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How is COVID-19 impacting public contracts?

Posted on 03 April 2020

There are regular news reports of the NHS and other State funded bodies in the UK requiring urgent supplies of equipment such as ventilators and personal protective equipment. This articles explores how contracting authorities (who can include Government departments, local authorities and the NHS) normally award contracts, and which types of contracts can be awarded under faster-than-normal timescales due to COVID-19. It also looks at to what extent companies can collaborate to deliver these contracts and what relief contracting authorities can give to their suppliers.

How do contracting authorities tender contracts?

The Public Contract Regulations 2015 (the "Regulations") govern how contracting authorities procure public services, supply and works contracts. These Regulations are designed to ensure there is an open market for public contracts.

Contracting authorities can choose from a range of different procedures on how to tender their contracts, for instance using the open procedure or competitive dialogue procedure. There are also situations permitted by the Regulations when contracts can be directly awarded, i.e. without the requirement to engage in a competitive tender process, to a supplier. These include where the Regulations exempt the type of contract, for instance if it is a land agreement.

That being said, the Regulations are designed to be wide reaching so that an open market operates. However, with a shortage of certain supplies in the wake of COVID-19, contracting authorities are having to consider how they award contracts in some situations.

What advice is the Cabinet Office providing?

The Cabinet Office has issued two Procurement Policy Notes ("PPNs") in order to provide guidance to contracting authorities and their suppliers on how to mitigate the impact of the current pandemic. PPN 01/20 provides contracting authorities with directions on under what circumstances a contract can be awarded directly to a supplier, i.e. without the requirement to engage into a competitive tender process. PPN 02/20 provides guidance what extent contracting authorities can provide their suppliers with relief due to COVID-19.

How is COVID-19 resulting in contracting authorities varying how the run public tenders?

The Regulations permit the direct award of contracts where there is extreme urgency. PPN 01/20, states that hen considering if a contract should be directly awarded under these circumstances, the contracting authority must be satisfied that:

  1. There are genuine reasons for extreme urgency.
  2. The events that have resulted in the extreme urgency were unforeseeable.
  3. The time limits for the different procedures under the Regulations cannot be met.
  4. The situation was cannot be attributed to the contracting authority.

The Cabinet Office, through PPN 01/20, has made it clear that when awarding a contract it is important that the contracting authority limits the scope of such contracts to only what is absolutely necessary both in terms of what is being procured and the length of contract. Even when directly awarding contract, contracting authorities must seek to achieve value for money and use good commercial judgment.

Are all public contracts impacted by the extreme urgency exemption?

The extreme urgency exemption being used by contracting authorities is being implemented on specific contracts where the products being procured are urgently required in order to save lives in this pandemic. The awarding of ventilator contracts to companies such as Dyson, Airbus, BAE Systems and Rolls-Royce clearly meet this requirement of the products being requirement as a matter of extreme urgency as such equipment is in short supply in the UK. However, contracts for regeneration projects, catering services for school meals, maintenance work, transport services or the like are unlikely to meet such a requirement and should continue to be awarded under the procedures set out in the Regulations.

Can businesses collaborate to deliver public contracts?

There has been a lot of press coverage regarding the Government requesting and businesses offering to adapt their normal business practices in order to provide services and equipment that is required in order to combat the pandemic. Examples of this are racing teams and engineering firms offering to provide critical care equipment, and alcohol producers and perfume companies starting to produce hand sanitisers.

Manufacturers who are offering to venture into new product lines often do not have the full knowledge of how to manufacture these products within their own businesses. However, because of the shortage of certain products, such as ventilators, it may be necessary for these manufacturers to collaborate with other businesses in order to be able to provide this equipment quickly. Such collaboration is likely to involve information sharing which could result in scrutiny from the compliance teams within these businesses and regulators.

The Competition and Markets Authority, who regulate businesses to ensure their compliance with competition laws, has informed businesses that they will not face adverse consequences for co-ordinating genuine attempts to mitigate the impact of the pandemic on consumers. However, it is for businesses to evaluate whether their attempts meet the necessary exemption criteria. This can be a difficult area to navigate and we therefore recommend that stakeholders who are intending to implement such co-ordination seek guidance from their in-house counsel or external lawyers to conduct the necessary risk assessment. It will be important that when reviewing the risks of such co-ordination to consider the following:

  1. Is it in the public interest?
  2. Does it result in benefits being provided to consumers?
  3. Does it deal with the actual issues that have arisen from the pandemic?
  4. Are the measures to last no longer than necessary?
  5. Is it possible to ensure that it will not result in wider co-ordination between the businesses that could be considered to be anti-competitive conduct?

What relief can contracting authorities provide to their suppliers?

The Cabinet Office, through PPN 02/20, has advised contracting authorities to urgently review their contracts. The aim of this review is to ensure business service continuity both during and after the pandemic. In particular the advice from the Cabinet Office is that contracting authorities should:

  1. Urgently review their contract portfolio and then to inform those suppliers who are believed to be at risk that they will continue to be paid as normal until at least June. This is even in circumstances when the service delivery is disrupted or temporality suspended.
  2. Put in place the most appropriate payment measures to support supplier cash flow and ensure that invoices are paid immediately on receipt.
  3. Where contract payments are based on results, then payment should be based on previous invoices.

In order to qualify for these measures, contracting authorities should ask supplies to act on an open book basis and make cost data available to the contracting authority during this period.

Practical Guidance for COVID-19
Read the latest COVID-19 related updates on our hub.

 

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