On 18 May 2020, the Ministry of Housing Communities and Local Government (MHCLG) wrote to all social housing residents in England (residents).
The Government's procurement policy note (PPN) has generated significant discussion and debate. The aim of the note is, where possible, to ensure business continuity for suppliers over the next period up until 30 June 2020. In the light of this, we are aware of some contractors approaching their clients saying that it means that they must continue to pay them in full, even if they are delivering no work.
So what is the correct approach for contracting authorities to adopt during these times, to navigate effectively the urgency of the situation alongside the legal duties on public sector organisations?
Despite being drafted in mandatory terms “Contracting authorities must act now”… the key point to note about this PPN is that it is simply guidance. It has no statutory force and it is not guidance to which contracting authorities must “have regard” (i.e. follow unless there is a good reason not to). Importantly, the PPN does not carry with it any promise of financial support from the government for contracting authorities that act in ways suggested by the PPN.
Nevertheless, contracting authorities are likely to want to play their part in ensuring business continuity of their key suppliers wherever this is possible, and it is appropriate to do so. The guidance note suggests providing additional support to suppliers, where appropriate, in areas such as paying invoices promptly, considering upfront payments and relaxing some of the performance requirements of particular contracts.
Contracting authorities should, of course, continue to act prudently. Many registered providers are charities and therefore under a duty to use their charitable funds only for proper charitable purposes. All registered providers and local authorities are required to obtain value for money for their expenditure.
There is a difference between paying promptly for work that has been delivered and paying in advance for work that might never be delivered. Before considering any “up-front” payment, a careful risk assessment needs to be undertaken to consider why upfront payments may be necessary, how they would be recouped from later payments and whether the obvious risks are outweighed by the need to ensure business continuity.
The encouragement in the PPN to consider contracts and work collaboratively with contractors during this difficult period is clearly good advice. Contracting authorities should first make sure that they thoroughly understand the terms of their contracts before engaging with their suppliers and identifying how best to work together through this period.
Another important factor will be how important it is to the contracting authority to ensure the contractor is able to resume delivery of the works and services after the end of the current crisis. If suppliers become insolvent as a result of covid-19, the contracting authority will have to meet the costs of procuring and mobilising a new contract. These costs (which could be substantial for a long contract) need to be considered against the costs of providing extra support for a limited period.
We are supporting numerous contracting authorities and service providers with this process at the moment. If we can assist you with this, please get in touch with either Andrew Lancaster or Andrew Millross.
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