Coronavirus and the Construction Industry: Cabinet Office Issues further guidance on Recovery and Transition from COVID-19

England and Wales

Correct as at 16 June 2020. This article is not being maintained.

Last Week the Cabinet Office released a Procurement Policy Note on ‘Recovery and Transition from COVID-19’ (“PPN 04/20”). This note updates and builds upon the provisions of the Procurement Policy Note ‘Supplier Relief due to COVID-19’ (“PPN 02/20”) summarised in our previous Law-Nows which can be found here and here. PPN 04/20 suggests steps for public bodies to take in reviewing their contractual portfolio and transitioning away from relief arrangements as the Government moves into the next phase of its response to the COVID-19 outbreak and we look towards the ‘new normal’.

Scope and Timing

PPN 04/20 applies to the same contracting authorities and contracts as PPN 02/20, meaning it applies to contracts with contracting authorities for the provision of goods, services and works being delivered in the UK. PPN 04/20 applies from 1 July 2020 to 31 October 2020.

Recovery

PPN 02/20 set out guidance for contracting authorities on how to provide relief to suppliers at risk due to COVID-19 on a continuity and retention basis. Now the Government is turning towards its recovery strategy it is asking contracting authorities to undertake a review of their contract portfolios, and consider how to exit from any relief arrangements granted to suppliers whilst transitioning to a sustainable operating model which delivers value for money over the medium to long term. Emphasis is placed on contracting authorities working with their suppliers to agree these transitional and future arrangements, and reference is made to the Government’s updated Outsourcing Playbook which sets out how contracting authorities should constructively engage with suppliers.

Payment Practices and Transparency

Contracting authorities are advised to review their contracts and determine whether it is appropriate to continue to provide the contractual relief measures set out in PPN 02/20 to their suppliers. It is specifically noted that contracts with suppliers of contingent workers should be reviewed in light of changing operational priorities (such as reduced building capacity due to social distancing), and where assignments are identified as no longer required they should be exited at an appropriate time.

Whilst the advice is generally to seek to transition away from any relief measures implemented pursuant to PPN 02/20, PPN 04/20 does acknowledge that suppliers of critical services who have not previously requested relief may legitimately require it going forwards, and confirms that contracting authorities need to continue to pay suppliers as quickly as possible in line with the guidance originally set out in PPN 02/20. 

The requirements to work collaboratively to ensure transparency from PPN 02/20 are repeated in PPN 04/20, with suppliers in receipt of public funds being required to operate on an open book basis to demonstrate that relief payments have been used in the manner intended to enable cash to flow through the supply chain. Suppliers are to be made aware that if they are failing to act transparently and with integrity contracting authorities will take action to recover payments made.

Transition Planning

Where relief has been given to suppliers pursuant to PPN 02/20 contracting authorities are advised to work with each relevant supplier to develop transition plans to exit such relief. Transition plans should be implemented as soon as possible, and in any event before the end of October 2020. Each transition plan should cover the date when relief will end, when outstanding goods/services will be delivered, the process for reconciling payments, an assessment of costs associated with implementing Public Health England guidance and an assessment of whether the contract is still operationally relevant and viable in light of COVID-19.

Whilst the emphasis is on contracting authorities working collaboratively with suppliers, with the Cabinet Office’s  guidance on responsible contractual behavior being summarised, if a contract is no longer relevant and viable then contracting authorities are advised to discuss whether varying the contract would make it viable and, if not, then termination should be sought based on the existing contract remedies. Parties are strongly encouraged to seek to resolve any resultant contractual disputes responsibly before escalating to formal dispute resolution.

Conclusion

Whilst PPN 04/20 acknowledges that in some cases supplier support is still needed and should continue to be given, there is a clear message that local authorities need to look at how to transition away from such arrangements in the near future and ensure that their supply contracts are relevant, sustainable and deliver value for money over the medium to long term. This may necessitate extensive variations to, and in some cases termination of, supply contracts. Whilst parties are encouraged to act “in a spirit of co-operation….to achieve practical, just and equitable contractual outcomes” it remains to be seen if this will be possible when suppliers are faced with their contracts being varied or terminated at a time when work may be scarce and cashflows are already strained. 

Suppliers should therefore remain in regular contact with their public sector clients, and engage in discussions about any measures which may be needed to ensure that their contracts remain viable and relevant in the future.

For further information/assistance please contact the authors or your usual contact at CMS.

References:

Procurement Policy Note - Recovery and Transition from COVID-19

The Outsourcing Playbook

Cabinet Office Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency