The Cabinet Office updated the Procurement Policy Note 01/22 – Contracts with suppliers from Russia and Belarus, alongside a list of frequently asked questions (“PPN”) to reflect modifications relating to the Local Government (Exclusion of Non-commercial Considerations) (England) Order 2022 No. 741 (“Order”). The Order amended the constraints of section 17 of the Local Government Act 1988 (“LGA 1988”) such that local authorities described in the LGA 1988 can effectively review public contracts with companies linked to the Russian and Belarusian state regimes following the invasion of Ukraine by Russia, and potentially terminate such contracts and decline bids from those prospective suppliers.
Background, scope, and timing
As noted in our blog, the PPN, issued by the Cabinet Office on 28 March 2022, concerns the termination of such contracts by all central government departments and suggests that other public sector contracting authorities “should consider applying” its approach. However, the PPN noted that contracting authorities subject to section 17 LGA 1988 are prohibited from considering non-commercial reasons in their procurement decisions, or for terminating contracts, and indicated that secondary legislation was being considered to address the issue.
As of 1 July 2022, when the Order came into effect, the geographical origin of supplies or contractors cease to be non-commercial reasons that contracting authorities are prohibited from considering in their procurement decisions. The Order applies to local authorities, fire and rescue authorities, waste disposal authorities, integrated transport authorities, combined authorities, among others designated in section 1 LGA 1999 (“local authorities”).
PPN update
On 10 August, the Cabinet Office updated the PPN to local authorities in its scope and now includes local government specific guidance and additional frequently asked questions which are relevant for such authorities. As updated, the PPN’s guidelines and recommendations are now in general the same for both central government and local authorities.
We have explored most of the PPN’s guidance in our blog though it is briefly summarised here as follows:
- authorities are allowed to consider the Russian/Belarussian origin of prospective suppliers and contractors (including subcontractors, associated bodies, and customers) to exclude them from new procurements or terminate the relevant contracts, as applicable;
- authorities should not automatically exclude from new procurements suppliers linked to Russia or Belarus but registered in the UK or those having significant business operations in the UK (or a country to which the UK has a relevant international agreement);
- a decision to terminate a contract should be made on a case-by-case basis by observing legal and contractual obligations, alongside risk assessments, and ensuring there is an audit-trail to support such decision;
- the decision to exclude suppliers and terminate contracts rests with the relevant authority.
The PPN approach to central government scope of action differs to that of local authorities mainly as follows:
- recommendations on whether or not to terminate relevant contracts should be made to the most senior commercial/procurement professional in the local authority and to the Chief Financial Officer or equivalent appointed under section 151 LGA 1972 (not to the Accounting Officer or equivalent as in central government);
- while central government is allowed to take action under the PPN in line with value for money, local authorities need to consider their duty under section 3 LGA 1999 to secure continuous improvement in the exercise of their functions, having regard to economy, efficiency, and effectiveness (e.g., where incurring significant termination charges).
Key takeaway
The PPN updates the national guidelines for both central government and local authorities to mobilise a policy objective following the invasion of Ukraine by Russia. Public sector authorities can rely on the PPN as a starting point to consider the specific circumstances, conduct appropriate and proportionate due diligence, and pursue legal routes of cancelling their contracts with Russian/Belarusian suppliers. However, as we noted in our blog, the overarching recommendation of the PPN is that public sector organisations seek legal advice on more nuanced issues, most notably around contractual termination provisions and their implications, complying with public procurement obligations.
If you would like assistance with contract reviews and procurement due diligence, including conducting contract risk assessments, considering potential termination and re-procurement, please contact us today by telephone or email enquiries@sharpepritchard.co.uk.
This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this article, please contact us today by telephone or email enquiries@sharpepritchard.co.uk.
