It is now day 100 of the lockdown in the UK as a result of the COVID-19 outbreak (as of 30 June), and for many contracting authorities, the realisation that the current situation is the new ‘normal’ has well and truly hit.
As well as trying to maintain a ‘business as usual’ approach to everyday life, contracting authorities have been faced with a raft of new legislation and guidance to digest and implement in attempt to help ease businesses and suppliers through the pandemic.
The public sector has been required to provide unprecedented levels of support to suppliers as a result of PPN 02/20, with it being used to maintain cash flow into suppliers, and ensure business continuity wherever possible. However, these obligations are due to change after 30 June 2020.
With that in mind, whilst the extent of the impact that COVID-19 will have on the economy in the long-term is still uncertain, the Government is beginning to look to the future and is encouraging contracting authorities to do the same. The question now is, how can public bodies plan for the future?
What has changed?
Under new PPN 04/20 guidance coming into effect on 1 July 2020, the Government’s focus is shifting from emergency financial measures to encouraging sustainable solutions to ensure business continuity in the long-term. PPN 04/20 builds on the provisions contained in PPN 02/20, but focuses on recovery and the transition from COVID-19 support. It applies to all contracting authorities in England and is effective from 1 July 2020 to 31 October 2020.
Service continuity remains at the heart of the guidance, and contracting authorities should still proactively consider and make payment in advance of need, and offer relief against current contractual terms where applicable. However, the guidance brings a raft of new obligations focusing on establishing exit strategies from public sector relief.
Under the new guidance, contracting authorities should begin to:
1. Review contract portfolios to:
- determine whether contractual relief measures are still required to secure continuity of critical services; and
- consider whether additional suppliers of critical services may require relief in the future, even if this has not previously been requested.
2. Develop transition plans with suppliers that:
- reduce reliance on contractual relief measures as soon as reasonably possible;
- create new and sustainable operating models;
- are agreed by both parties;
- are ready to implement as soon as possible, and before the end of October 2020;
- include a planned exit date (to be kept under review) for when supplier relief will end;
- include an agreement for when outstanding goods and services will be delivered if advanced payments have been made;
- include a process for reconciling payments made against costs (as set out in the Model Interim Payment Terms); include an assessment of any costs associated with implementing Public Health England Guidance (i.e. PPE requirements); and
- include an assessment as to whether the contract is still operationally relevant and/or viable as a result of COVID-19.
3. Consider termination
- If a contract is viewed as no longer relevant or viable, discuss contract termination and work with the supplier to pursue termination based on existing contractual remedies.
4. Review contingent worker requirements
- If assignments are no longer required, plan to exit from these at the appropriate time.
5. Manage the risks of providing ongoing relief by:
- considering the impact of any measures on the supply chain;
- ensuring that any suppliers in receipt of public funds agree to operate on an ‘open book’ basis;
- taking action to recover any payments if suppliers are found to be taking undue advantage; and
- keeping a comprehensive record of all decisions and the reasons behind key decisions and actions taken to support transparency and future scrutiny of value for money.
6. Support suppliers by:
- paying suppliers as quickly as possible on receipt of invoices or on pre-agreed milestone dates;
- targeting high value invoices where non-payment or delayed payment could impact on the supply chain as well as the primary supplier;
- resolving disputed invoices as a matter of urgency;
- taking a risk-based approach as to whether two way matching (i.e. where the purchase order and invoice information are verified to match) may be appropriate;
- encouraging suppliers to invoice on a more regular basis to help cash flow; and
- Central Government organisations can now explore advanced payment options without seeking Treasury consent, up to a cap of 25% of the total value of the contract. Accounting Officers must still ensure spending is regular, proper and value for money.
- other contracting authorities can also utilise advance payment options to support suppliers in maintaining cashflow, but should consider and document any risks in doing so, and ensure compliance with PCR 2015 and other regulations.
What’s the impact?
In the coming months, contracting authorities will need to ensure that they pro-actively identify areas of need, and are flexible to changes in supplier capabilities. They’ll also need to effectively manage the increased administrative burden, ensuring comprehensive records are kept and that contracts are regularly reviewed to ensure they are still viable amidst the repercussions of the pandemic. Whilst the shift in focus from unprecedented relief to exit strategies will be a welcome change for many contracting authorities, the coming months are unlikely to be plain sailing.
Lucy Woods is partner in the public sector team of law firm Ashfords