UK contracting authorities must work with suppliers to plan a transition from any relief measures in the wake of Covid-19 to a longer-term sustainable operating model.
In a Policy Procurement Note (PPN), the Cabinet Office said in some cases it may be that the basic commercial assumptions underpinning the viability of original contracts can no longer be maintained.
Contracting authorities and suppliers therefore need to work in partnership, “openly and pragmatically” agreeing contract variations if operational requirements have changed significantly to ensure relevance and value for money over the medium to long term.
The PPN applies to all contracting authorities, including central government departments, executive agencies, non-departmental public bodies, local authorities, NHS bodies and the wider public sector (excluding the devolved administrations).
It said that contracting authorities must also pay suppliers as quickly as possible or in accordance with pre-agreed dates to maintain cash flow and protect jobs.
The PPN said: “It may be necessary for the parties to discuss contract termination. If a contracting authority views a contract as no longer relevant or viable, they should work with the supplier to pursue termination based on the existing contractual remedies. 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.”
A PPN in April urged public sector buyers to increase the use of procurement cards to improve efficiency and accelerate payment to suppliers as the coronavirus outbreak put extra pressure on cashflow and finances. The cards allow goods and services to be purchased without using traditional purchasing processes such as purchase orders and invoices.
However, this latest PPN noted that Covid-19 is not a short-term crisis.
“It is possible that across the world, Covid-19 will circulate in the human population long term, creating a risk of periodic epidemics. The government will need to steadily redesign the current social distancing measures with new, smarter measures that reflect the level of risk at that point in time, and carefully wind down economic support schemes while people are eased back into work,” the note stated.
Supplier relief provisions set out in PPN 02/20 in March, including considering advance payments or providing relief against contractual obligations, may still be appropriate, the PPN said. And the Treasury has given consent to granting advance payments to ensure continuity of supply of critical services.
However, public sector suppliers are not automatically entitled to payment or other relief under the latest PPN. It noted that continuing to make payments to suppliers will present risks including that a supplier may still become insolvent.
Contracting authorities and suppliers must plan for an eventual exit from any relief measures to a new sustainable operating model. This transition plan should be ready to be implemented as soon as possible and before the end of October this year.
The plan should include a date for when any supplier relief will end, an agreement on the delivery of any outstanding goods and services, and a process for reconciling payments made against costs.
It should also include an assessment of any costs associated with implementing Public Health England guidance, and an assessment as to whether the contract is still viable as a result of Covid-19, and proposals for variation or termination if not.
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