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Government issues public sector supplier payment notice

26 March 2020: the Cabinet Office has issued a Procurement Policy Note (PPN) that sets out information and guidance for public bodies on payment of their suppliers to ensure service continuity during and after the current coronavirus outbreak.

The intention of the PPN is to prevent critical suppliers from failing if they are unable to deliver services in the current circumstances. Without payment, suppliers may no longer be viable and be unable to pay employees or subcontractors. This could jeopardise essential public services in the medium to longer term, as well as having a knock-on effect on the supply chain.
 
Contracting authorities are asked to act now to ensure suppliers at risk are in a position to resume normal contract delivery once the outbreak is over.
 
Alison Ring, Director, Public Sector for ICAEW commented: “This will be good news for some (but not all) suppliers to public bodies, relieving some of the pressure on their finances so that they can remain viable in extremely difficult circumstances. 
 
“This arrangement will involve an element of trust on the part of public bodies if this is to work, with subsequent scrutiny to ensure that public money is being used appropriately, for example to enable suppliers to pay their employees.
 
“Public bodies will need to ensure that the open book arrangements will allow both internal and external auditors full inspection access to the accounting records of the suppliers. The terms of the open book arrangements will have to be carefully crafted.”

Your questions answered

Which public bodies are covered by this PPN?
 
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).
 
What services are covered by this PPN?
 
This PPN covers goods, services and works contracts being delivered in the UK.
 
I am a supplier to a public body. Will I be paid if I can’t deliver services or goods in line with the contracts?
 
The decision of whether you are a critical supplier at risk of failing will be one for the public body concerned to make and you should discuss your position with them.
 
The PPN advises that payments to suppliers at risk should continue to be made until at least 30 June. This is to maintain cash flow and protect jobs. This might be a payment in advance of the services being received or where contractual targets have not been met as a consequence of COVID-19.
 
How much money can be paid out?
 
Managing Public Money normally prohibits payment in advance of their being needed in the absence of explicit Treasury consent. The PPN provides Treasury consent for payments in advance of need to be made where a public body’s 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. In other words, public bodies can pay certain suppliers in order to keep them from failing, even if the services are delayed and end up costing more. 
 
This consent is capped at 25% of the value of the contract and applies until the end of June 2020, although public bodies can apply to Treasury for approval of amounts in excess of 25%.
 
How should suppliers show such requests for payments on their supplier invoices?
 
Suppliers should identify in their invoices which elements of the invoiced amount relates to goods or services they are continuing to supply (i.e. business as usual) and which amounts are attributable to the impact of COVID-19.
 
How will public bodies ensure that the money is being used properly, e.g. to pay employees?
 
An important principle in the PPN is that suppliers must not make a profit from the non-delivery of goods or services. As a consequence, suppliers in receipt of public funds on this basis during this period must agree to operate on an ‘open book’ basis. This means they must make available to the contracting authority any data, including from ledgers, cash-flow forecasts, balance sheets, and profit and loss accounts, as required and requested to demonstrate the payments made have been used in the manner intended.
 
For example, this might include evidence that staff have been paid the right amount and on time, and that cash continues to flow through the supply chain as quickly as possible.