The UK government has sought to address the specific challenges the COVID-19 pandemic presents for PFI and PPP contracts through two Guidance Notes. In this note we examine how (and how well) this guidance address the real issues for the public sector and PFI/PPP Contractors?
What is the government doing to support suppliers?
The Infrastructure and Projects Authority ("IPA") issued a Guidance Note detailing how public bodies can support PFI and PF2 projects on 2 April 2020. This supplements the more general Cabinet Office Procurement Policy Note on supplier relief due to COVID-19. Both Guidance Notes took effect immediately and (at the moment) apply until 30 June 2020.
Both notes recognise that PFI and PF2 contractors are vital to the delivery of public services, especially in response to COVID-19, and the need for Contractors to have contingency plans to allow services to continue. The guidance recognises that in present circumstances the underlying contract may prove unworkable, and contracting authorities are instructed to work co-operatively with contractors to overcome such problems.
Where full performance may be unachievable, contract parties are advised to agree to amend temporarily contract requirements and standards. This could include amending milestones and KPIs, but also may include enhanced services (for example, additional cleaning).
Where the contracted level of service cannot be provided (despite a contractor's best efforts) the guidance suggests that a temporary moratorium on performance mechanisms should be imposed, so contractors are not punished financially and are in a position to continue paying their staff. Where a PFI/PPP asset is temporarily closed the contractor must keep it in a good enough condition for immediate use once the 'lockdown' is lifted.
Contracting authorities are also instructed to introduce appropriate payment measures for all contractors, this may involve:
- using previous invoices to calculate average payments if payment is based on results;
- payment on order, rather than receipt;
- settling invoices first, then reconciling them at a later date; and
- in limited circumstances, payment in advance.
In any event, the guidance to contracting authorities is that they should pay contractors immediately on receipt of an invoice.
To support this collaborative approach, the guidance requires contractors to work on an 'open-book' basis; providing data such as ledgers, cash-flow forecasts, balance sheets, and P/L accounts to contracting authorities as requested, and maintain appropriate records during this time to facilitate future reconciliations if necessary.
One over-arching principle to note from the guidance is the suggested approach to force majeure clauses: contracting authorities are instructed to work with suppliers to amend contracts as necessary (rather than acknowledging and accepting force majeure or other supervening event claims). Such changes should be limited in scope and properly documented. Gowling WLG can support any such contractual proceedings.
The effects of the COVID-19 pandemic are anticipated to continue well beyond the 30 June date identified in the Guidance. What is uncertain at this stage is whether extensions consistent with those given by the UK Government (for example the Coronavirus Job Retention Scheme being extended until October 2020) will also be given for the IPA and Cabinet Office guidance as the true long term effect of COVID-19 on PFI and PPP contractors begins to emerge.