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Coronavirus – Impact on procurement processes - UK

  • United Kingdom
  • Coronavirus - Country overview
  • Public procurement

04-05-2020

Public sector bodies face many challenges as a result of the outbreak of coronavirus.  Contracting Authorities may need to procure goods, services or works urgently to deal with these challenges.  Challenges caused by the outbreak may be exacerbated by supply chain disruption, as existing contractors struggle to meet their contractual obligations and/or seek to rely on force majeure clauses or other forms of contractual relief.  This has led to a degree of uncertainty as to the steps that public sector bodies can take to deal with these challenges without breaching public procurement rules. 

To assist Contracting Authorities respond effectively to these challenges, the government has released two Procurement Policy Notes (“PPN”) to provide guidance to public sector bodies on (i) conducting urgent procurements; and (ii) providing relief to “at risk” suppliers. 

What we are seeing in practice

Before summarising the PPNs, here are some of the practical impacts on COVID 19 on procurement processes that we are seeing:

-       Construction is particularly impacted: clients are reviewing all their procurements (current and future) and contracts let to assess impact on timetable, supplier appetite and supply chain disruption.  They are navigating the complexity of comparing various remedies that may already be applicable under the various forms of contracts (eg where stop notices may have been issued or early warning notices have been given) with the expected actions under the PPN and considering these in the context of their duties under procurement and public law.

-       Medical research  -  a range of urgent needs are being addressed through direct award or consideration of shortened procurement processes

-       Complex procurements including Competitive Dialogue – adjustments to processes for virtual meetings and longer time set aside to allow set up and issues with technology, virtual moderation etc

PPN 01/20 – Procuring goods, services and works with extreme urgency

PPN 01/20 is applicable to all Contracting Authorities, including central government departments, executive agencies, non-departmental public bodies, local authorities, NHS bodies and the wider public sector.   

The PPN recognises that there will be a range of commercial actions that need to be considered by Contracting Authorities in responding to the impact of COVID-19, including the need to procure goods, services and works with extreme urgency. It confirms that Regulation 32(2)(c) of the Public Contracts Regulations 2015 (“PCR”) is designed to deal with this sort of situation.  The PPN provides guidance to authorities considering relying on Regulation 32(2)(c) to justify decisions to enter into urgent contracts and also highlights a range of alternative options available to Contracting Authorities responding to the COVID-19 outbreak. Remember this is not new legislation designed as a response to COVID-19, but the provisions are proving to be very useful to Contracting Authorities.

In summary, the various actions which Contracting Authorities may wish to consider in relation to urgent procurements under the PCR include:

  1. direct award due to extreme urgency under r. 32(2)(c) of the PCR;
  2. direct award due to absence of competition or protection of exclusive rights;
  3. call off from an existing framework agreement or dynamic purchasing system;
  4. call for competition using a standard procured with accelerated timescales; and
  5. extending or modifying a contract during its term.

Contracting Authorities procuring under the Defence and Security Public Contracts Regulations 2011, the Utilities Contracts Regulations 2016 and Concession Contracts Regulation 2016 will need to check the similar provisions under those regulations. We can assist with this where helpful. PPN 01/20 provides further information as to the 5 permitted actions above.  A brief overview of some of the considerations to be taken into account when deciding which option to utilise is set out below.  A common and very important point made in relation to each option is that Contracting Authorities should keep a written record of its decision to use a particular process and the reasons behind that decision.

1.Direct award due to extreme urgency

Under Regulation 32(2)(c) of the PCR, Contracting Authorities are permitted to enter into the contracts without competing or advertising the requirement if the Contracting Authority can satisfy all of the following:

-       Genuine reason for extreme urgency (e.g. a need to respond to the COVID-19 consequences immediately due to public health risks, loss of existing provision at short notice, and/or this is a reaction to a current genuine emergency rather than planning ahead for one);

-       the events that led to the extreme urgency were unforeseeable and unpredicted;

-       that it is impossible to comply with the usual timescales in the PCR; and

-       the situation is not attributable to the Contracting Authority (e.g. the Contracting Authority has not done anything to cause or contribute to the need for extreme urgency).

The European Commission has also issued guidance which confirms:

“A ‘negotiated procedure without publication’ allows contracting authorities to negotiate directly with potential contractors; a direct award to a preselected economic operator remains the exception, applicable if only one undertaking is able to deliver within the technical and time constraints imposed by the extreme urgency.”

This emphasises the need to be able to justify, if relying on these grounds, not only (1) the decision not to use one of the other PCR procedures to procure the award of the contract (using provisions for acceleration where appropriate) but also (2) if it is a direct award (ie without any competition at all), it would not have been possible to undertake any competition for that award.

Contracting Authorities will need to prove that this option was justified and record in writing why it considers these tests to be satisfied.  A separate assessment should be undertaken before conducting any subsequent or additional procurement. As time goes on, what might amount to unforeseeable now may not do so in future.

2. Direct award due to absence of competition or protection of exclusive rights

Regulation 32(2)(b) of the PCR provides that a Contracting Authority may make a direct award where the works, goods or services needed to respond to COVID-19 can only be supplied by a particular supplier because:

-       Competition is absent for technical reasons (e.g. there is only one supplier with the expertise who can complete in the time sale required); or

-       the protection of exclusive rights including IP rights (e.g.:

  • the supplier owns those rights (including IP rights);
  • it has the exclusive right to exploit the IP rights)

-       But, this is only when:

  • there is no reasonable alternative or substitute available; and
  • the Contracting Authority is not doing something that artificially narrows down the scope of the procurement (e.g. by over-specifying the requirement).

Again, Contracting Authorities should keep a written record of the facts which justify its reliance upon this regulation.

3. Call off from an existing framework agreement or dynamic purchasing system

Central purchasing bodies, such as the Crown Commercial Service, offer public bodies access to a range of framework agreements and dynamic purchasing systems (“DPS”).

A Contracting Authority may be able to use one of these agreements as long as:

-       the Contracting Authority is identified as a permitted customer in the original OJEU notice or the invitation to confirm interest;

-       the goods, services or works to be procured fall within the scope of those covered by the contract, framework agreement or DPS;

-       the contract, framework agreement or DPS was procured in accordance with the PCR;

-       the terms of the contract, framework agreement or DPS are suitable to meet the requirements without the need for significant changes.

The relevant procedure for awarding a call off contract must be followed. Contracting Authorities must note that an award under a DPS has to be by mini-competition and the minimum time for receipt of tenders is 10 days.

4. Call for competition using a standard procedure with accelerated timescales

Contracting Authorities can reduce the minimum timescales for the open procedure, the restricted procedure and the competitive procedure with negotiation, if a state of urgency renders the standard timescales impracticable. 

The minimum time limits vary depending upon the procedure selected (r. 27(5), 28(10) and 29(10) of PCR).  The timescale for receipt of tenders under the open procedure can be reduced to 15 days plus a 10 day minimum standstill period.  There is no express requirement for the situation to be unforeseeable or not attributable to the Contracting Authority, but a clear justification will need to be provided in the OJEU notice.

Contracting Authorities may also wish to consider the use of the Light Touch Regime for certain health and social care related contracts.

5. Extending or modifying a contract during its term

Contracting Authorities are able to amend existing contracts provided the conditions set out in Regulation 72 of the PCR are met. 

The PPN expressly refers to regulation 72(1)(c) as an option for Contracting Authorities considering amending existing contracts to help them respond to the COVID-19 outbreak.  This regulation permits contracts to be modified where the following conditions are fulfilled:  (i) the need for modification has been brought about by circumstances which a diligent Contracting Authority could not have foreseen (the impact of the COVID-19 outbreak on the particular authority is unlikely to be deemed as foreseeable); (ii) the modification does not alter the overall nature of the contract; and (iii) any increase in price does not exceed 50% of the value of the original contract or framework agreement.

Contracting Authorities will need to keep record explaining how the relevant conditions of regulation 72(1) have been satisfied, referring to specific facts rather than just stating that the amendment is needed due to COVID-19.  Contracting Authorities should also take steps to limit any extension or other modification to that which is absolutely necessary to address the unforeseeable circumstances, resisting the temptation to use the outbreak as an opportunity to make more general amendments to existing contracts.

It is important for public bodies to be aware that they will also need to demonstrate compliance with their public law duties including the prudential management of public resources.  Amendments to contracts and direct awards need to be considered in that context, and therefore it is recommended that a Contracting Authority specifically addresses its public law duties when recording the reasoning for its decision. 

PPN 02/20 - Supplier relief due to COVID-19 – Applicable until 30 June 2020

PPN 02/20 comprises a suite of guidance relating to addressing operational contracts which includes:

  • Supplier Relief due to COVID -19
  • Guidance notes on model interim payments
  • Contingent workers Impacted by COVID-19
  • FAQs
  • Additional guidance, FAQs and model terms for construction contracts

PPN 02/20 Supplier Relief due to COVID-19 is applicable to all Contracting Authorities, including central government departments, executive agencies, non-departmental public bodies, local authorities, NHS bodies and the wider public sector (excluding Devolved Administrations). Please note, the PPN 02/20 is updated from time to time in accordance with any government announcements and all Contracting Authorities to whom this PPN applies, should ensure that they refer to the .gov website for all updates and additional responses to FAQs.

PPN 02/20 provides guidance for Contract Authorities in relation to payment of their suppliers to ensure service continuity during and after the COVID-19 outbreak and to provide relief to “at risk” contractors.  In essence, the government is encouraging Contracting Authorities to act now to ensure at risk suppliers are in a position to resume normal service once the outbreak is over.

The PPN notes various actions that Contracting Authorities should complete, including conducting an urgent review of their current contract portfolio and inform suppliers who they believe are at risk regarding continuation of payments until at least the end of June (even if service delivery is disrupted or temporarily suspended).  This is to support the suppliers’ cash flow and survival over the coming months.

Payment to maintain business continuity

Contracting Authorities may continue to pay at risk suppliers at usual contractual rates, or consider other options such as payment against revised/extended milestones or timescales, interim payments, forward ordering, payment on order or payment in advance/prepayment.

The need to balance the approach in terms of compliance with procurement and public law duties is recognised (with the guidance recommending that each authority obtain its own legal advice).  In that context the PPN specifically highlights the risks associated with advance or pre-payment which will remain the responsibility of the public authority to manage (and will need to be carefully considered and documented).

Where contracts operate ‘payment by result’ or are ‘output / outcome’ based, payments to suppliers should be made on the basis of a calculation of the average of the last three months’ invoices. Payments made to suppliers during this emergency period should be adjusted to ensure profit margin is not payable on any undelivered aspects of the contract. Suppliers should identify in their invoices which elements of the invoiced amount relates to services they are continuing to supply (i.e. business as usual) and which amounts are attributable to the impact of COVID-19.

Payments should not be paid where the contract does not guarantee any minimum volumes of work/minimum values of work.

Transparency

Contracting Authorities and suppliers should work collaboratively to ensure there is transparency during this period. Suppliers in receipt of public funds on this basis during this period must agree to operate on an ‘open book’ basis to ensure that monies are used as expected (including prompt payments to the supply chain).

Supplier capacity

Many suppliers will not be able to fulfil their contracts due to action taken elsewhere in the public sector - for example, transport services for school children due to the closure of schools. Wherever possible, Contracting Authorities should seek to re-deploy the capacity of those suppliers to other areas of need; this could be implemented via a time-bound variation to the original contract under regulation 72 of the PCR.

Contractual relief

Contracting Authorities should work with all suppliers to ensure business continuity is maintained wherever possible and that business continuity plans are robust and are enacted. If a supplier seeks to invoke a clause relating to a form of contractual relief that would allow them to suspend performance, such as force majeure, Contracting Authorities should first work with the supplier to see if relief could be provided in some other way, eg by amending or varying contracts to change contract requirements, delivery locations, frequency and timing of delivery, lower targets, provide relief from performance indicators and/or waiving or delaying the enforcement of certain rights or remedies.  If such changes are agreed, they should be limited to the specific circumstances of the situation, and considered on a case by case basis.

Each claim for relief should be considered on a case by case basis and Contracting Authorities should take a pragmatic approach. All discussions and any temporary changes should be recorded and the contract should return to its original terms as soon as the impact of the COVID-19 outbreak is over.

Accelerating payment of invoices

Contracting Authorities should pay suppliers as quickly as possible to maintain cash flow and protect jobs. The public sector must pay suppliers within 30 days under the PCR but Contracting Authorities now need to accelerate payments where required. This part of the guidance is statutory guidance to Contracting Authorities in England and those bodies in Wales and NI not performing mainly devolved functions) as it relates to the methods for ensuring prompt payment and validation of invoices in accordance with regulation 113 PCR.  It is therefore recommended that Contracting Authorities demonstrate (by recording the reasoning for their decisions) that they have had due regard to the guidance.

Specific guidance to construction

The Additional guidance provides specific guidance for construction contracts (applying the principles of the Supplier Relief due to COVID-19 paper) and also includes a model form of deed of variation (designed for NEC3 and JCT standard forms) for addressing some of the relief mechanisms that the guidance note suggest Contracting Authorities should consider.  It nevertheless recognises that:

  • not all relief options will be necessary or appropriate for each supplier under each contract;
  • the authority will need to consider the relevant circumstances of the supplier and the contract;
  • proposals will therefore need to be considered on a case by case basis;
  • open book and audit provision may be required to ensure flow down to supply chain and any savings to the contractor are accounted for (to ensure no unjustified payments);
  • other contractual forms of relief/compensation that may be available under the contract should be waived;
  • the authority should still seek to obtain value for money (including taking into account ability to secure completion of the works in due course) and in some cases reconciliation provisions may be required;

In the context of the above, a standardised generic approach to modifications will not satisfy the expectations of the guidance. Nor can it satisfy the requirements of an analysis to test whether any proposed modifications to a specific contract would be permitted under the safe harbours contained in regulation 72 PCR.  

It may nevertheless be useful to assist in demonstrating a sound and prudent basis for decision making. Clearly individual assessments of a large number of contracts may be overwhelming and result in damaging delays.  Having a standardised approach as a baseline upon which the analysis of the peculiar attributes of a specific contract can be developed may assist in terms of speed of decisions and demonstrating a robust and well-developed justification of those decisions. 

Contracting authorities will also need to be aware that differential treatment of contractors (particularly where they may be working on similar contract/projects for a Contracting Authority) may generate concerns for a contractor who perhaps perceives it is receiving less assistance than others.  This might result in complaints/challenges being made, which even if capable of being robustly defended, may still result in delays and uncertainty.   

If you have any questions in relation to the application of the PPNs to your organisation, please contact us for support.