Procurement: PPN 02/20 Supplier relief due to COVID-19

The Cabinet Office has published Procurement Policy Note 02/20 (PPN 02/20) – Supplier Relief due to COVID-19  which applies, with immediate effect*, to all contracting authorities. It covers goods, services and works contracts being delivered in the UK.

PPN 02/20 sets out information and guidance on payment of suppliers, to ensure service continuity during and after the current COVID-19 outbreak and sets out a list of immediate actions.

 

Update: 9 April 2020

PPN 02/20 is supported by a number of documents, issued since its original publication.

These are:

• Guidance notes on model interim payment terms
• Contingent workers impacted by COVID-19
• FAQs
• Additional guidance, FAQs and model terms for construction

If you need to know more about these supporting documents, please follow links at the bottom of this page to our other articles.

 

PPN 02/20 acknowledges the significant impact of the COVID-19 outbreak on business of all sizes and the problems faced by many suppliers to public bodies who may struggle to meet their contractual obligations putting financial viability, staff retention and supply chains at risk. In this context, the PPN provides that contracting authorities:

• should pay all suppliers as quickly as possible to maintain cash flow and protect jobs.

PPN 02/20 includes a section on “Accelerating payment of invoices” with a requirement on contracting authorities to act now to ensure that payment is made as quickly as possible to suppliers and notes on contingency measures to ensure invoices are not delayed, receipt of goods, verification of invoices, use of payment cards and invoicing procedures.

• where goods/services are either reduced or paused temporarily, take action to continue to pay suppliers “at risk” due to COVID-19 on a “continuity and retention basis”. 

In the context of ensuring business continuity, PPN 02/20 notes that

• there are a range of ways to support suppliers in maintaining cash flow and it gives examples, as well as providing guidance on the nature of the payments to be made and invoicing.
• payments should not be made to suppliers where there is no contractual volume commitment and contracting authorities should carefully consider the extent of payments to be made to suppliers who are underperforming and subject to an existing improvement plan.

It is not clear what tests or parameters are to be used to determine whether a supplier falls within the “at risk” category. PPN 02/20 notes that contracting authorities can define their “at risk” suppliers “according to need”. This may create a difficult balancing act for contracting authorities.

• can consider making advance payments if necessary

For central government there is a partial relaxation of the prohibition on payment in advance without Treasury consent. For other contracting authorities there is a reminder of the need to conduct appropriate and proportionate due diligence to ensure such payments are necessary for the continuity of supply of critical services.

• aim to work with suppliers and, if appropriate, provide relief against their current contractual terms to maintain business and service continuity rather than accept claims for other forms of contractual relief such as force majeure. PPN 02/20:
  • refers to the provisions for permitted contract amendment under the Public Contracts Regulations (PCR) 72 and cross refers to PPN 01/20. It comments on how to record such changes and suggests including provisions on review or time limiting the amendments and confirming that it is the authority’s decision when things should return to normal.
  • recommends that where suppliers are unable to fulfil their contracts due to action taken elsewhere in the public sector, for example school transport, contracting authorities should seek to re-deploy that capacity elsewhere – and rely on permitted variation provisions under PCR 72.
  • contains a section on other contractual relief including comments on contractual variation. It recommends a pragmatic approach, whilst reminding contracting authorities of the importance of making records of discussions and agreed temporary changes.
  • Provides commentary on force majeure and frustration as well as excusing causes, relief events and other options.

Action
PPN 02/20 recommends all contracting authorities should:

• Urgently review their contract portfolio and inform suppliers who they believe are at risk that they will continue to be paid as normal, even if service delivery is disrupted or temporarily suspended, until at least the end of June 2020. This is subject to transparency requirements (see below).
• Put into place appropriate payment measures to support supplier cash flow
• Ensure invoices submitted by suppliers are paid immediately on receipt

Transparency – suppliers to operate on an open book basis and with integrity

PPN 02/20 confirms that contracting authorities and suppliers should work collaboratively to ensure there is transparency during this period. In order to qualify for continued payment for the purposes of maintaining business continuity, suppliers should agree to act on an open book basis and make cost data available to the contracting authority. This concept is explained and examples provided. Suppliers should also continue to pay employees and flow down funding to their subcontractors.

It is worth noting that PPN 02/20 states 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.”  Suppliers should be made aware that where they are found to be taking undue advantage or failing to act transparently and with integrity, contracting authorities will take action to recover payments made. 

 

For our articles on the documents issued by Cabinet Office in support of PPN 02/20 please follow these links:

Guidance notes on model interim payment terms, contingent workers impacted by COVID-19 & FAQs

Additional guidance, FAQs and model terms for construction

 

For further support and advice relating to the impact of COVID-19, please view our COVID-19 Advisory Service page.

 

* Published on 20 March 2020, with immediate effect to 30 June 2020.

** Updated 9 April 2020