Procurement Policy Note 07/20: Prompt payment under major contracts
On 29 October 2020, the Cabinet Office published Procurement Policy Note 07/20 (PPN 07/20) and supporting Guidance. Both documents aim to reflect the Government's commitment to ensure that large contractors comply with the Prompt Payment Code. PPN 07/20 will replace PPN 04/19 in due course. This PPN addresses many of the poor payment practices that came to light following the collapse of Carillion.
The PPN applies to all in-scope contracts advertised on or after 1 April 2021 by central government departments, and their executive agencies and non-departmental public bodies. Notwithstanding the scope of PPN 07/20, this sets out best practice guidance which may be useful to all contracting authorities. Given that this PPN does not affect contracts advertised until April next year – we are going to have to remind ourselves that this PPN is here.
All public works, public services or public supplies contracts (including call-off contracts under a framework agreement) with an anticipated annual value exceeding £5 million per annum (excluding VAT) will be within scope of PPN 07/20.
The Guidance sets out updated selection questions that must be used at the selection stage for in-scope contracts (at section 6.2 of the Standard Selection Questionnaire, or as project specific questions within PAS91). The payment performance questions remain largely unchanged from PPN 04/19, with contracting authorities being required to look at whether the bidder has: (1) systems in place to pay suppliers promptly; (2) systems in place to deal with disputed invoices; (3) in respect of public contracts, whether its terms and conditions include a 30 day payment period in line with Regulation 113 of the Public Contracts Regulations 2015; and (4) has actually paid its suppliers "promptly".
To achieve a "pass" for the requirement of overall payment "promptness" ((4) above), bidders will need to show that they have paid 95% of invoices (including and/or excluding inter-company payments) within 60 days in one of the two previous six month reporting periods.
If a bidder cannot provide this confirmation but can show that it has paid 85% or more of its invoices within 60 days in a relevant period plus provide supporting evidence highlighting what improvement measures it has introduced to meet the 95% or more target, then it may also achieve a "pass". A bidder will fail the test of prompt payment if it cannot show that it pays 85% or more of its invoices within 60 days in a relevant period. Previously, the relevant lower threshold was 75% or more of all supply chain invoices within 60 days in a relevant period and therefore PPN 07/20 requirements are more stringent.
There are specific/additional rules for framework agreements. In the event that a bidder initially confirms that they do not intend to use a supply chain but its circumstances change during the procurement (or lifetime of the framework) and it subsequently proposes to do so, PPN 07/20 confirms that the bidder must then complete the remainder of the selection questions and the contracting authority should carry out an assessment in the usual way. The PPN also recommends that frameworks include a mechanism to deal with a subsequent decline in payment performance of a bidder following the appointment to a framework. Monitoring both of these issues could be administratively challenging. Clients/central purchasing bodies will need to keep these issues on their radar during the lifetime of a framework.
PPN 07/20 will apply from 1 April 2021, and until then contracting authorities should continue to comply with PPN 04/19.