The UK Government has issued Procurement Policy Note 02/20 (the PPN) which provides information and guidance on how public bodies should approach payment of their suppliers during the COVID-19 outbreak.
The aim of the PPN is to ensure service continuity and protect suppliers who are ‘at risk’ as a result of the ongoing business disruptions. The PPN is applicable to all contracting authorities, including local authorities, maintained schools and academy trusts. Anyone dealing with contracts on behalf of a public body, or indeed a supplier to a public body, should familiarise themselves with the PPN.
Each contract will need to be considered on a case-by-case basis, as the impact of the PPN will differ based upon the nature of the goods/services being supplied, the extent of any disruption due to COVID-19 and the supplier’s particular circumstances. One key point to note is that in most cases, public bodies should continue to pay suppliers who are ‘at risk’ (and indeed most will be), even where the delivery of goods or services is likely to be disrupted or even temporarily suspended. This may well mean that caterers, cleaners and other suppliers should continue to be paid even where they cannot perform their services, for example due to business closures or government restrictions. Further, suppliers should be paid as quickly as possible, and where possible invoices should be paid on receipt (subject to reasonable checks).
The PPN sits alongside numerous measures offered by the government to support businesses, including the Coronavirus Job Retention Scheme, under which employers can apply for a grant to reimburse them for part of the salaries that they pay to those employees who are laid off because of the downturn in work (otherwise known as ‘furloughed workers’). The PPN is clear that suppliers should act with integrity and not take advantage of the PPN in addition to other support offered. In particular, suppliers should not expect to make profits on the undelivered elements of a contract. The PPN therefore stipulates that suppliers should act on an ‘open book’ basis, making relevant data available upon request. For example, where a supplier has furloughed workers under the scheme referenced above, this should reduce the costs payable by the public body customer. Contracting authorities can take action to recover payments made where suppliers are found to have taken undue advantage of the PPN.
- Review your contractual portfolio to identify which suppliers are likely to be ‘at risk’ and get in touch with them. It’s likely that you may need to vary your contracts with suppliers. The PPN provides a set of model interim payment terms which may be appropriate. Be mindful that performance provisions (particularly those linked to payment), business continuity clauses and force majeure provisions may be affected by the PPN. Any agreed variations should be documented carefully to ensure that things can return to normal when appropriate - take legal advice if you are unsure.
- Be prepared to pay supplier invoices quickly and implement new methods where appropriate (such as advance payments) to support supplier cash flow.
- Ensure that suppliers are using the available support appropriately and acting with integrity, by requesting data where appropriate to check that suppliers are continuing to pay employees and flowing payment down to sub-contractors.
Suppliers to public bodies:
- If you have not yet heard from the public body with whom you contract, consider reaching out to them to discuss the PPN. If the customer is still receiving public funding, the contract may fall within the scope of the PPN and the customer may still be able to pay you even if you can’t perform the contract at the moment.
- If you do continue to receive payment as a result of the PPN, ensure that you are being transparent and acting with integrity when raising invoices. This may mean charging the customer less where you are in receipt of support from other schemes. For example, if you have furloughed staff that would usually work on a particular contract, you cannot expect to receive payment in full under the contract that you are not performing as your outgoings connected to that particular contract will now be reduced.
- If your contract is not caught by the PPN, review the contract anyway (or ask your legal adviser to) to check the position on cancellation, force majeure and termination. If you are unable to perform the contract as a result of COVID-19, it may be worth reaching out to the customer to agree a way forward, for example delaying performance to a later date. These are unprecedented times for all industries and a collaborative approach is required to maintain business relationships where possible - often a sensible conversation is the best starting point to achieve a compromise that works for both parties.