Guidance Notes for Construction Contracts – Procurement Policy Note 02/20

On 6 April 2020, the Cabinet Office published helpful guidance notes on the implementation of Procurement Policy Note 02/20 by contracting authorities in England in relation to existing works contracts.

Options for Relief

The guidance sets out a non-exhaustive list of different forms of relief that a contracting authority can agree with a supplier whose performance has been impacted by the outbreak of COVID-19:

  • Accelerated payment of invoices
  • Certification of interim valuations where work has not been undertaken, based on previous valuations
  • Amendment to existing payment mechanism to make more regular payments or re-order existing payment schedule to bring activities/milestones forward
  • Advance payments

General principles

In its discussions with the supplier, the authority should consider the following:

  • The supplier’s request for relief
  • The various forms of relief available under PPN02/2
  • The specific circumstances of the supplier
  • The specific contract
  • The most appropriate relief for the specific supplier to enable the works to continue during (if appropriate) and after the COVID-19 outbreak

The guidance makes clear that provisions relating to ‘open book transparency’ will need to accompany the relief granted. The supplier will need to provide supporting documentation to allow the authority to check compliance with commercial principles.

Any such relief should include safeguards to ensure that the beneficiary supplier continues to uphold its payment and financial obligations to third parties, e.g. employees, including the ability for the authority to recover relief payments improperly applied.

If the contract can be delivered by the supplier as normal, payment should be by the normal agreed payment regime.

Paying suppliers in event of suspension

The contracting authority should pay suppliers at risk on a continuity and retention basis until at least the end of June 2020.

The contracting authority should identify ‘suppliers at risk’. The government anticipates that most suppliers will fall into this category. The contracting authority does not need to undertake a detailed assessment of the supplier’s financial viability, but suppliers need to be impacted by the COVID-19 outbreak to be able to benefit.

Should construction contracts be amended to reflect the relief?

The guidance makes clear that contracts should be varied to take account of reliefs granted to suppliers, and appends model deeds of variation which can be used for standard JCT and NEC contracts.

The deed should reflect the agreement between the parties on the relief granted that amends the positions under the existing contract, e.g. amendments to payment schedules and staged payments, including advanced payments for work not delivered. It should also include conditions and warranties from the contractor for receiving such relief.

The guidance highlights that legal advice should be taken when preparing a contract variation. It also states that authorities should review any bespoke amendments made previously to the contract and how these affect the terms of the deed and/or if these require any additional amendments to the deed.

Prevention of double relief?

Suppliers cannot be paid for delivery of the contract and simultaneously make a claim under the Government’s Coronavirus Job Retention Scheme (CJRS) with respect to the same employees who are working to deliver that contract. This would amount to double relief for the supplier.

The award of the relief must be dependent on the suppliers making sure that the employees specified as delivering the contract are not furloughed under the CJRS during the relief period.

The consequences of not ensuring the above on public sector contracts can be exclusion from participation in future public contracts on the basis of ‘grave professional misconduct’ under regulation 57(8)(c) of the PCRs (Public Contracts Regulations 2015).

Early release of retentions?

A premature release could result in the authority taking on risks that are outside of its control (e.g. defects discovered later in the day and latent defects). Risks of this sort should not be borne by the authority.

Early release is a more suitable option when the works have been substantively completed and only minor defects remain (i.e. defects which do not stop the site being used but which cannot be resolved at the present time due to COVID-19). An amount of the retention can then be withheld relating to these minor defects and an additional sum to protect against any ‘undiscovered defects’.

An alternative step is to release a proportion of the retention when specific milestones have been reached.

Next steps

While the guidance provides a comprehensive list of issues for authorities to consider in relation to existing building contracts, it stresses the importance of carrying out a case-by-case review.

Where any of the suggested relief in the guidance note is granted, in the majority of cases, formal amendment of the existing contract will be required.

Our teams have extensive experience advising on public sector works contracts, and are familiar with industry contracts such as the JCT and NEC forms, and the public sector specific amendments that are usually made to these. We would be happy to assist with any considerations of relief in existing construction contracts, including the preparation of deeds of variation.

For further information, please contact us at covidhelp@sharpepritchard.co.uk

This article is for general awareness only and does not constitute legal or professional advice. Law and guidance relating to the COVID19 pandemic is continually being updated and the law may have changed since this page was first published. If you would like further advice and assistance in relation to any issues raised, please contact us today by telephone or email  covidhelp@sharpepritchard.co.uk.

Posted in Construction, Construction contracts, Coronavirus (COVID-19), Juli Lau, Procurement, Procurement challenges, Sarah Rhodes.