Supplier Relief – Asking for a better deal from Public Sector clients

An update to this post can be found here: https://www.wjm.co.uk/news/construction-site-closure-guidance--and-the-law

The Scottish Government’s Scottish Procurement and Property Directorate have issued a new Public Procurement Note (a “SPPN”) in response to the COVID-19 outbreak and the economic consequences the outbreak is having upon the economy (https://www.gov.scot/publications/coronavirus-covid-19-supplier-relief/).

The guidance authorises public bodies to modify the terms of the contracts they have in place with suppliers to more appropriately address the economic realities those suppliers are currently facing. This is a change to the norm where post contract modification of terms is something generally discouraged under the Procurement Regulations

The kind of changes public bodies are being encouraged to consider are:

1. The payment of delay related costs where such costs wouldn’t normally be recoverable;

2. Payment in advance (but only up to 25% of the contract value in the context of bodies covered by the SPFM (i.e. central government bodies and bodies like SNH, Scottish Enterprise, Scottish Prison Service etc)); and

3. More prompt payment terms.

Changes public bodies should not consider implementing are those that would allow a supplier to double up on relief / grants recovered under other schemes. So, for example, if a building contractor supplier sought to claim additional monthly prelims (standing charges) that included costs for personnel and those personnel were currently on furlough, then any modification of the payment terms allowing the recovery of such additional monthly prelims would need to be subject to the deduction of any central government furlough payments.

Beyond that, public bodies and their suppliers are largely free to agree changes they feel are appropriate.

Note, however, it is for suppliers to approach public bodies with proposals – public bodies are not expected to unilaterally implement changes without prior discussions with suppliers.

The SPPN does provide a set of wording that public bodies may adopt. The wording is, however, fairly generic and some thought would need to be given as to whether that wording (or elements of it) are actually workable in particular live contracts.

The bottom line is that if you are a supplier to a public body, then it is definitely worth initiating a discussion as to what changes to the contract terms could be made to lessen the impact of the current crisis on your business.

The key to success will be in the way you present your request. You will want to create the right balance between:

a) emphasising the massive impact the current hit in cash flow will have on your business (and therefore how important the need for changes is) and

b) not emphasising that impact so much that it suggests that your business could go in to insolvency (which would in turn raise the question of whether or not any changes will make a difference in practice).

Focusing on the perilous plight of your sub-contractors and the potential need for you to make your own staff redundant if changes aren’t made could be a way of achieving that balance.

If you would like assistance with how best to broach this issue with your public sector clients, our commercial contracts and construction teams are on hand to guide you through the process.