Updated: Supporting ‘at-risk’ suppliers to the NHS through COVID-19: Cabinet Office guidance on supplier relief

This article was updated on 22 April 2020.

Cabinet Office guidance, PPN 02/20 provides details of the steps which contracting authorities (including NHS trusts, foundation trusts and clinical commissioning groups) should take to support suppliers to ensure that they remain in a position to operate during and after the COVID-19 outbreak. It includes guidance on putting arrangements in place to ensure that suppliers are paid, and therefore continue to operate, even where goods, services and works contracts are not being provided as a result of COVID-19 related disruption. 

To support this guidance, the Cabinet Office has also published Model Interim Payment Terms for contracting authorities to use to record their arrangements. The guidance is in place with immediate effect and is intended to stay in place at least until the end of June 2020.

Most recently, on 20 April 2020, NHS England published its own guidance on PPN 02/20 – Guidance to NHS Organisations on PPN note (‘the NHS guidance note’). We have updated this article to take account of this guidance, which, while not replacing PPN02/20, does provide further detail on the way in which NHS organisations should be interpreting that guidance and steps to take in response to suppliers looking for relief under it. 

Action required

In summary, contracting authorities should:

• urgently review their contracts to ascertain which of their suppliers may be ‘at risk’ as a result of the COVID-19 outbreak
• engage with those suppliers to discuss the most appropriate course of action, informing them that they will be paid as normal until at least the end of June 2020
• ensure that supplier invoices are paid immediately on receipt
• consider making advance payments to suppliers, if necessary

Approach

Overall, a collaborative, pragmatic stance is encouraged.

• Contracting authorities should work with their suppliers to provide relief against current contractual terms rather than look to other forms of relief, such as force majeure clauses
• If payment by results is included in the contract, payments should be calculated based on previous invoices, for example averaging these out over the last three months
• Continuing payment is not the only way to support an at-risk supplier. Other options might include revising milestones and timescales for contract performance, interim payments or prepayment
• Contracting authorities should also consider whether suppliers can be appropriately redeployed to other areas of need
• Contracting authorities should be careful to consider the extent of payments where suppliers were already underperforming or subject to an improvement plan before the COVID-19 disruption
• Changes should be clearly evidenced in a contract variation or change note with clear reference to these changes being related only to the COVID-19 situation, a review provision, and clarity that it is for the contracting authority to decide when the contract will return to its normal provisions

The NHS guidance does not replace PPN 02/20 or its approach overall, however it does include reminders that its terms do not remove NHS organisations’ ‘normal fiduciary duties’ or suppliers’ obligations under the terms of their contracts, underlining that NHS organisations should seek commercial or legal advice to help with requests to amend those terms. 

Paying suppliers quickly

Contracting authorities should take steps to accelerate payment practices to maintain cash flow to suppliers and protect jobs, such as:

• Targeting high value invoices
• Considering paying disputed invoices immediately, resolving issues with them at a later date
• Encouraging suppliers to invoice more regularly
• Delegating authority to new members of staff to receive and authorise invoices, to avoid issues with staff absence
• Verifying invoices quickly, including suspending practices such as sending them back for minor administrative errors

The NHS guidance note emphasises that the NHS is an important customer to businesses and adds the following specific guidance:

• pay all invoices within seven days of receipt of goods/services
• process part payments on undisputed elements
• resolve invoice queries within seven days
• pay using BACS/RFT if possible
• process payments early in the banking day
• use standard speed payments, rather than urgent payment alternatives

Any NHS organisations experiencing issues accessing cash should escalate their concerns to regional teams.

Payment in advance of need – new provision

In normal circumstances, contracting authorities would be prohibited from paying suppliers in advance, however given the current circumstances, Treasury consent has been granted:

• for payments to be made where the accounting officer is satisfied that a value-for-money case for payment is made to secure continuity in supply of critical services in the medium and long term
• payment is for no more than 25% of the contract value

Treasury consent will be reviewed in mid-June 2020. If payment exceeds the 25% cap, the usual Treasury consents should be sought.

The NHS guidance provides further information on prepayment and, of particular note, states categorically that PPN 02/20 does not create any automatic entitlement to prepayment and that prepayments will only be appropriate in extremely limited circumstances. The NHS guidance also provides that:

• before exercising flexibility, accounting officers must put the onus on suppliers to evidence that they have explored other options to mitigate costs or improve cashflow
• central advice will be provided on clarification which should be sought from suppliers before agreeing prepayments
• advance payments must be reconciled back to goods and services received
• prepayments should not be authorised against contracts with no contractual volume commitment
• prepayments (and other payments) must be carefully considered where suppliers are underperforming/subject to an existing improvement plan

Payments where goods/services are not maintained at pre COVID-19 levels

The NHS guidance considers payment by individual NHS organisations where goods or services are not maintained in more detail, and in the context of the national NHS picture and strategic importance of individual suppliers in that picture. It emphasises that local NHS organisations are unlikely to ‘have sufficient visibility of the national market to ascertain the strategic importance of a supplier’. NHS organisations are therefore asked to contact NHS England (England.nhsfinance-covidresponse@nhs.net) before making agreements with suppliers.

• NHS England/Improvement will ensure payments are agreed on an open book basis to ensure there is no profiteering or cross-subsidation and that the supplier has made sufficient attempts to mitigate their position in other ways
• Advance payments must be at cost, and reconciled against goods/service actually received
• Where payments are advised by NHS England / Improvement they will be nationally funded
• Some suppliers may not be strategically important locally, but may be when considered on a national basis. NHS England / Improvement will confirm national arrangements for such suppliers

Transparency

Suppliers must operate on an ‘open book’ basis to evidence receipt and use of public funds paid to them under these provisions. This includes:

• making data available to the contracting authority to demonstrate that payments have been used as intended and providing evidence of cash flow
• keeping records of decisions and agreements made, to enable later reconciliation 

Suppliers are expected to operate with integrity, and should not expect to make profits on undelivered elements of the contract.

Other contractual relief

In accordance with the overall approach of considering the situation pragmatically, the guidance is clear that every contract with an at-risk supplier should be considered on a case by case basis. It recommends that if the supplier does seek to invoke other forms of relief, such as force majeure, other options should be considered first. Legal advice should be taken, as appropriate.

The NHS guidance goes further to emphasise that PPN 02/20 is only one avenue of support for suppliers, and that suppliers requesting prepayment or other contractual variations should be directed to other sources of government support available.

If we can be of any assistance in guiding you through this difficult and unprecedented period of uncertainty please contact us to discuss further.

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