The Cabinet Office has issued PPN 08/21 - an action note explaining how bidders' payment approaches should be taken into account in the procurement of major Government contracts.
The PPN is accompanied by guidance on applying the PPN and FAQs.
The PPN will apply to, and replace PPN 07/20 in respect of, relevant procurements advertised on or after 1 April 2022.
PPN 08/21 applies to all Central Government Departments, their Executive Agencies and Non Departmental Public Bodies. These “in scope” organisations must apply the PPN (taking the action described below) to any contract procured (for goods, services or works) with an anticipated contract value of £5m per annum or above (excluding VAT) unless the PPN is not related and proportionate to the contract.
The content of the PPN will also be of interest to entities bidding for such Government contracts.
The PPN states that in scope organisations should include an assessment of a bidder’s payment systems, to demonstrate that it has a reliable supply chain, in their selection criteria.
To facilitate this, the guidance note on adopting and applying the PPN contains standard selection questions at Annex A which should be used in order to request the relevant information from bidders.
The key update, as compared to PPN 07/20, is the increase to the threshold bidders have to meet to demonstrate they have effective payment systems in place to ensure the reliability of their supply chains.
As with the previous PPN, in scope organisations must consider whether the bidder has paid its suppliers in accordance with the contractual terms that it applies to its supply chain and whether, overall, the bidder has paid its suppliers promptly (i.e. prompt payment of 95% of all invoices within 60 days).
If the bidder has not met the required standard of promptness in at least one of the last two 6-month reporting periods, it can still pass if it has paid at least 90% of all its invoices within 60 days in one of those reporting periods and it has a compliant action plan to achieve the required standard going forwards. This is a higher, stricter threshold than provided for in PPN 07/20 where bidders can be afforded this flexibility where they have achieved only 85% for prompt payment. New entrants to the market (trading for less than twelve months) do not need to meet this requirement (but need to pass the other selection questions on supply chain payment)
The change is effective from 1 April 2022 so bidders have time to ensure that they meet the prompt payment requirements before the higher threshold is implemented.
Based on advertised contract value, averaged over the life of the contract, e.g. a contract with a 4 year term with a total contract value of £21m would be in scope, even if the value in the first year was under £5m.
Or alternatively where, after the bidder has removed intercompany payments from the calculations, it pays 95% of all invoices within 60 days in at least one of the previous two reporting periods.