In Public Procurement Notice 02/20 Supplier Relief due to COVID-19 (PPN 02/20), the government recognises that many suppliers to public bodies will struggle to meet their contractual obligations during the COVID-19 outbreak. In turn, this will put the supply chain at risk and staff in danger of losing their jobs. The PPN requires public bodies to act immediately to protect their suppliers and support them by continuing contractual payments.

Who and what does PPN 02/20 apply to?

PPN 02/20 is already effective and will have effect until 30 June 2020 (at which point it will be reviewed). It covers goods, services and works contracts being delivered in the UK and applies to all "contracting authorities", including central government departments, executive agencies, non-departmental public bodies, local authorities, NHS bodies and the wider public sector. 

PPN 02/20 does not apply to the devolved administrations who have issued separate guidance as follows:

• Scotland: Coronavirus (COVID-19): supplier relief SPPN 5/2020 (26 March 2020);
• Northern Ireland: PGN 01/20 Supplier Relief Due to Covid-19 (25 March 2020); and
• Wales: (COVID-19) procurement policy note (26 March 2020).

What does PPN 02/20 provide?

Contracting authorities should take measures to protect cash flow: when goods/services are reduced or paused, or continued payment represents short-term value for money, public bodies should continue to pay their suppliers at the contractual rate. Any contract variations should be in writing and apply only to the COVID-19 situation (see PPN 01/20 on amending contracts).

Payment to maintain business continuity: contracting authorities should identify at-risk suppliers and, subject to the particular circumstances, confirm payment to 30 June at least − or consider other possible payment provisions such as: payment against revised or extended timescales or milestones; interim payments; forward ordering; payment on order as opposed to receipt; or payment in advance (while managing and documenting the associated risks).

In contracts that operate "payment by result" or are "output/outcome" based, the contracting authority should calculate payments by taking an average of the invoices paid in the last three months. This average should be adjusted to ensure that the profit margin is not paid on undelivered aspects.

Transparency and collaboration: during the operation of these payments, the public bodies should work collaboratively with their suppliers to maintain transparency in the process. All suppliers in receipt of funds should operate on an open-book basis. This means that any data including ledgers, cash flow forecasts, balance sheets and profit and loss accounts must be made available to public bodies if requested. The supplier will also need to be able to demonstrate that they have paid their suppliers further down the supply chain and that they have used the funds to pay staff. If the suppliers do not act with integrity and take undue advantage of this scheme, the public body will take steps to recover payments. It will be the onus of the public authority to enforce this and ensure that payments made flow down the supply chain.

Contracting authorities should seek to redeploy capacity to other areas of need where possible with a time-bound variation to the original contract (see PPN 01/20).

Other contractual relief: contracting authorities should work with suppliers to ensure business continuity and implementation of robust business continuity plans. Guidance in this note should override provisions in contracts that may require authorities to pay their suppliers on a decreasing scale as a result of performance, force majeure or business continuity clauses. If a supplier seeks to rely on the contract to suspend performance, request an extension of time to perform or establish waivers of rights or remedies, the public body should work pragmatically with the supplier to amend or vary the contracts for the duration of the COVID-19 outbreak (for example, by changing delivery locations, frequency and timing of delivery, and targets and performance indicators). These changes will fall away once the COVID-19 outbreak ends. Seeking legal advice is recommended.

PPN 02/20 also deals with force majeure and frustration claims and recommends the contracting authority takes legal advice. Force majeure clauses do not automatically entitle either party to relief –and the bar for establishing frustration is high. Contracting authorities are encouraged to use contract mechanisms to provide relief in the current circumstances – but to ensure that records of the changes made and the decision-making are kept.

Guidance on accelerating invoice payments is also given to assist contracting authorities in making payment as quickly as possible. Contingency measures include: delegating authority to ensure invoices are not delayed; appointing key personnel to take prompt receipt of goods and monitor the payment flow down the supply chain; and verify invoices as quickly as possible.

Immediate action

Contracting authorities should:

• review their contract portfolio and inform suppliers who they believe are at risk that they will be paid as normal;
• ·not pay suppliers where there is no contractual volume commitment to supply or to suppliers who have been underperforming or were at risk prior to the COVID-19 outbreak;
• encourage suppliers to invoice on a more regular basis (weekly as opposed to monthly) and not reject invoices based on administrative errors as they can be reconciled at a later date;
• accelerate payment of suppliers' invoices (even more swiftly than the 30 days required under the Public Contracts Regulations 2015). Note also that the Treasury has temporarily consented (until 30 June 2020) to payments in advance of need being made capped at 25% of the contract value. This consent is subject to the Accounting Officer being satisfied that a value for money case is made in that the payment will secure the continuity of supply of critical services in the medium and long term;
• prioritise high value invoices to maintain the supply chain;
• reconcile any incorrect payments at a later date;
• implement contingency plans to ensure enough staff have the authority to authorise payments if staff are absent;
• make invoicing procedures clear to the suppliers;
• require invoices to be sent electronically; and
• record all decisions and agreements made under this PPN and also ensure suppliers maintain records to enable future reconciliation if required.

Suppliers should ensure that their invoices clearly distinguish between normal supplies and those affected by the COVID-19 outbreak.

Commentary

The guidance does not intend that every invoice will be paid regardless of the usual contractual risks. Accounting officers still have a duty to ensure spending is regular, proper and value for money, and other contracting authorities must still conduct appropriate and proportionate due diligence to ensure such payments are necessary for continuity of supply of critical services. The risks will have to be evaluated on a case-by-case basis.

The government acknowledges that this PPN has been produced over a short timescale and requires some clarification. There are plans to publish FAQs, model interim payment terms and notes on contingent workers over the next week (w/c 6 April 2020) to respond to numerous queries the government has had and provide more information on the enforcement of PPN 02/20. However, a full picture cannot be given as the government is in the habit of using bespoke contracts.;

The government will review PPN 02/20 in June 2020. It is likely to be extended.

Associated guidance

Note that, alongside PPN 02/20, the government has also issued:

• Procurement Policy Note 02/20: Guidance notes on model interim payment terms which provides a set of terms that contracting authorities can use to implement PPN 02/20 in providing contractual relief to suppliers who have been affected by COVID-19. It prevents suppliers claiming separate relief from another source of government financial support on COVID-19, thereby gaining undue advantage by claiming relief twice for the same hardship; and
• Procurement Policy Note 02/20: Contingent Workers Impacted by COVID-19; and
• Frequently Asked Questions (FAQs) – Procurement Policy Note 02/20 that collates a set of FAQs regarding the scope and application of PPN 02/20 on supplier relief and is relevant to any contracting authority in scope of PPN 01/20 and PPN 02/20.

There are government plans to publish further PPNs relating more specifically to the construction sector and notices which will amend previously published PPNs. For example, as we were finalising this briefing, Supporting vital service provision in PFI/PF2 contracts during the COVID-19 emergency was published by the Infrastructure and Projects Authority and HM Treasury, which makes clear that Private Finance Initiative contractors should consider themselves to be part of the public sector response to the current COVID-19 emergency.

For more information, see our article "UK government-issued guidance on PFI/PF2/NPD/Hub in light of COVID-19 outbreak".

The European Commission has also published guidance on using the public procurement framework in the emergency situation related to the COVID-19 crisis (2020/C 108 I/01) which sets out EU public procurement framework options for the purchase of the supplies, services, and works needed to address the crisis. In cases of extreme urgency, public buyers could, for example, substantially reduce the deadlines to accelerate open or restricted procedures, consider a negotiated procedure without publication or look at alternative solutions and engage with the market. Alternatively, a direct award to a preselected economic operator could be allowed (provided the latter is the only one able to deliver the required supplies within the technical and time constraints imposed by the extreme urgency).