COVID-19 and the Public Sector

In the light of the present COVID-19 restrictions and the likely impact on the economy and the impact it is already having on SMEs, the Cabinet Office has issued two PPNs (procurement policy notes) aimed at helping suppliers and contracting authorities keep disruption due to the COVID-19 outbreak to a minimum.

Supplier payments

In an unprecedented move, in PPN 02/20 the Cabinet Office has urged all public sector organisations to continue to pay all suppliers regardless of their contractual performance.

The Cabinet Office has recognised that suppliers may well struggle to meet their contractual obligations at this time but puts the burden on the public purse to a certain extent by urging them to act now to ensure that suppliers’ cash flow is not affected, thus leaving them better prepared to cope with the current crises and to resume normal service delivery when the outbreak is over.

Interestingly, contracting authorities are also authorised to make advance payments to suppliers where appropriate.  The “Managing Public Money” guidance for central government usually prohibits payment in advance of need, unless Treasury consent has been given.

In the circumstances, however, the PPN provides Treasury consent on a blanket basis where the accounting officer is satisfied that a value for money case is made by virtue of securing continuity of supply of critical services in the medium and long term.  Pre-payments under this consent are capped at 25% of the overall value of the contract and the blanket consent will be reviewed in June 2020.

To qualify for this, suppliers should agree to act on an open book basis and make cost data available to the contracting authority during this period. They should continue to pay employees and flow down funding to their subcontractors.

Force Majeure and relief from performance requirements

The Cabinet Office also requires, in PPN 02/20, that contracting authorities do not accept claims for contractual relief such as force majeure and instead, where possible, provide relief against obligations such as KPIs and service credits in order to maintain business and service continuity.

Any changes to contract requirements that are agreed, even on a temporary basis, should be recorded in a contract change notice or variation and should set out for how long the relief will last and when it will be reviewed by the parties.

Payment terms

Under the Public Contracts Regulations 2015, contracting authorities are already required to pay suppliers within 30 days of verification of invoices, and the Cabinet Office has now stated that these payment terms need to be accelerated further.

Actions required include:

• Targeting high value invoices where the supplier is the prime contractor and is reliant on a supply chain to deliver the contract.
• Resolving disputed invoices as a matter of urgency; consider paying immediately and reconciling at a later date in critical situations.
• Taking a risk-based approach as to whether 2-way matching is always needed (rather than adopt regular 3-way matching against receipt and Purchase Order)
• Encouraging suppliers to invoice on a more regular basis to help cash flow (eg every week rather than monthly)

Urgent procurement processes

PPN 01/20 sets out how contracting authorities can amend contracts under Regulation 72 of the Public Contracts Regulations 2015 as a result of unforeseen circumstances which would be very likely to include the current circumstances connected with the COVID-19 outbreak.

Changes to payment schedules or relaxations in contract requirements should be captured in contract variation or change notes, and make clear that the changes relate only to the COVID-19 situation, include a review provision or time limit, and state that it is the authority’s decision when things should return to normal.

With shortages in supply of common items becoming commonplace as the impact of the virus ramps up in the United Kingdom, our public sector clients are looking to purchase supplies from alternative sources, or supplies which they have not procured before, such as face masks, hand sanitiser and other precautionary supplies.

But what about the need to OJEU advertise?  The Cabinet Office has helpfully provided some clear guidance on the existing provisions of the Public Contracts Regulations 2015 which may assist authorities, in many cases dispensing with the need to OJEU procure, or providing a route to procure works, services or goods quickly without observing the usual minimum timescales.

The main options to procure an urgent requirement are:

• Extreme urgency exemption
• Absence of Competition / Exclusive Rights exemption
• Call-off from framework or DPS
• Accelerated OJEU Process
• Changing Existing Contracts

The PPN provides detailed and helpful guidance on how to use each of these in the current circumstances of the pandemic.

An important point to note is that contracting authorities should always keep written records of any decision to deviate from the requirement to run a full OJEU process, including the reasons why the exemption applies and all applicable exemptions where there are more than one.  This will form part of the Regulation 84 reporting requirements.

For more information or advice or anything within this article, please contact Alison Walton on 0191 211 7850 or email [email protected].