25 March, 2020
The coronavirus outbreak has produced a lot of government action targeted at keeping infections down and that has in turn affected a lot of organisations, their contracts with each other and their plans for future procurement.
For buyers subject to the Public Contracts Regulations 2015 (PCR) or the equivalents in specific sectors, the government has issued two Procurement Policy Notices: PPN 01/20 (click here to read it in full) about Responding to COVID-19 and PPN 02/20 (click here to read it in full) about Supplier Relief.
In short, Supplier Relief sets out what contracting authorities should be trying to do in spending public money and Responding to COVID-19 is a guide to how to use the PCR correctly in these challenging times.
Who Is Affected By This Guidance?
PPNs apply to "contracting authorities" which includes central and local government, other public bodies, housing associations, maintained and academy schools, colleges and some charities (whether directly or as a result of funding). The guidance also makes a big difference to any suppliers currently or potentially contracted to those authorities for goods, services or works.
What Does The Guidance Say?
Supplier Relief instructs contracting authorities to act now to help their at risk suppliers maintain cashflow and capacity by paying invoices promptly and going further to make payments through to "at least the end of June" even if full performance of the contract is not going to be possible because of COVID-19.
Contracting authorities should identify at risk suppliers and plan to maintain payments, using average recent performance to pay on results-based contracts and considering forward ordering or payment with orders to support short-term income for suppliers. Suppliers should operate an open book method to ensure that no profit on contract elements that are not delivered, showing where money has gone to staff and sub-contractors. The PPNs do not mention the Coronavirus Job Retention Scheme (CJRS) which authorities might expect suppliers to use to reduce their operating costs if they are not able to supply goods or services due to disruption. The requirement for open book explanations should be used to make sure that payments are really needed to maintain capacity and not duplicating assistance already available through the CJRS or other government measures.
Authorities should consider if they can re-deploy services or goods that are being paid for, creating the possibility of re-purposing contracts temporarily to support the response to COVID-19.
Authorities should not extend supplier relief to suppliers that were already in default or performance management or where there is no contractual volume commitment (e.g. framework agreements and dynamic purchasing systems).
The guidance requires authorities to think about other options before triggering penalty or termination clauses based on performance and before invoking force majeure clauses. Instead, they are invited to consider making changes to the contract to make performance possible (e.g. changing delivery requirements or re-calibrating KPIs to fit the present situation).
The guidance does remind authorities of the need to pursue value for money and to consider the risks before committing money by way of advance payments. It also advises payments to suppliers at risk where necessary to ensure continuity when services can resume "regardless of whether you are able to reconcile at a later stage" suggesting that some payments that will not be reflected in any future goods or services could happen.
Responding to COVID-19 addresses how to make changes to existing contracts and how to find the fastest way to placing new contracts where the situation won't allow for the usual procedures. It does not introduce any changes in the PCR; they have always allowed for emergency procurements and changes to existing contracts forced on authorities by circumstances.
The PCR allows for direct contract awards in cases of extreme urgency. Subject to working through the rules, many requirements caused by COVID-19 could qualify for this treatment. Many care services fall under the "light touch" part of the PCR and can be procured using any process that is reasonable. Contract notices and some explanation of what the authority is doing and why remain compulsory in many of these cases and should not be forgotten. Existing framework agreements and dynamic purchasing systems can offer a faster way to hire a pre-approved contractor if the authority qualifies to use the framework or DPS and follows its rules.
An alternative to a new contract is extending or modifying an existing one and this is possible within the rules set out in Regulation 72 of PCR. Unexpected events can allow for extending some contracts by up to 50% and other degrees of change are allowed under other rules. The Supplier Relief guidance stresses making changes temporary and keeping them under review and this limits their value against the original contract terms making them easier to achieve.
How Should The Guidance Be Applied?
Carefully: any contracting authorities have budgetary constraints and funding rules to meet and charities have to be careful about acting to benefit private businesses. Suppliers should be careful what they ask for and think twice before trying to terminate or cancel a contract and forcing a re-procurement.
In context: the existing terms of contracts are always the first thing to review and they will often dictate what options might be available as may the subject-matter of the contract or the sector in which the supplier operates.
With advice: authorities and suppliers should take advice before terminating or making changes to contracts and before cutting any corners on the way to new ones.
The Procurement specialists at Forbes can assist authorities and suppliers with current or planned contracts and how to make changes. Contact Daniel Milnes or Gemma Duxbury if we can help. Our Dispute Resolution team is on hand if problems arise in managing contracts through the disruption of COVID-19. Contact Stephen McArdle or Lucy Bailey in that team.
Learn more about our Governance, Procurement & Information department here