Procurement Byte on Supply Chain (1 of 3) - PPN 01/18

Procurement Byte

04/05/2018

Crown Commercial Service Procurement Policy Note PPN 01/18

On 10 April the Crown Commercial Service published its first Procurement Policy Note of 2018.

PPN Action Note 01/18 "Supply Chain Visibility" sets out two new requirements aimed at assisting suppliers, including SMEs, in bidding for work in Government supply chains.

The measures introduce new contract terms into government contracts, requiring prime contractors to (1) advertise sub-contract opportunities on Contracts Finder, and (2) report on the value of contract revenue they subcontract and the value subcontracted to SMEs/VCSEs.

The PPN applies to Central Government Departments, their Executive Agencies and Non-Departmental Bodies – defined as "in-scope organisations".

For procurements for works, supplies (goods) and services commencing on or after 1 May 2018 where the average annual contract value exceeds £5 million, in-scope organisations must update their terms and conditions to include clauses requiring prime contractor(s) to:

  • Advertise on Contracts Finder subcontract opportunities above £25,000.
  • Report on how much they spend on subcontracting and how much they spend with SME or VCSE organisations.

The standard clauses, to be included in contracts issued by in-scope organisations, are set out in Annexes A and B of PPN 01/18.

Annex A – Standard clause on Advertising Subcontracting Opportunities on Contracts Finder

In summary, under the "Contracts Finder clause", a prime contractor is required to advertise subcontract opportunities and the award of subcontracts on Contracts Finder as well as monitor the Contracts Finder advertisements it places and provide reports on that monitoring to the Contracting Authority. Prime contractors are also required to "promote Contracts Finder to ... suppliers and encourage those organisations to register on Contracts Finder".  

PPN 01/18 confirms that the standard clause does not apply where a prime contractor has established its supply chain as part of the original tender process. It also provides a reminder that contract conditions must be relevant and proportionate to the subject matter of the contract. This means that whilst the Government expects the standard clause to be relevant and proportionate for most contracts worth over £5 million per annum, there may be exceptions where this is not the case. The PPN sets out a non-exhaustive list of examples including on grounds of national security, certain contracts delivered overseas and where the supplier has confirmed that there will be no sub-contracted spend.

There is also the possibility to set a higher threshold than £25,000 where the in-scope organisation considers the requirement to advertise on Contracts Finder overly burdensome in a particular case, although the higher threshold may not exceed £100,000.

The standard clause does not explain how the procurement of subcontractors advertised on Contracts Finder is to be conducted. Prime contractors are expected to allow a reasonable and proportionate amount of time for potential subcontractors to respond.

Annex B – Standard clause on Supply Chain Spend with SMEs

In summary, a prime contractor is required to provide, at no charge, "SME Management Information" reports using a management information reporting template. The SME Management Information provides data on the total contract revenue received directly on a specific contract, the total value of sub-contracted revenues, and the total value of sub-contracted revenues to SMEs and VCSEs.

As with the standard Contracts Finder clause, use of this standard clause must be relevant and proportionate. PPN 01/18 again confirms that whilst the Government expects the standard clause to be relevant and proportionate for most contracts worth over £5 million per annum, there may be exceptions where this is not the case and provides examples.

You can download PPN 01/18 from the CCS website.

Comment

These new requirements contribute to delivery of the wider agenda of supporting SMEs/VCSEs in accessing and delivering government contracts, either directly or through participation in supply chains.

The Public Contracts Regulations (PCR) place a number of obligations on Contracting Authorities aimed at facilitating SME involvement, such as the EU derived obligation to divide contracts into lots or explain why this has not been done. The PCR also contain national provisions aimed at assisting wider participation, such as abolition of a separate qualification stage for low value contracts, advertising opportunities on Contracts Finder and payment of undisputed invoices flowing down the supply chain.

Linking into this, in our next Procurement Byte we will consider the current consultation being carried out by the Crown Commercial Service (closing on 5 June) as to whether it would be appropriate to exclude suppliers from major government procurements if they cannot demonstrate a fair, effective and responsible approach to payment in their supply chain management.  We will also discuss the statutory requirement, introduced in 2017, obliging large companies and LLPs to report on payment practices and performance.

 

Find out the latest legislative and policy developments. Register to attend our Procurement Update Seminars, taking place across the country in June.

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