The accelerating COVID-19 pandemic will cause unprecedented disruption to domestic and international supply chains.
Following the emergency measures put in place by the Government over the past few weeks, culminating in a “lockdown” on social activities that will last until 13 April, at least, “business as usual” is no longer possible for vast swathes of the population.
The impact of these measures on cash flow will leave many clients unable to pay their contractors for goods and services provided under existing contracts, while contractors themselves will struggle to perform their contractual obligations.
Recognising the risk to government supply chains, the Cabinet Office has released a procurement policy notice setting out guidance for public bodies on payment of their suppliers to ensure service continuity during and after the COVID-19 outbreak (PPN 02/20).
Contracting authorities must act now to ensure suppliers at risk are in a position to resume normal contract delivery once the outbreak is over.
Measures to support government suppliers
PPN 02/20 requires all contracting authorities:
To urgently review their contract portfolio and inform ‘at risk’ suppliers that they will be paid as normal (even if service delivery is disrupted or temporarily suspended) until at least the end of June.
To put in place payment measures to support supplier cash flow (e.g. forward ordering, pre-payment, interim payments or payment on order rather than receipt).
To work with suppliers and provide relief against their current contractual terms, if appropriate (e.g. relief on KPIs and service credits).
Where the contract involves payment by results, to pay on the basis of previous invoices.
To ensure invoices submitted by suppliers are paid immediately.
In return, suppliers must:
- act on an open book basis and make cost data available to the contracting authority; and
- continue to pay employees and flow down funding to their subcontractors.
They are also asked to identify in their invoices which elements of the invoiced amount relates to services they continue to supply (i.e. business as usual) and which are attributable to the impact of COVID-19.
These measures are designed to help maintain cash flow in Government supply chains and to protect jobs.
How can contractors protect their position?
While this will provide some relief to government contractors for the time being, the uncertainty regarding the duration and full impact of the pandemic continues.
To best protect themselves, government contractors should also review any existing agreements and assess their capabilities to satisfy future obligations (including call offs under framework agreements). Should any concerns be identified, these should be discussed with contracting authority counterparts as soon as possible.
In their drive to ensure business continuity, it seems public authorities will be more receptive to applications for continued payment, contractual amendments or relief from contractual sanctions, than to steps taken by suppliers to suspend performance (e.g. under a force majeure clause).
Government contractors should also recall that poor performance of a previous contract can constitute a ground for debarment from future tender competitions under the UK public procurement rules.
Struggling contractors should therefore document any concerns they have regarding their performance of government contracts as a result of the pandemic, and any mitigating steps they have taken, in order to strengthen their position when bidding for future contracts.