On 9 June 2020, the Cabinet Office published a new Procurement Policy Note PPN 04/20 in relation to recovery and transition from COVID-19.
PPN 04/20 aims to ensure service continuity during COVID-19 and when normal business resumes. It acknowledges that COVID-19 may be with us for the long term and certain contracts may not be sustainable post COVID-19. In summary it:
This includes proactively considering and making payment in advance of need due to the impact of COVID-19 and/or providing relief against their current contractual terms, for example relief on KPIs and service credits, to maintain service continuity. However, it reminds contracting authorities that suppliers are not automatically entitled to payment or other relief under this PPN, advance payments are only as necessary and other sources of Government support should be considered.
The PPN applies to all contracting authorities, including local authorities and NHS bodies. However, it does not apply to the Devolved Administrations in Wales, Scotland and Northern Ireland. It covers goods, services and works contracts (including PFI and PF2 contracts).
The PPN reflects a number of the Government’s recent comments about switching focus to the re-opening of the economy and the Government winding down economic support schemes while people are eased back into work.
In this context, paragraphs 8 and 9 are a useful overview of its purpose – contracting authorities and their suppliers now also need to work in partnership to plan an eventual exit from any relief and transition to a new, sustainable, operating model taking into account strategic and reprioritisation needs. In some cases, it is possible that the basic commercial assumptions that underpinned the viability of the original contract can no longer be maintained. Contracting authorities and their suppliers will need to work in partnership, openly and pragmatically, during this transition to ensure that contracts are still sustainable… It may be necessary for the parties to discuss contract termination. If a contracting authority views a contract as no longer relevant or viable, they should work with the supplier to pursue termination based on the existing contractual remedies. Unreasonable expectations around transfer of risk and cost are likely to increase the probability of contract failures and may mean suppliers exit the market and weaken competition. The Outsourcing Playbook sets out how contracting authorities should constructively engage with suppliers.
There are slight nuances to this in the Introduction with value for money over the medium to long term added as an outcome.
Two paragraphs of the PPN give a general overview of how contracting authorities should act.
Paragraph 2 of the PPN states that all contracting authorities should:
The PPN goes on to state that where relief has been provided, the contracting authority should work with the supplier to develop a transition plan ready to be implemented as soon as possible and before the end of October 2020. This transition plan should be agreed by both parties and should include the following:
Note: Paragraph 10 caps advance payments at 25% of the contract value and states Treasury consent will again be required for advance payments after 31 October 2020.
There is a new focus on sustainability and partnership, although the need for viability and the possibility of termination are also mentioned in several places. This (along with references to variations) signals a shift by the Government, bearing in mind the current, operational context in dealing with COVID-19.
Contracting authorities should take legal advice before approaching a supplier to suggest varying or terminating an agreement. Contract provisions should be reviewed in relation to variations and/or termination (as appropriate); and thought should be given to approaching the supplier on a ‘without prejudice’ basis.
A contracting authority may also wish, commercially, to identify best and worst case scenarios in relation to the proposed change or termination before approaching the supplier.
Understandably, contracting authorities may be reluctant to take the first steps. There will be time demands on their hard-pressed personnel; and working effectively with a supplier to identify commercial solutions specific and appropriate to the relevant arrangement, whilst remaining within the bounds of the procurement law, will require a particular skill set.
The PPN also advises contracting authorities to:
Key points for suppliers include:
If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Nathaniel Lane or Ian Holyoak in our Commercial team, or your usual Michelmores’ contact.
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This article is for information purposes only, is not a substitute for legal advice, and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.