The UK Cabinet Office has published a number of Procurement Policy Notes over the last three months, recognising and highlighting the immense disruption caused by the COVID-19 pandemic to public procurement and the wider economy:
- In line with our previous commentary, PPN 01/20 issues guidance confirming that in response to COVID-19, public bodies are permitted under Regulation 32 of the Public Contract Regulations 2015 (PCR) to procure extremely urgent supplies and services by direct award without any competitive procedure;
- PPN 02/20 urges public bodies to take immediate action to support existing “at risk” suppliers. Access a full commentary on the guidance issued in PPN 02/20;
- PPN 03/20 permits the use of procurement cards to accelerate payments to suppliers to support and improve cash flow; and
- PPN 04/20 (issued on 9 June as a follow up to PPN 02/20) encourages public bodies and suppliers to work together to exit any current supplier relief measures and move towards a sustainable operating model to reflect “strategic and reprioritisation needs”. As a result, a commercially viable transition plan should be agreed and implemented by the parties as soon as possible, but in any event before 31 October 2020.
The guidance issued in PPN 04/20 indicates that the Cabinet Office is looking beyond the immediate COVID-19 crisis, to encourage a return to a “new normal”. However, it is unclear how public bodies can best navigate these unfamiliar circumstances and indeed whether the current COVID-19 landscape can still be classed as a situation of extreme urgency for the purposes of the exemption under Regulation 32 PCR
PPN 04/20 confirms that any supplier relief measures need not be immediately withdrawn. Public bodies should therefore continue to provide unprecedented levels of relief to suppliers at risk due to COVID-19 until the end of October 2020, for example by making advance payments (capped at 25% of total contract value) or providing relief against current contractual terms in relation to KPIs and service credits.
Where suppliers are in receipt of public funds as a result of relief measures, PPN 04/20 also reminds public bodies that they should work collaboratively and transparently with suppliers who operate:
- on an “open book” basis, making data from ledgers, cash-flow forecasts, balance sheets, and profit and loss accounts available to the public body;
- with integrity and do not expect to make profits on any relief given; and
- do not claim multiple, duplicate relief under PPN 02/20 and PPN 04/20 and under the Coronavirus Job Retention Scheme.
Suppliers failing to fulfil their duty of transparency and integrity may face action from public bodies seeking to recover relief payments made.
Meanwhile, PPN 04/20 also sets out the Cabinet Office’s expectations for transition plans, highlighting that public bodies should actively seek to support existing suppliers to better cope with the crisis and resume normal service as far as possible. As a result, public bodies and suppliers should take a partnership approach to establish a transition plan that includes:
- a planned exit date for ending current supplier relief arrangements;
- agreement on delivery dates for outstanding goods and services where advanced payments have been made;
- the process for reconciling payments made against costs as per the model interim payment terms in PPN 02/20;
- an assessment of costs in implementing Public Health England guidance in relation to the delivery of the contract in question; and
- an assessment of the underlying commercial requirements in light of COVID-19, to determine whether the original contract is still relevant and viable.
Where the commercial assumptions underpinning the contract have changed significantly, the parties should consider variations. However, if a contract is simply no longer viable, the parties should consider options for termination in line with the contractual remedies and may turn to the Outsourcing Playbook for constructive guidance.
PPN 04/20 clearly establishes that public bodies and suppliers should be focusing on the prospect of returning in so far as possible to business as usual in the unfamiliar COVID-19 world, and strongly recommends that the parties act fairly by following the non-statutory guidance on responsible contractual behaviour.
However, it has quickly become evident that public bodies dealing with the impact of COVID-19 may struggle to work in partnership with their suppliers, whilst also following the letter of the law, the direction outlined in the various PPNs, the Outsourcing Playbook and the various non-statutory responsible contractual behaviour guidance. This is also coupled with ongoing requirements to follow internal governance procedures, ensure transparency and ultimately achieve value for money. It is not yet certain how decisions relating to direct award contracts made during the last 3 months under the Regulation 32 PCR exemption will be reviewed post-COVID-19, but already pertinent questions are being asked informally and via Freedom of Information Act requests of public bodies and both the media and pressure groups are “looking for a story”.
In the “new normal”, contracts will fall into the commercial unviable category and so will either require variation or termination. Notably, PPN 04/20 fails to make any mention of Regulation 72 PCR in relation to its advice on variations, nor does it address the need for re-tenders in cases of termination. There is already a great deal of confusion and tension as public bodies attempt to balance PPN 04/20 and existing procurement law and suppliers failing for entirely unrelated reasons are quoting elements of the recent PPNs to public bodies in pleas for clemency.
Direct awards in the “new normal”
Thrown into the mix, the current COVID-19 landscape looks different from the situation of extreme urgency experienced over the last three months. For instance, at the time of writing the UK’s COVID-19 alert level has been reduced from four to three. Arguably many vital supplies and services needed in the short-term have now been sourced by direct award, although it is clear supplies will be required for many months to come as the pandemic is far from over. It is therefore unclear whether the current COVID-19 landscape can still be classed as a situation of extreme urgency for the purposes of the exemption under Regulation 32 PCR.
As we learn how to deal with the unfamiliar COVID-19 world, there is perhaps now more time to action sustainable plans and advertise and run, where permissible, accelerated competitive tenders. As such our previous thinking on the applicability of the Regulation 32 PCR exemption and supporting guidance issued in PPN 01/20 may no longer continue to be a suitable option for public bodies.
In the long term, if public bodies continue to source supplies and services by direct award using the Regulation 32 PCR exemption rather than following competitive procedures, they run the risk of future criticism in relation to accountability, transparency and value for money.
In accordance with PPN 04/20, public bodies should continue working in a transparent manner with their existing suppliers, implementing relief measures where necessary and agreeing transition plans before the end of October. If varying or terminating contracts, it is recommended that each contract and the risk of future scrutiny is carefully reviewed and the PCR taken into account.
If a public body continues to rely on the Regulation 32 PCR exemption to make direct awards, it is recommended that clear records of all decisions, and the reasoning behind key decisions and actions taken, should be maintained to support future scrutiny. Where possible, public bodies should consider returning to competitive tender processes for medium/long-term supplies and services, where permissible on an accelerated basis, given the change in the COVID-19 landscape.
For advice on how best to navigate procurement during the current COVID-19 pandemic, including advice on issues or concerns with existing contracts, please get in touch with your usual DLA Piper contact or Mark Vipan (Partner).