- 26 Mar 2020
1. This Scottish Procurement Policy Note (SPPN) sets out guidance for public bodies on options for payment to their suppliers to ensure service continuity during the current coronavirus (COVID-19) outbreak.
2. This SPPN does not offer general or health-specific advice. The Scottish Government provides advice on Coronavirus on its website and has published a Coronavirus Action Plan. Advice on substantive support packages available for business and their employees including details of the Coronavirus Job Retention Scheme.
3. The content of this SPPN is not legal advice and should not be construed as such. Public bodies are advised to seek their own legal advice in relation to any questions and issues they may have. All funding must be allocated in compliance with the current State aid rules or the Temporary Framework introduced by the European Commission to further support the economy in the COVID-19 outbreak.
Timing and action required
4. This SPPN applies with immediate effect and until 30 June 2020; it will be subject to review by then. Public bodies are urged to take immediate action to urgently review their current contracts and consider the options set out in this guidance to provide supplier relief. All decisions must be made on a case by case basis and take account of local governance and audit requirements.
5. The current outbreak of COVID-19 is unprecedented and will have a significant impact on businesses of all sizes. Many suppliers to public bodies will struggle to meet their contractual obligations. This will put their financial viability, ability to retain staff and their supply chains at risk. Public bodies should act now to support their suppliers so they are better able to cope with the current crisis and to resume normal service delivery and fulfil their contractual obligations when the outbreak is over.
6. This SPPN offers guidance on steps that public bodies can take to provide supplier relief under existing contracts. Although the guidance makes reference to the Public Contracts (Scotland) Regulations 2015 (2015 Regulations), this is not to be read as meaning that the advice applies only to contracts within scope of those Regulations; these principles also apply to lower value contacts.
Modifying contracts including payment terms for supplier relief
7. It is the view of the Scottish Government that, at this time, the grounds for modifying a contract set out in regulation 72 of the 2015 Regulations may exist for many contracts. Public bodies should consider using this ability to modify payment terms of contracts. Where to do so will be consistent with this regulation and will offer suppliers relief under the terms of their contract. SPPN 4/2020 sets out guidance on contract modification, including the need for a contract variation notice.
8. Annex A to this SPPN provides a template of Model Interim Payment Terms that public bodies may wish to use when providing contractual relief. The Model Interim Payment Terms are designed for public contracts for the delivery of goods and services. Public bodies should seek legal advice to ensure that the Model Interim Payment Terms are consistent with the contract which they seek to vary.
9. Key points from annex A are:
- It will be for a supplier to set out proposals to vary an existing contract and/or request interim / advance payment (see para 10 below).
- Both parties will be required to explore if other changes to the contract (for example, rescheduled delivery dates) would work better.
- The supplier will not be entitled to combine a claim under the contract with any other COVID-19 related relief, grant, intervention or other measure which results in the supplier receiving more than one benefit/relief for the same underlying cash-flow issue.
- On request, the supplier will have to evidence that any monies paid out have been used as intended.
- A condition of payment will be that the supplier must also promptly pay its staff and supply chain under the contract.
- Suppliers will not be able to claim where there is no contractual volume commitment to deliver nor will not be able to claim for profit on undelivered elements of the contract.
- Monies paid can be recovered by public bodies in specified circumstances.
Payment to suppliers
10. The Scottish Public Finance Manual (SPFM) currently discourages payment in advance of need unless in exceptional circumstances. In the current circumstances, Scottish Government (SG) central finance and procurement consent is granted for payments in advance of need where the Accountable Officer is satisfied that a value for money case is made by virtue of securing continuity of supply of critical services in the medium and long term. This consent is capped at 25% of the value of the contract and applies until the end of June 2020. Central SG finance and procurement will review in mid June whether this consent needs to be extended for a further period. Consent for payment in advance of need in excess of this amount should be sought from SG central finance and procurement in the usual way. This consent does not alleviate Accountable Officers of their duties to ensure the value for money, regularity and propriety of all spending or for other contracting authorities to conduct appropriate and proportionate due diligence to ensure such payments are necessary for continuity of supply of critical services.
11. Those public bodies not covered by the SPFM should satisfy themselves their own accounting rules will permit payment in advance in the current environment.
12. Continuing to make payments to suppliers will present risks including that, despite these exceptional actions, a supplier may still become insolvent. These risks will need to be managed by public bodies on a case by case basis.
13. Public bodies should aim to work with suppliers and, if appropriate, provide relief against their current contractual terms. For example relief on service level expectations including key performance indicators (KPIs) and service credits. This maintains business and service continuity for example, to provide goods or services to support temporary or critical Covid-19 related public services rather than the original scope of the contract. Claims by suppliers for other forms of contractual relief, such as force majeure should be considered as a last resort and legal advice should be sought.
14. See more guidance on payment to suppliers – annex B.
Prompt payment of invoices and interim applications
15. Public bodies should pay suppliers as quickly as possible to maintain cash flow and protect jobs. Public sector organisations are bound by the Late Payments of Commercial Debts (Interest) Act 1998, which requires payment to be made with 30 days after receipt of a valid invoice, or any other period the contract terms may specify. Public bodies should now aim to accelerate their payment practice to ensure payment is made as quickly as possible to their suppliers to maintain cash flow and protect jobs.
16. See more guidance on prompt payment of invoices – annex C.
17. The full policy note, including annexes, is contained within the attached document.
18. This SPPN is applicable to all Scottish contracting authorities, including central government departments, executive agencies, non-departmental public bodies, local authorities, NHS bodies and the wider public sector. This SPPN covers goods and services contracts put in place by Scottish public bodies. The principles also apply to works contracts, for which further guidance will be issued.
19. Please circulate this SPPN across your organisation and to other relevant organisations that you are responsible for, drawing it to the specific attention of those with a commercial and finance role.
Post: Scottish Procurement and Property Directorate
The Scottish Government
5 Atlantic Quay