The Cabinet Office has published Procurement Policy Note PPN04/20 – Recovery and Transition from COVID-19, which applies to all contracting authorities (excluding the Devolved Administrations) and covers goods, services and works contracts being delivered in the UK (including PFI and PF2 contracts). It is effective from 1 July to 31 October 2020.
PPN04/20 updates and builds on PPN02/20 (published in March), which sets out information and guidance to contracting authorities in order to support “at risk suppliers” by providing relief from contractual terms and/or making advance payments due to the impact of COVID-19 with the aim of ensuring critical service continuity and maintaining cash flow.
PPN04/20 acknowledges the Government’s movement to the next phase of the COVID-19 response, noting COVID-19 is not a short-term crisis, and encouraging contracting authorities and suppliers to work in partnership and commence transition planning with a view to determining the continued commercial viability of existing contracts in light of the impact of COVID-19.
Key elements of PPN04/20 are summarised below:
PPN 02/20 relief provisions continue
- Contracting authorities are to review their contract portfolio (including where COVID-19 contractual relief is already being provided) and, if appropriate to maintain delivery of critical services, PPN02/20 measures are to continue or commence.
- Such relief may include cash-flow measures (for instance more frequent invoicing and faster payments) or contractual relief (for instance KPI relief). It is noted in PPN04/20 that such supplier relief is not automatic and (as detailed previously in PPN02/20) that the contracting authority has the final decision on both whether it deems a supplier is “at risk” and the form of any relief.
- Additionally (and reiterating PPN02/20), relief provided is subject to a number of principles, including:
- Suppliers operating on an “open book” basis
- Profit margin on undelivered aspects not being payable
- No duplicative or multiple relief (for example, if suppliers are receiving relief pursuant to any government scheme then the same or equivalent relief cannot be received from the contracting authority pursuant to PPN02/20). This would include where suppliers are in receipt of payments, all workforce identified to deliver the contract were not furloughed under CJRS – however PPN04/20 does set out that it is permissible for a supplier to receive partial payments for non-labour related costs and claim labour costs under the CJRS
- Where suppliers are found to be taking undue advantage, or failing in their duty to act transparently and with integrity, contracting authorities can take action to recover payments
- PPN04/20 notes that some suppliers may, notwithstanding the continuance of making payments, still become insolvent and emphasises that comprehensive records need to be kept of decisions made and actions taken (in order to support transparency and future scrutiny of value for money and to enable reconciliations in the future).
- Notwithstanding the continued application of PPN02/20, contracting authorities and their suppliers now also need to plan an eventual exit, moving from contractual relief to a “new, sustainable, operating model taking into account strategic and reprioritisation needs”. PPN04/20 requires that such “transition plans” should be ready to be implemented as soon as possible and before the end of October 2020. A number of aspects are detailed as to what such “transition plans” should address, including:
- A planned exit date for the end of any supplier relief (to be kept under review to reflect the changing COVID-19 situation, for example changing government restrictions)
- Agreeing when any outstanding goods or services are to be delivered where advance payments have been made
- A reconciliation process in relation to payments made against costs
- An assessment of any cost associated with the implementation of Public Health England’s guidance, specifically in relation to delivering the contract (to be considered by the contracting authority on a case by case basis)
- An assessment as to whether, as a result of COVID-19, the contract is operationally relevant and viable and where a contract is not relevant / viable proposals for variation or termination (applying contractual variation mechanisms, where applicable)
Working in partnership, openly and pragmatically
- PPN04/20 notes that during this transition phase, “contracting authorities and their suppliers will need to work in partnership, openly and pragmatically” and refers to the Cabinet Office’s non statutory guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency which was issued at the beginning of May 2020. PPN04/20 reiterates that contracting parties need to act reasonably and proportionately in responding to performance issues and enforcing contracts, operate in a spirit of cooperation and seek to resolve issues (for example by negotiation, mediation etc) prior to any such issues escalating to formal disputes.
- Contracting authorities are also referred to the Government’s Outsourcing Playbook, which was introduced following Carillion’s collapse and details how outsourcing projects should be approached and how contracting authorities should constructively engage with suppliers. The Government’s Outsourcing Playbook was updated on 10 June 2020 and can be found here (and our separate article on the same here). While the Outsourcing Playbook applies to central government bodies it can be applied across the wider public sector and it is interesting to see the Cabinet Office referring all contracting authorities to it under PPN04/20.
- In relation to contingent workers, the guidance remains as set out in PPN02/20 and related guidance notes. However, contracting authorities should review contingent worker requirements as contracting authorities may have reduced requirements for contingent workers due to operational priority changes (for example social distancing requirements may have resulted in reduced building capacity). Where any contingent worker assignments are no longer required, such assignments should be exited from when appropriate.
- Reiterating and emphasising previous guidance in PPN02/20, PPN04/20 also sets out that contracting authorities should pay suppliers as quickly as possible in order to maintain cash flow and protect jobs and that the 30 day payment period under the Public Contracts Regulations 2015 and related payment practises may need to be accelerated. This may include (as previously detailed in PPN02/20), targeting high value invoices, resolving disputed invoices as matter of urgency (or pay now and reconcile/dispute later), considering 2 way matching (rather than 3 way, against receipt and purchase order) and more regular invoicing being encouraged (for example, weekly rather than monthly).
- PPN04/20 sets out further additional contingency measures to be adopted during the COVID-19 outbreak, including ensuring sufficient staff numbers with delegated authority for required authorisations, verifying invoices as quickly as possible, use of procurement/payment cards (as detailed in PPN03/20, see our separate article) and clear invoicing procedures.
- Contracting suppliers may therefore continue to seek relief pursuant to PPN02/20 and, in the instances where this has not yet been instigated and where COVID-19 has impacted on the supplier / performance of the contract, such measures may (on a case by case basis) be put in place to provide relief for at risk suppliers.
- However, the “transition plans” need to consider the planned exit date for such relief. The relevance and viability assessment to be undertaken as part of these “transition plans” will be fundamental (for all parties) and the outcome from the transition planning is likely to vary from sector to sector. For example, in the health sector there may be a move to get back to the contract as usual (save perhaps on income generation assumptions from retail car parking). However, where contracts are primarily revenue generating and the operator is reliant on revenue from the public (and not from the contracting authority) it is likely to be a different picture, particularly if such assets are limited in relation to how many individuals can access facilities at any one time (for example leisure sector concession agreements). Indeed, PPN04/20 notes, “in some cases, it is possible that the basic commercial assumptions that underpinned the viability of the original contract can no longer be maintained”.
- Further, any variations arising out of such assessment will need careful consideration given the requirements of Regulation 72 of the Public Contracts Regulations 2015 relating to the modification of contracts during their term. The PPN makes no changes to this Regulation, which permits variations to public contracts only in limited, specific circumstances. If, following the assessment, it is decided that such contract needs to be terminated then contracting authorities will also need to take into account the need to re-tender such contracts, and build in enough time to do so, even on an accelerated basis.
- As to whether any particular contract can return to “pre-COVID” terms will depend on a number of factors and any continuing impact of COVID-19 will need to be taken into account, as will the possibility of further impacts of COVID-19 on contractual performance in the future. Working through the “transition plan” for each contract is in itself likely to take some time and will require strong relationships between contracting parties as they work towards identifying “the new normal”, address the outcome (including, where agreed, contractual variations or termination) and implementing the agreed outcomes.
PPN 04/20 can be read in full here.
For our articles relating to PPN 02/20 (and documents issued in support of PPN 02/20) please follow these links:
For further support and advice relating to the impact of COVID-19, please view our COVID-19 Advisory Service page
Author: Olivia Blessington