Construction News

Wed June 03 2020

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Keep paying suppliers but keep hold of retentions, government clients told

7 Apr The Cabinet Office has published new guidance for government purchasers in light of the Covid-19 crisis.

The guidance notes1 are designed to support the procurement policy note (PPN) 02/20 that the Cabinet Office published last month2 to help suppliers during the pandemic.

The new guidance makes clear that suppliers and contractors must be supported although they should be prevented from claiming separate relief from another source of government financial support on Covid-19 – “to the effect that the supplier gains an undue advantage by claiming relief twice for the same hardship”.

In the 'frequently asked questions' section, Guidance Notes for Construction Contracts - Procurement Policy Note 02/20 says:

“The contracting authority should continue to pay suppliers at risk due to Covid-19 on a continuity and retention basis until at least the end of June 2020, to:

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  • ensure supplier cash flow
  • maintain cash flow into the supply chain
  • protect jobs
  • ensure suppliers are better able to cope with the current crisis and to fulfil contractual obligations once the COVID-19 crisis over
  • ensure continuity of suppliers’ businesses during and after the crisis
  • ensure suppliers are able to resume delivery of public services once the outbreak is over.

“This could include, for example, in situations where:

  • works are required to be ceased or scaled back at short notice due to the impact of COVID-19 and non-payment could result in supply chains collapsing and/or significant financial implications for the supplier and consequential job losses at the supplier and supply chain level; and
  • it would be value for money and important to business continuity to continue to pay suppliers in the short term (regardless of whether contracting authorities are able to reconcile at a later stage) to ensure that the supplier can complete the works in due course.

“The contracting authority should identify their suppliers at risk and this should be taken on a case by case basis. We anticipate the majority of suppliers will be at risk during this period and authorities do not need to undertake a detailed assessment of suppliers’ financial viability to determine whether they are at risk, but clearly suppliers that are not impacted by Covid-19 should not benefit from relief.”

On the issue of early release of retention monies to help suppliers’ cashflow, the guidance is equivocal. “Contracting authorities should carefully consider whether retentions can be released early on a case-by-case basis,” it says. “The premature release of retentions by an authority may result in the authority taking on significant risks which are not in its control and which are inappropriate for it to bear (for example, serious defects which may only come to light once the authority has the time and resources to satisfy itself that the works have been completed to the required standard, or latent defects).”

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

2. Procurement Policy Note – Supplier relief due to Covid-19

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