The Cabinet Office has recently published a new PPN, PPN 07/20, around taking in account bidder performance in payment the supplier chain.
Scope and application
The PPN covers major central government contracts with a value of £5 million plus yearly (excluding VAT). It applies to frameworks and dynamic purchasing systems to the extent that authorities expect to call off in-scope contracts from them.
This PPN applies from April 2021 when it will replace PPN 04/19 (which applies currently and covers much of the same ground). Both set out model questions to be used at the selection stage to assess how promptly bidders pay invoices down their own supply chain. These questions are aimed at assessing bidder payment systems to ensure that it has a reliable support chain and to set a bar for effectiveness of payment systems (below which it is appropriate to exclude a bidder at the selection phase).
There are two key changes from PPN 04/19 to be aware of: (a) a raising of the bar that bidders need to meet to ensure reliability of supply chains; plus (b) greater clarity around treatment of call offs from framework contracts.
You do not need to implement the PPN if it is not relevant nor/or proportionate to do so. This could include a situation where there is a civil emergency (perhaps the authors were thinking of the Covid pandemic here). The PPN also says that there is no need to apply it where the market for contract concerned is distorted or struggling to such an extent that delivery of public services/vfm would be likely to be severely compromised by requiring these payment performance terms.
Method of assessment of payment performance
The questions assess whether the bidder has paid its suppliers in accordance with contractual terms. Measured over a 12 month period, has the bidder paid its supply chain “promptly”? This test will be passed if it has paid over 95% of all (disputed and undisputed) invoices within 60 days. Query here why this figure is 60 days rather than 30 (given that the requirement in Regulation 113 is pay undisputed invoices within 30 days) – perhaps the 60 day period reflects the fact that this covers both disputed and undisputed invoices?
Where a bidder does not meet the 95% threshold but exceeds 85%, it has a chance to explain and submit a five point action plan of improvement. The PPN notes that the 85% bar will be revised upwards over time. If the action plan is compliant and acceptable, a bidder can be awarded a pass. If there is no explanation, the methodology stipulates an automatic fail. The PPN notes that some bidders may be new entrants who are not able to provide a track record – these suppliers can provide a plan of how they will approach payment of their supply chain in order to pass.
The PPN also notes that where awarding frameworks authorities might wish to include contractual mechanisms to deal with deterioration in payment performance during the life of the agreement.