LAs as liquidity source for private enterprise – thoughts on PPN2, New Burdens &c

March 25th, 2020

The Cabinet Office today published Procurement Policy Note 2, “Supplier relief due to COVID-19 Action Note”.

It says:-

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/prepayment, 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 policy is that LAs should provide liquidity to private enterprise, including payments in advance of contractual obligation.  This is made clearer still as the Note continues:-

“6. 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.

7. 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.”

Would such payments, in ordinary circumstances, be compliant with the quasi fiduciary obligation in Roberts v Hopwood?     The Government is saying this is not the time to be contractually squeamish: needs must.

A similar line of thinking about LAs as providers of liquidity to business is visible in two other initiatives of the Government, the Small Business Grant Fund and the Retail, Hospitality and Leisure Grant Fund, both to be channelled through LAs. The Government has said that it will reimburse LAs for these grants, and will also reimburse LAs’ grant administration costs pursuant to the New Burdens doctrine.   Meanwhile LAs will be out of pocket, as I understand it.

It will be interesting to see if further Government policies  in this crisis treat LAs as a means of effecting economic stabilisation – and longer term, whether this will kick-start LAs’ role as key players in the local economy.

Peter Oldham QC

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