covid-19. PPN 04/20:
- reiterates that the Cabinet Office / Crown Commercial Service continues to promote prompt payment and supporting entities which are at risk.
- envisages that variations to contracts may be necessary to ensure continued economic viability, but does not offer guidance on what those modifications might look like and how those modifications could be lawfully made in light of the restrictions in procurement regulations.
- emphasises use of negotiation, mediation, or ADR to resolve issues before they "escalate into formal intractable disputes".