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UK Government issues guidance recommending that public bodies continue making payments to "at risk" suppliers

27 March 2020
The UK Government has stated that contracting authorities must now take measures to ensure that suppliers at risk are in a position to resume normal contract delivery once the COVID-19 outbreak is over.  The Government has issued PPN 02/20 which provides guidance on how public bodies should deal with their existing contractual arrangements so as to deal with the COVID-19 outbreak.  

Unprecedented times call for unprecedented measures, and the UK Government's Procurement Policy Note 02/20 (PPN 02/20) sets out important information for both the public sector, and the private sector that does business with the public sector. 

It requires all contracting authorities to take urgent action to:

(i) review their contract portfolio and inform "at risk" suppliers that they will continue to be paid until at least the end of June 2020 (even if service delivery is disrupted, or temporarily suspended);
(ii) pay invoices to support supplier cash flow (this action may include forward ordering, payment in advance/pre-payment, interim payments and payment on order (not receipt));
(iii) ensure that payment by results contracts are based on past performance (not present performance); 
(iv) work with suppliers and, if appropriate, provide relief against their current contractual terms (for example relief on KPIs and service credits) to maintain business and service continuity; and
(v) pay suppliers as quickly as possible to maintain cash flow and protect jobs. Contracting authorities should accelerate their payment practice where possible, and more specifically, focus on: 

a. targeting high value invoices;
b. resolving disputed invoices as a matter of urgency; 
c. paying immediately and reconciling at a later date in critical situations;
d. taking a risk based approach as to whether 2-way matching is always needed (rather than adopting regular 3-way matching against receipt and Purchase Order); and
e. encouraging suppliers to invoice on a more regular basis to help cash flow (e.g. every week rather than monthly).

Contracting authorities now need to engage with their suppliers to ensure business continuity, that people are kept employed, and supply chains are maintained. They also need to keep an audit trail of their actions and decisions, and document any short term changes to terms and conditions and payment terms. Such short term changes can be made by following the guidance in PPN 01/20 which sets out the options available to contracting authorities to vary existing contracts and make emergency awards to combat the effect of Covid-19.

In return, all suppliers can assist contracting authorities by:

(i) acting on an open book basis;
(ii) continuing to pay employees and flow down funding to contractors;
(iii) identifying in invoices the elements relating to services that they continue to apply and those attributed to the impacts of Covid-19;
(iv) re-deploying capacity to other areas of need; and
(v) deploying business continuity plans.

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. Contracting authorities will have the right to take recovery action where suppliers are found to be taking undue advantage, or failing in their duty to act transparently and with integrity.

PPN 02/20 also makes clear that any request to invoke contractual relief (force majeure, excusing clauses, relief events, etc) or terminate performance claiming frustration or suspend performance should be considered on a case by case basis, and should likely involve specific legal advice. 

Both PPN 01/20 and PPN 02/20 provide helpful guidance to contracting authorities and the business community on how they can and should respond to the current crisis. What is clear is that the current extreme situation requires contracting authorities, suppliers and their supply chains to work together now more than ever, in order to protect jobs and meet the increased demand for statutory and discretionary services in response to the Covid-19 emergency.

Please see our separate press notice relating to the contents of the Coronavirus Act 2020 here.

DWF has a breadth of expertise in public law, public procurement and State aid law matters. We are able to draw upon a team of leading experts, in our UK, Brussels and other international offices, who have extensive experience in advising contracting authorities and the private sector delivering services to the public. If you require any advice or support please contact Colin Murray or Jonathan Branton.

For further information on how the Covid-19 crisis is affecting businesses visit our hub >

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