UK & Europe
Projects & Construction COVID-19 update
PPN 04/20 updates and builds on the provisions contained in PPN 02/20, and takes effect from 1 July to 31 October 2020. As discussed in our previous article (available here), PPN 02/20 encouraged contracting authorities to provide unprecedented levels of relief and assistance to at risk suppliers and to maximise all commercial flexibility in order to maintain cash flow and protect jobs for affected contracts, bringing welcome relief for the private sector. Three months later, PPN 04/20 takes a more reflective approach to supply chain relief, and looks for parties to engage "openly and pragmatically" to ensure that existing contracts are still relevant, sustainable, and commercially viable for the medium to long term. The need for transition plans to move from contractual relief to sustainable solutions as soon as reasonably possible (and before the end of October 2020) is also highlighted.
A new outlook?
PPN 04/20 is clear that suppliers to the public sector are not automatically entitled to payment or relief under PPN 02/20 and 04/20, and that relief payments are not intended to be an economic response to the pandemic nor supplement or duplicate the wider business support measures made available to businesses. The status of the PPNs is limited to governmental advice and, as noted before, the contracting authority has the final decision on whether it deems a supplier at risk, and the form of any relief. Contracting authorities should review their contract portfolio to determine whether it is still appropriate to provide the contractual relief measures set out in PPN 02/20, and are advised to keep comprehensive records of all decisions, the reasoning behind them, and actions taken, to support transparency and future scrutiny of value for money.
PPN 04/20 retains and reiterates the earlier guidance issued in PPN 02/20 relating to payment of suppliers and revised payment methods or mechanisms, and adds further emphasis on the speed of payment to suppliers where appropriate. This may include targeting high value invoices for payment, resolving disputed invoices as a matter of urgency (including paying first and disputing later), and encouraging suppliers to invoice on a more regular basis to assist with cash flow. Further practical advice is also given on various measures that contracting authorities can adopt to accelerate the invoicing process.
Suppliers must not benefit from duplicative relief, so if suppliers are in receipt of payments under PPN 02/20 they should have ensured that all parts of the workforce identified to deliver the contract were not furloughed during this period under CJRS. It is however permissible for a supplier to receive partial payments for non-labour related costs and claim labours costs under the CJRS.
Looking forward, PPN 04/20 focuses on a partnership approach to establishing revised and sustainable supply contracts. As part of this process, contracting authorities are encouraged to engage with suppliers to establish a transition plan before the end of October 2020 which should set out:
PPN 04/20 supports the maintenance and extension of the relief measures suggested in PPN 02/20 whilst encouraging contracting authorities and suppliers to adopt a phased return to a 'new normal'. Acknowledging that contracts may no longer be viable and that contracting authorities should consider proposals for termination is a change from the tone of PPN 02/20, but reflects other areas of government where levels of financial support to the private sector are being reduced.
Written by Senior Associate Laura Coates and Trainee Solicitor Emma Turton