Public Sector Required to Provide Unprecedented Relief to Suppliers during Covid-19 Pandemic

As part of the Government’s commitment to protecting the economy “whatever it takes” the Government has issued a notice to local authorities NHS bodies and the wider public sector to do their part in keeping suppliers afloat during the pandemic - Public Procurement Note 02/20.

The focus is to use public bodies to maintain cash flow into suppliers, protecting their businesses and ensuring continuity of service once restrictions are lifted. The notice includes guidance on payment (timelines, rates and open book accounting),  re-distribution of suppliers and relief for non-performance.

What does it say?

Payment – public bodies must

  • take immediate steps to pay all ‘at risk’ suppliers as a matter of urgency, even if goods and services are reduced or paused temporarily;
  • actively contact suppliers and confirm they will continue to pay until at least the end of June to ensure business and service continuity;
  • override provisions in contracts that may require public bodies to pay suppliers on a decreasing scale as a result of performance, force majeure or business continuity clauses etc
  • Payment options available are:
    • Payment at the usual contractual rates;
    • Payment against revised/extended milestones or timescales;
    • Interim payments;
    • Forwards ordering; and
    • Payment on order or payment in advance/repayment.
  • further detailed advice is given about how to speed up payments, focusing also on keeping the supply chain afloat by prioritising larger invoices and lead suppliers and monitoring the flow down to sub-contractors;
  • consider their payment systems, purchase order processes and delegated authorities to speed up payment;
  • take a ‘pay now – query later’ approach to invoices, within reason;
  • actively encourage suppliers to invoice;

Important exemptions:

  • public bodies do not have to apply these principles if the contract does not have a minimum volume commitment (unless of course works or services have been ordered);
  • all attempts should be made to avoid payment of profit margins to suppliers for works, supplies and services that have not actually been delivered; the support is to focus on covering costs only.

Open Book

  • suppliers benefiting from the public body’s support must return open book accounts for the funds received to demonstrate that no profits are being made and the money is going where it is needed.

Re-distribution of suppliers

  • where existing contracts cannot be fulfilled because of Covid-19 e.g. no longer a need for school transport, public bodies should, where possible, seek to re-distribute those suppliers to other areas of need e.g. social care.

Relief for non-performance

  • public bodies should also look to work with suppliers who will struggle to perform to use all reliefs available under the contract or to amend the contract to give relief, rather than terminating or going into a force majeure or frustration position. Changes to the contract are likely to be permitted using the exemptions under the Public Contracts Regulations 2015 (see PPN 01/20) -
  • this does not apply to suppliers who were already struggling to deliver prior to the outbreak.

How long does it apply?

Immediately until 30th June 2020.

Is it clear what needs to be done?

It is clear that any changes agreed need to be:

  • accompanied by a clear audit trail;
  • proportionate and pragmatic; and
  • time limited during the impact of the outbreak only.

It is not clear who will be classed as ‘at risk’ suppliers or how public bodies are meant to make these decisions in practice. Although there are lots of suggestions as to what can be considered, the onus is on the public body to seek to take a balanced approach and detailed decision making at a time when public bodies are under an unprecedented strain. Despite this, this is a mandatory request from the Government and must not be ignored.

For more information on the article above please contact Lucy Woods or visit the Coronavirus/ COVID-19 area on our website.



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