In a time of extreme uncertainty for all Contracting Authorities and suppliers alike, the Cabinet Office has published a Procurement Policy Note – Supplier relief due to COVID-19 with information and guidance for public bodies on the payment of their suppliers, effective immediately until 20 June 2020. The focus of the PPN is to ensure that suppliers are well-placed to return to business-as-usual once COVID-19 is over by safeguarding cash flow down the supply chain by individual Contracting Authorities adopting a pragmatic, but not risk free, approach.
The PPN 02/20 is available to review in full here.

We set out Actions Contracting Authorities should take now, other contractual
relief and our top tips, below.

Actions Contracting Authorities should take now

1. Based on this guidance, you should inform “at risk” suppliers that they will be continue to be paid as normal (even if service delivery is disrupted or temporarily suspended) until at least the end of June 2020. However the practicality of this needs to balance with security risks; we would recommend considering what security you have in place (performance bonds, parent co guarantees);
2. Put in place appropriate payment measures to support supplier cash flow, e.g. forward ordering, payment in advance, and payment on order. We would recommend ensuring you have adequate security in place if there are any forward ordering or advance payments made and vesting agreements can be used for materials and equipment; For payment by result contracts, payments should be made on the basis of previous invoices, e.g. average monthly payment over last three months – again this is guidance and the risks need to be considered;
3. To qualify, suppliers should agree to act on an open book basis and make cost data available to the contracting authority during this period. They should continue to pay employees and subcontractors
4. Ensure invoices submitted by suppliers are paid immediately on receipt, The practicality of this advice will need to be balanced with analysis of work done and pay less notice rights.

Other contractual relief

Suppliers may wish to rely upon provisions within their contracts to limit any potential risk. The PPN advises Contracting Authorities to work with the supplier with a view to amending or varying contracts instead, where possible.

Top tips:

1. Get in contact with “at risk” suppliers as soon as possible and let them know what you are doing to support them.
2. Give assurances to suppliers in respect of contract clauses it is worried you may seek to invoke to their detriment.
3. Ensure contracts are reviewed and any decisions which are made are made on a case-by-case basis, documenting any changes in accordance with the contract’s requirements and the rationale for any decision.
4. Streamline internal financial processes as much as possible and expedite payments so as to assist the supply chain with cash flow, delegating powers where possible and appropriate to do so.
5. Obtain legal advice on security and risk mitigation options.
   

What to take away

A positive relationship now, between Contracting Authorities and suppliers, will not only ensure that vital goods, services and works continue to be delivered as best as they can be, but will also ensure an efficient and effective return to business-as-usual practices in the future. Many SMEs will not be fully aware of what is in place to assist them. Completing the above actions should mean that Contracting Authorities should be well-placed to avoid unnecessary contract terminations.

How can Capsticks help? 

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Lee Clarke to find out more about how Capsticks can help.