The Corporate Insolvency and Governance Act 2020 has now received Royal Assent. It applies to most companies as well as Limited Liability Partnerships.
The Government has released Procurement Policy Note 04/20 “Recovery and Transition from Covid-19” (the PPN), building on and updating PPN 02/20.
PPN 02/20 covered only the period up to 20 June 2020. The PPN, therefore, covers the period from 1 July to 31 October 2020 (coinciding with the planned end of the Government’s furlough scheme).
Like PPN 02/20, the PPN has no statutory force and is not guidance to which contracting authorities must “have regard” (i.e. follow unless they have good reason to do so). As with PPN 02/20, it encourages contracting authorities to consider paying suppliers (and contractors) to ensure the continuation of key services and works during and following the current outbreak of Covid-19.
The key recommendation in PPN 04/20 is that contracting authorities should review their contract portfolios to determine whether to continue to provide any contractual relief measures from PPN 02/20. It says that contracting authorities should now work with their suppliers to plan their exit from relief provided under PPN 02/20. This should be done by discussing and developing a “transition plan” setting out when this relief will end (no later than 31 October 2020), and the deadline for delivering any outstanding goods and services for which advance payments may have been made.
Beyond this, the PPN repeats much of the content of PPN 02/20 in terms of prompt payment, contractual reliefs (e.g. from meeting KPI targets) and suppliers working on an “open-book” basis without profit. In connection with this, the PPN acknowledges that:
“Supplier relief payments are not intended to be an economic response to this emergency, nor to supplement or duplicate the wider support measures made available by the Government to UK businesses.”
This is a change of emphasis from PPN 02/20 (see our ebriefing on PPN 02/20) which focussed more on protecting jobs and maintaining business continuity. Potentially this could be (welcome) recognition that contracting authorities may have other duties (eg under charity or local government law) and that supplier support should be given only to the extent that it is consistent with these duties.
The PPN reminds contracting authorities of the risk of supplier insolvency; a warning that contracting authorities would be well advised to heed in the coming months.
It also warns that some contracts may no longer be operationally relevant due to Covid-19 or may be commercially unsustainable and may need to be terminated, saying that:
“Unreasonable expectations around transfer of risk and cost are likely to increase the probability of contract failures and may mean suppliers exit the market and weaken competition.”
Much of the PPN is simply good contract management. However, it does send a clear signal that any temporary support provided for Covid-19 (including in terms of things like KPI performance) should have ended by 31 October 2020 and contracting authorities should start planning now how to achieve this.
If you have any questions or concerns about PPN 04/20 or would like support in varying or exiting from contracts, please contact Andrew Millross or any member of our Construction and Procurement Department.
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