Local authorities told to maintain operator solvency

Latest advice says contract payments must be made, with the aim of maintaining supply after the crisis and that contract conditions can only be changed when a supplier invokes a ‘force majeure’ claim that the contract cannot be executed

The government has issued a policy guide to local authorities advising that they should support suppliers such as coach and bus operators by continuing to make payments, though on the basis of ‘open book’ transparency.

The latest Public Procurement Note says that local government and other public bodies such as the NHS should operate on the basis of protecting suppliers from insolvency, but while continuing payment of existing contracts, can insist on operators supplying cost details to provide complete transparency. The full text of the PPN is HERE 

The PPN advises that operators must continue to pay employees for contracts being paid by local government and make appropriate payments to their suppliers: ‘It is vital that contracting authorities pay all suppliers as quickly as possible to maintain cash flow and protect jobs. Contracting authorities should also take action to continue to pay suppliers at risk due to COVID-19 on a continuity and retention basis. Contracting authorities can consider making advance payments to suppliers if necessary,’ the PPN says.

Additionally, it says that public bodies can make advance payments to suppliers to ensure continuity after restrictions are lifted: ‘Treasury consent is granted for payments in advance of need where the Accounting Officer is satisfied that a value for money case is made by virtue of securing continuity of supply of critical services in the medium and long term. This consent is capped at 25% of the value of the contract and applies until the end of June 2020.’

The advice goes on to say: ‘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. Where possible, any 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, however this should not delay payments being made.’

The PPN allows public bodies to alter the structure of contracts, but only where the operator is claiming the contract conditions make the contract inoperable: ‘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 amend or vary contracts instead. These variations could include changes to contract requirements, delivery locations, frequency and timing of delivery, targets and performance indicators etc. Changes to the original terms should be limited to the specific circumstances of the situation, and considered on a case by case basis.’

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