Backhouse Jones Watermark

Advice Note: Procurement Policy Note 02/20 – Supplier relief due to COVID-19

02 April

In summary, PPN 02/20 states that all contracting authorities (‘CAs’) should:

  • Urgently review their contract portfolio and inform suppliers who they believe are at risk that they will continue to be paid as normal (even if service delivery is disrupted or temporarily suspended) until at least the end of June.
  • Put in place the most appropriate payment measures to support supplier cash flow; this might include a range of approaches such as forward ordering, payment in advance/prepayment, interim payments and payment on order (not receipt).
  • If the contract involves payment by results then payment should be on the basis of previous invoices, for example the average monthly payment over the previous three months.
  • To qualify, suppliers should agree to act on an open book basis and make cost data available to the CA during this period. They should continue to pay employees and flow down funding to their subcontractors.
  • Ensure invoices submitted by suppliers are paid immediately on receipt (reconciliation can take place in slower time) in order to maintain cash flow in the supply chain and protect jobs.

Advice for operators – steps to take

Where the contract is still being performed

If the contract is still being delivered then payment can continue to be made to the operator as normal. PPN 02/20 also requires CAs to support their suppliers in maintaining cash flow and therefore, operators who are struggling to maintain cash flow may also request that payments are received in advance or may ask for interim payments (see accelerating payment of invoices below).

PPN 02/20 states that payments should not be made to suppliers where there is no contractual volume commitment to supply and CAs should carefully consider the extent of payments to be made to suppliers who are underperforming and subject to an existing improvement plan.

Where an operator is wishing to suspend performance of the contract through contractual provision, such as a force majeure clause, CAs should work with the operator to amend or vary contracts instead, for example, changes to contract requirements, delivery locations frequency and timing of delivery, targets and performance indicators etc. Any changes should be limited to the specific circumstances of the situation.

Where the contract is no longer being performed (for example school contracts that are no longer required)

Where an operator is unable to fulfil its contract, the CA should seek to re-deploy the capacity of that operator to other areas of need, wherever possible.

If the CA confirms that the operator will continue to receive normal payment but the contract is no longer being performed then the PPN states that operators should not expect to make profits on elements of a contract that are undelivered. This means that fuel savings/maintenance costs may need to be taken into account and the price of the contract reduced to reflect this.

Operators continuing to receive payment for a contract should continue to pay their suppliers specific to that contract.

The general position is that staff that are specific to a contract which is no longer being performed but is still being paid in full should not also be furloughed and the operator obtain relief from the government under the Coronavirus Job Retention Scheme (‘CJRS’). These staff should continue to be paid as normal, even if they are not able to work. We understand that in practice, this may not be straightforward, particularly where staff are not specific to a contract or work partly on this contract and partly on another.

In these circumstances, staff could be furloughed and then staff costs deducted from the payment of the contract by the CA. Alternatively, operators would need to determine the staff cost element of the contract and be able to evidence that this has continued to be paid and not recovered under the CJRS.

A condition of continuing to receive payment for the contract is that operators agree to operate on an ‘open book’ basis, meaning that, as required and requested, they must make available to the contracting authority any data, including ledgers, cash-flow forecasts, balance sheets and profit and loss accounts to demonstrate that the payments received from the CA have been used in the manner intended. Operators must act with integrity and in cases where they are found to be taking undue advantage or failing in their duty to act transparently and with integrity, CAs can take action to recover payments made.

An operator found to have acted fraudulently by also 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 under regulation 57(8)(c) of the Public Contracts Regulations 2015 (‘PCR’).

It is important that operators keep a record of the decisions and agreements made in relation to the continued payment of the contract to enable future reconciliation if it becomes necessary.

Each case will be different according to the nature of the services being supplied, the challenges being faced and the legal requirements relating to the contract and therefore operators are encouraged to seek legal advice.

Accelerating Payment of Invoices

Under the PCR, public authorities are required to pay suppliers within 30 days however PPN 02/20 states that CAs now need to accelerate their payment practice. CAs should ensure payment is made as quickly as possible by:

  • targeting high value invoices
  • considering paying disputed invoices immediately and reconciling at a later date
  • taking a risk-based approach as to whether 2-way matching can be used (rather than regular 3-way matching against receipt and purchase order
  • encouraging suppliers to invoice on a more regular basis, i.e. weekly rather than monthly.

Official guidance

Should you require any further information, contact a member of our team on 01254 828300.

Strategic and measured business solutions providing 20:20 vision for your operation.
Bespoke training for your business DISCOVER TRAINING
24 hour legal cover for a fixed fee DISCOVER UP
A health, safety and risk management solution DISCOVER STEP