PPN 08/21 Payment approach in the procurement of major contracts

As we mentioned in an earlier M&R construction and engineering blog, on Friday 1st April Procurement Policy Note (PPN) 08/21 comes into effect. Under this PPN, organisations who are deemed to be “In-Scope” as defined below, are required to take into account the payment approaches of bidders in their supply chains during the procurement of major Government contracts.

When does the policy apply?

  • It applies to an “In-Scope Organisation”, meaning either a Central Government Department, an executive agency of such a Central Government Department or a Non-Departmental Public Body, but not NHS Trusts or contracting authorities whose functions are devolved (or mainly devolved) functions of Scotland, Wales or Northern Ireland.
  • If the goods and/or services and/or works being procured have an anticipated contract value of above £5million per annum (excluding VAT).
  • It can apply to framework and dynamic purchasing agreements.
  • In relevant procurements advertised on or after 1 April 2022.

What is the impact of the policy on an in-scope procurement?

Compared to the position before this PPN took effect, the key update is that the policy increases the threshold for bidders to demonstrate prompt payment. The new threshold considered “an appropriate measure of overall payment promptness” is now at least 95% of all supply chain invoices paid in 60 days which is an increase from the previous position of at least 85% of all supply chain invoices under PPN 07/20.

The PPN requires, In-Scope Organisations to use the 5 indicative questions in the Annex A of the guidance note applicable to the PPN, as sub-questions within section 6.2 of the selection questionnaire used in the procurement.

Questions

A summary of the questions required to be included in the selection questionnaire for the procurement are as follows:

  • Questions 1 – 4 are to be self-declared by the bidder;
  • Question 1 should not be scored and is a yes/no question regarding if a supply chain is being used;
  • Questions 2 - 4 are pass/fail questions where the bidder is to confirm, they have the systems in place to pay promptly, have procedures in place to resolve disputed invoices promptly; and
  • Question 4 (which is a specific requirement for public sector contracts under the Public Contract Regulations 2015) requires that there are systems in place to include (as a minimum) 30 day payment terms in all supply chain contracts and that such terms are passed down the supply chain.

There is also a table of evidence requirements for the self-declarations made in response to questions 2-4, that should also be included in the selection questionnaire.

Question 5 requires the In-Scope Organisation to make an assessment of the bidder’s responses to see whether they have paid suppliers in accordance with the contractual terms applied to its supply chain and overall paying suppliers with a payment rate of 95% of invoices within 60 days in at least one of the two previous 6 month periods. If a bidder has not achieved the standard mentioned above, the In-scope Organisation must consider the reasons why and, where submitted, consider the action plan proposed by the bidder which covers what actions they are taking to improve payment of their suppliers.

Bidders who have been trading for less than 12 months should be deemed to pass question 5 but they will still be expected to respond to questions 1-4 and pass.

Assessment methodology

Where a bidder does not meet the selection criterion in those questions having taken into account the self-declarations and an assessment of their systems and recent payment performance (i.e. the level of bidder’s invoices paid promptly is more than 90% but less than 95% and no action plan (or no suitable action plan that includes the required features) is provided or the level of invoices paid is below 90%), or if the successful bidder is unable to verify its self-declarations with the required evidence, they should be excluded from the procurement process.

Actions to take

If a contracting authority – Consider whether the PPN applies, and where it does In-Scope Organisations should take action to apply the provisions of the PPN by including the indicative questions mentioned above as sub-questions within section 6.2 of the standard selection questionnaire used in the procurement.

If a potential bidder – We suggest now is a good time to review supply chain processes, to identify any issues with payment processes and proactively take steps to rectify them.

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