Cabinet Office issues Guidance Notes for Construction Contracts - Procurement Policy Note 02/20

The Cabinet Office has issued further Guidance Notes to support contracting authorities in how they apply the recommendations for supplier relief due to Covid-19 set out in PPN 02/20 to contracts with suppliers across the construction industry.

As a reminder, PPN 02/20 applies to all contracts let under the Public Contracts Regulations 2015 (PCR), Defence and Security Public Contracts Regulations 2011, the Utilities Contracts Regulations 2016 and the Concession Contracts Regulations 2016.  This will include engineering, building and construction contracts that are often, but not exclusively, procured using one of the standard forms of construction contract (e.g. JCT or NEC).

All contracting authorities to which PPN 02/20 applies should consider whether they ought to apply the principles set out to all or some of their contracts. The Guidance Notes have been prepared to cover existing public contracts for the delivery of works, with the principles intended to apply across all forms of construction contract. 

The Guidance Notes are accompanied by:

• Frequently asked questions (FAQs)
• Model deeds of variation that provide a set of terms that contracting authorities may use to vary NEC3 and JCT standard forms of contracts to fit with the principles in PPN 02/20.

The purpose of the Guidance is to:

• Support contracting authorities in how they implement PPN 02/20 under existing works contracts to provide contractual relief to at risk suppliers (and their supply chain) who have been affected by COVID-19.
• Ensure a supplier does not ‘double recover’ by claiming separate relief from another source of Government financial support on COVID-19 such as under the Coronavirus Job Retention Scheme (CJRS). Payments under CJRS are for staff who are furloughed and not working. This to ensure that suppliers cannot gain an undue advantage by claiming relief twice for the same hardship.

Relief for hardship caused by Covid-19

The Guidance Notes set out the various forms of relief a contracting authority may agree with a supplier in order to deal with business disruption caused by COVID-19 as set out in PPN 02/20. 

All suppliers who may be at risk should be identified on an individual basis but it is not suggested that contracting authorities should carry out detailed financial checks on all of their suppliers to determine which suppliers are at risk (but clearly those who are not at risk should not benefit from relied). 

The Guidance Notes acknowledge that other contract-specific forms of relief and remedies, which are not the subject of either the Guidance Notes or PPN 02/20, may be available to the contracting authority.  

Not all relief options will be appropriate in each case and the clear guidance for each contracting authority and supplier is to engage is to maintain a dialogue and discuss contracts on a case by case basis to determine the most suitable relied (or combination of relief(s)) and how these might be applied.

The FAQs explain that:

• Contracting authorities should continue to pay suppliers at risk due to COVID-19 on a continuity and retention basis until at least the end of June 2020, to:
  • ensure supplier cash flow;
  • maintain cash flow into the supply chain;
  • protect jobs;
  • ensure suppliers are better able to cope with the current crisis and to fulfil contractual obligations once the COVID-19 crisis is over;
  • ensure continuity of suppliers’ businesses during and after the crisis; and
  • ensure suppliers are able to resume delivery of public services once the outbreak is over.

• Any supplier found to have acted fraudulently by claiming under the CJRS (or other COVID-19 support schemes) for workers that are being paid under a public sector contract, may be excluded from future public contracts on grave professional misconduct grounds.
• Contracting authorities should consider the early release of retentions to suppliers on a case by case basis. This could result in significant risk being transferred back to the authority which may be inappropriate or the authority may be unable to bear.  There is no suggestion that retentions or other forms of payment that have been validly withheld (in accordance with the relevant contract(s)) must be released to suppliers automatically as part of any agreed relief.

The Guidance Notes are accompanied by a table setting out options for supplier relief which should be considered alongside the model deeds of variation.  The table outlines each form of relief and the effect on the supplier together with points for consideration by the authority and practical notes on the implementation of each relief.

The Guidance Notes are also clear that any relief granted will need to be agreed in an open and transparent manner and the supplier should provide supporting information to allow the authority to check that the commercial principles are complied with when the relief is given and that any savings that are applied during the relief period are capable of being audited.

In all instances, contracting authorities should seek specific legal advice to ensure that the model deeds are consistent with the contract(s) which they may wish to vary.

Bevan Brittan has commented extensively on PPN 02/20 and its application:

• Follow this link for our original article on PPN 02/20.
• Follow this link for our article concerning the previous guidance published by the Cabinet Office in support of PPN 02/20 concerning Model Interim Payment Terms and payments to suppliers for Contingent Workers affected by Covid-19.
• Follow this link to PPN 02/20 and the supporting guidance notes and FAQs.

For further support and advice relating to the impact of COVID-19, please view our COVID-19 Advisory Service page.