UK government moves to ensure supply chain reliability

In its 2017 manifesto, the Conservative Party said that in government it would "use our buying power to ensure that big contractors comply with the Prompt Payment Code both on government contracts and in their work with others."

Today's change in procurement policy adds to existing measures designed to ensure the robustness of supply chains and ultimately to achieve the payment of 95% of supply chain invoices within 60 days. Bidders and authorities are put on notice of further tightening of prompt payment requirements in the future in order to ultimately reach the 95% goal.

Through the existing standard form qualification documentation - the standardised pre-qualification questionnaire (PAS-91) or selection questionnaire (SQ) - central government departments, their executive agencies and non departmental public bodies procuring most regulated contracts above £5m are already required to obtain information from bidders about supply chain management.

Where bidders were previously able to confirm the 95% target had been achieved, they passed the SQ requirement. This remains the case. However, prior to 1 April, bidders were still able to pass where they confirmed that 75% of their supply chain payments were made within the first 60 days of invoices being issued and had an ‘action plan’ outlining why they had not reached the 95% standard and how they were going to achieve the 95% target in the future. PPN 07/20, which applies from 1 April, increases the minimum percentage requirement to 85%, subject again to the bidder having an action plan’ outlining why they had not reached the 95% standard and how they were going to achieve the 95% target in the future.

The intention is that the Cabinet Office will ratchet up the limit over time until it reaches an absolute requirement to meet 95%.

Whilst the Cabinet Office will issue updated guidance to alert departments and bidders when it decides to raise the thresholds, bidders will need to take action now to make sure that they will be in a position to meet the higher threshold as and when this is applied.

The accompanying guidance to PPN 07/20 provides the updated questions and evaluation methodology which government buyers will need to include in their selection criteria. There are detailed rules on how and when the supply chain requirements will apply to frameworks and dynamic purchasing systems and also how compliance with the thresholds are to be measured. Bidders and authorities should ensure they are familiar with the guidance.

In relation to frameworks the guidance also confirms that, if a bidder decides to use a supply chain for a call off contract and it had not anticipated doing so when appointed to the framework, it must inform the authority immediately to enable the supply chain questions to be tested at call off competition stage. In addition the guidance confirms that authorities may wish to include a mechanism in their framework agreements to deal with the deterioration in payment performance after a bidder has been appointed to a framework agreement. For example, an authority could suspend the award of any further work until the performance has met a prescribed threshold. Any authority wishing to apply such measures must ensure that its right to do so is clearly set out in the framework agreement.

By Louise McKee, procurement specialist at Pinsent Masons, the law firm behind Out-Law