The Cabinet Office has released a new Public Procurement Note 10/23 (PPN 10/23) – taking account of a bidder’s approach to payment in the procurement of major contracts.
Public Procurement Note 10/23 (PPN 10/23) sets out new guidance on how payment approaches can be taken into account in the procurement of major government contracts. PPN 10/23 will replace its predecessor PPN 08/21 with effect from 1 April 2024. The new guidance will be particularly important for tenderers who are seeking to utilise local supply chains in their bids.
What’s the same?
PPN 10/23 still applies to “In-Scope Organisations”, that is central government departments, their executive agencies and non-departmental public bodies. However, it does not apply to NHS trusts, sub-central government bodies (such as local authorities) or contracting authorities whose functions are devolved or mainly devolved in Wales.
PPN 10/23 applies to contracts for goods, services and/or works with an anticipated contract value above £5 million per annum (excluding VAT) which are subject to the Public Contracts Regulations 2015 and also applies to framework agreements and dynamic purchasing systems (DPS) only where the individual value of any contract to be awarded under the framework agreement or DPS is greater than £5 million per annum (excluding VAT).
As per previous PPN, PPN10/23 requires in-scope organisations to use a standard set of selection questions in its selection questionnaire for in-scope contracts to assess the bidder’s performance in relation to payment to its supply chain.
The most significant update is that for in-scope public procurements advertised on or after 1 April 2024, bidders must satisfy a new threshold based on average payment days to demonstrate they have effective payment systems in pace to ensure the reliability of their supply chains. The guidance confirms that when assessing the payment performance of a bidder, contracting authorities must look at two aspects:
- Whether the bidder has paid its suppliers in accordance with the contractual terms that it applies to its supply chain;
- Whether, overall, the bidder has paid its suppliers promptly by:
- paying at least 95% (at least 90% if an action plan is provided) of invoices within 60 days, which is considered an appropriate measure of overall payment promptness, and;
- meeting the average payment days threshold of at least 55 days for all invoices.
This should be measured over a 12-month period and the bidder must satisfy this threshold in at least one of the two previous six-month periods. PPN 10/23 stresses that contracting authorities must ensure that the evaluation methodology is included within the tender documentation so that bidders are aware of the assessment criteria and methodology. In addition, where PPN 10/23 applies, In-Scope organisations must use the questions in Part 3 (Technical and Professional Ability) in the Standard Selection Questionnaire set out in Annex B of PPN 03/23.
Where a bidder does not meet the selection criteria, if they pay 90% to 95% of invoices within 60 days and average payment is less than 55 days, then they may provide an action plan detailing how they are to remedy those failures. Otherwise, it will fail that selection criteria and be excluded from the procurement.
Furthermore, PPN 10/23 also clarifies the process contracting authorities should follow when seeking an exemption. In the following exceptional circumstances, it may not be relevant or proportionate to apply PPN 10/23:
- where the market is struggling to such a significant extent that the delivery of public services is likely put at risk, or value for money is likely to be severely compromised;
- where there is a civil emergency.
In these circumstances, contracting authorities seeking an exemption must contact the Cabinet Office’s Commercial Policy Team with an evidence-based rationale for the exemption request. In addition, contracting authorities must propose an alternative measure to improve payment performance in the specific market area. The Cabinet Office will then decide whether to recommend the exemption to the Minister.
The PPN expressly acknowledges that it relates to the current Public Contracts Regulations 2015.
It is anticipated the Procurement Act 2023 will come into force from around October 2024. The PPN acknowledges it will need to be updated to reflect new requirements set out in the Procurement Act 2023, including:
- sections 68 and 73 – requires all contracting authorities to pay invoices within 30 days of invoices and that all sub-contracts include similar provisions. Note that section 88 also implies payment terms into regulated sub-threshold contracts;
- section 69 – requires contracting authorities to publish Payment Compliance Notices setting out their compliance with section 68 (above).
The main ethos of PPN 10/23 reflects that of PPN 08/21, however tenderers who intend on using supply chains now have an additional hurdle to jump to demonstrate that they have effective payment systems in place to ensure the reliability of their supply chains. However, further clarity has been provided if the contracting authority wishes to seek an exemption in the event that PPN 10/23 is irrelevant or disproportionate.
If you need legal advice on the impact of this guidance, please contact one of our specialist Commercial and Charities lawyers.
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