The Procurement Policy Note 02/20 (PPN 02/20) (link) issued by the Cabinet Office sets out information and guidance for public bodies on paying suppliers during the coronavirus pandemic:
“Contracting authorities must act now to ensure suppliers at risk are in a position to resume normal contract delivery once the outbreak is over.”
However, there has been some confusion as to whether PPN 02/20 applies to, particularly in regard to the education sector.
Does PPN 02/20 apply?
PPN 02/20 states that it is applicable to “all contracting authorities, including central government departments, executive agencies, non-departmental public bodies, local authorities, NHS bodies and the wider public sector (excluding Devolved Administrations).”
Under The Public Contracts Regulations 2015, a “contracting authority” means “the State, regional or local authorities, bodies governed by public law or associations formed by one or more such authorities or one or more such bodies governed by public law, and includes central government authorities, but does not include Her Majesty in her private capacity”.
The words “bodies governed by public law” is clearly of relevance to the education sector and is defined as “bodies that have all of the following characteristics:—
1) they are established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character;
2) they have legal personality; and
3) they have the following characteristics: –
(i) they are financed, for the most part, by the State, regional or local authorities, or by other bodies governed by public law;
(ii) they are subject to management supervision by those authorities or bodies; or
(iii) they have an administrative, managerial or supervisory board, more than half of whose members are appointed by the State, regional or local authorities, or by other bodies governed by public law.
Therefore, any maintained schools, academies, sixth form college corporation or other educational establishment who receives more than 50% of its income from state grants is a contracting authority and within the scope of PPN 02/20.
What are my obligations?
PPN 02/20 sets out action all contracting authorities should take:
- “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.
- Put in place the most appropriate payment measures to support supplier cash flow; this might include a range of approaches such as forward ordering, payment in advance/prepayment, interim payments and payment on order (not receipt).
- If the contract involves payment by results then payment should be on the basis of previous invoices, for example the average monthly payment over the previous three months.
- To qualify, suppliers should agree to act on an open book basis and make cost data available to the contracting authority during this period. They should continue to pay employees and flow down funding to their subcontractors.
- Ensure invoices submitted by suppliers are paid immediately on receipt (reconciliation can take place in slower time) in order to maintain cash flow in the supply chain and protect jobs.”
Whilst the intention of this guidance is to ensure suppliers at risk are in a position to resume normal contract delivery once the outbreak is over, PPN 02/20 is not a blanket instruction for contracting authorities to pay their suppliers to 30 June 2020 in advance.
PPN 02/20 asks contracting authorities to take a pragmatic approach to risks their suppliers may face. For example, with workplaces closing we are seeing many cleaning contracts being suspended or terminated. Cleaning companies may therefore be considered an at-risk supplier and if appropriate, you may look at adopting temporary payment measures such as weekly invoicing instead of monthly to help with supplier cashflow.
Any measure is ultimately the decision of each contracting authority who should undertake their own risk assessment of suppliers. However it is worth noting that the Education & Skills Funding Agency conditions of funding includes reference to the Code of Conduct for Recipients of Government Grants which outlines the standards and behaviors expected from grant recipients, specifically “in carrying out activities that are funded by government, wherever they operate, to act in a manner that is compatible with public service values, where possible to promote innovation and expertise, and where applicable to contribute to the public good within in the UK and abroad.”
I’ve identified an at-risk supplier, what next?
The Cabinet Office has issued template terms for contracting authorities to use to implement the objectives of PPN 02/20 but advised that where a contracting authority wishes to vary a contract, legal advice should be sought.
This article is provided for general information only and is not intended to be nor should it be relied upon as legal advice in relation to any particular matter. If you would like more information on a particular contract or the commercial implications of coronavirus please contact either Andrew Pike at firstname.lastname@example.org or Lydia Mills at email@example.com.