The Cabinet Office has published Procurement Policy Note (PPN) 04/20: Recovery and Transition from COVID-19, which provides information and guidance for public bodies on payment of their suppliers to ensure service continuity during the current COVID-19 outbreak. The note updates and builds on the provisions contained in PPN 02/20.
Hot on the heels of the Cabinet Office Procurement Policy Note (PPN) 02/20, which we talk about in our article here, PPN 04/20: ‘Recovery and Transition from COVID-19’ has since been published. Effective from 1 July 2020 to October 2020, it seeks to provide information and guidance for public bodies on payment of their suppliers to ensure service continuity during the current COVID-19 outbreak. The note updates and builds on the provisions contained in PPN 02/20, continuing to encourage transparent support of suppliers of critical services, whilst also looking forward at whether supported contracts are still sustainable. The focus is more on developing transition plans to exit from relief as soon as possible, and consider contract variations if operational requirements have changed significantly. It is important for such arrangements to continue to deliver value for money over the medium to long term.
Contracting authorities are encouraged, in line with PPN 02/20, to still proactively consider and make payments in advance (capped at 25% of total contract value until the end of October 2020) and/or provide relief against operator current contractual terms, eg relief on KPIs and service credits, to maintain service continuity. “The contracting authority has the final decision on whether it deems a supplier at risk and the form of any relief.”
However, they are also being encouraged to work with their suppliers in partnership to plan an eventual exit from such relief and transition to “a new, sustainable, operating model taking into account strategic and reprioritisation needs”. This requires such bodies to check the basic commercial assumptions that underpinned the viability of the original contract, and check to see if they are no longer viable. Options to consider include contract variation, to get the contract back onto an appropriate commercial footing, or termination pursuant to the contract’s terms if the contracting authority’s view is that the contract is no longer relevant or viable. “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 is referenced, which sets out how contracting authorities should constructively engage with suppliers. The PPN 04/20 acknowledges that this will mean risks are being taken. Authorities should continue to work with suppliers on an open book basis and retain comprehensive records of all decisions, and the reasoning behind key decisions and actions taken, to support transparency and future scrutiny of value for money.
The PPN 04/20 clarifies that “suppliers should not expect to make profits on elements of a contract that are undelivered during this period and all suppliers are expected to operate with integrity” and in such cases, a right of clawback might be required to recover payments made. A reminder is given that where suppliers are in receipt of relief pursuant to the PPNs to continue services, there should not also be claims that the same staff required for service provision are being furloughed under the Coronavirus Job Retention Scheme (CJRS). It is however permissible for a supplier to receive partial payments for non-labour related costs and claim labour costs under the CJRS.
Of interest to those in the local authority leisure market, income generating contracts and concessions are mentioned for the first time in the PPN. In such cases, if payment relief is not available within existing budgets, contracting authorities should work with their suppliers to identify commercial solutions that are specific and appropriate to the contract. Again, reference to the specific contract is required.
PPN transition planning
Importantly, the PPN 04/20 places a focus on working towards transition planning, and on these plans being implemented as soon as possible, and before the end of October 2020. These plans should include:
- A planned exit date for when any supplier relief will end; this should be kept under review to reflect the changing situation, eg local restrictions being reintroduced.
- If advanced payments have been made, agreement of delivery dates for all outstanding goods and services.
- The process for reconciling payments made against costs, as set out in the model interim payment terms accompanying PPN02/20.
- An assessment of any costs associated with implementing Public Health England guidance, specifically in relation to delivering the public contract.
- An assessment as to whether, as a result of COVID-19, the contract is still operationally relevant and viable and, if not, proposals for variation or termination.
So to conclude, the PPN 04/20 is more of a change in tone than a change in direction. It seeks to guide authorities and their suppliers to the light at the end of the tunnel, whilst recognising that the tunnel might not look the same on exit as it did on entry. In such cases, legal support will be needed to adjust the contract to fit the new market normal – and it may take more than a few steps to do so. It will be a negotiation between the parties as to what places the supplier in a neutral position whilst ensuring the contract is still viable for both parties, and this is likely to have a series of phases:
(i) immediate impact;
(ii) phased re-start; and
(iii) back to new-normal.
It is important for both parties that the supplier can get back on its feet and return to its contracted financial model if possible. However, that should be in the context of the market as a whole and the outcomes sought by the authority at that time, to ensure that the journey through the tunnel is still one worth making.
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