Public sector ordered to support at-risk suppliers with immediate payments
The UK Government has ordered public sector buyers to follow the lead of Kingdom Housing Association and pay suppliers straight away to protect the health of supply chains during the coronavirus outbreak.
In a new Procurement Policy Note (PPN), the Cabinet Office said contracting authorities “must act now to ensure suppliers at risk are in a position to resume normal contract delivery once the outbreak is over”.
All contracting authorities should:
- Urgently review their contract portfolio and inform suppliers who they believe are at risk that they will continue to be paid as normal (even if service delivery is disrupted or temporarily suspended) until at least the end of June.
- Put in place the most appropriate payment measures to support supplier cash flow; this might include a range of approaches such as forward ordering, payment in advance/pre-payment, interim payments and payment on order (not receipt).
- If the contract involves payment by results then payment should be on the basis of previous invoices, for example the average monthly payment over the previous three months.
- To qualify, suppliers should agree to act on an open book basis and make cost data available to the contracting authority during this period. They should continue to pay employees and flow down funding to their subcontractors.
- Ensure invoices submitted by suppliers are paid immediately on receipt (reconciliation can take place in slower time) in order to maintain cash flow in the supply chain and protect jobs.
The emergency guidance comes into force immediately and will last until June 30.
The Cabinet Office said: “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 and this will put their financial viability, ability to retain staff and their supply chains at risk.
“Contracting authorities should act now to support suppliers at risk so they are better able to cope with the current crises and to resume normal service delivery and fulfil their contractual obligations when the outbreak is over.
“It is vital that contracting authorities pay all suppliers as quickly as possible to maintain cash flow and protect jobs.
“Contracting authorities should also take action to continue to pay suppliers at risk due to COVID-19 on a continuity and retention basis.
“Contracting authorities can consider making advance payments to suppliers if necessary.”
Yesterday Kingdom Housing Association revealed it had taken the decision to settle invoices immediately in recognition of the increasing importance of cash flow to its commercial partners during the current period of coronavirus uncertainty.
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