COVID-19: UK Public Sector Construction – Cabinet Office Publishes Guidance Notes for PPN02/20

Author: Kiran Giblin

Further to our recent blog alerts “COVID-19: UK Public Sector Construction – Cash Flow Relief for Suppliers” and “COVID-19: UK Public Sector Construction – Cabinet Office publishes FAQs regarding PPN02/20”, the Cabinet Office has published construction sector-specific Guidance Notes to assist contracting authorities implementing PPN02/20 into existing works contracts.

Purpose of the Guidance Notes

The Guidance Notes:

• Explain how authorities should vary existing public works contracts to effect PPN02/20;
• Provide further detail on applicable contractual relief for at-risk suppliers affected by COVID-19; and
• Append model deeds of variation for use as a basis to vary NEC3 and JCT standard forms of contracts (the “Model Deeds”).

Authorities should, however, seek legal advice to ensure that the terms of the Model Deeds are appropriate for and consistent with the relevant contact which they are seeking to vary.

Guidance

The Model Deeds are drafted to allow at-risk suppliers to obtain required relief pursuant to the terms agreed therein. Accordingly, the Cabinet Office confirms that contractual variations should include “what relief [the supplier / authority] considers appropriate in the circumstances and for what purposes” in addition to “what steps [the supplier] is taking to mitigate the impact of COVID-19.”

In order to assist authorities and suppliers with determining the most appropriate form of PPN02/20 relief to implement, a table is appended to the Guidance Notes summarising available options and the intended effect of each on the supplier, as well as other practical considerations. Issues covered in the table include accelerated payment of invoices, certification of interim valuations where work has not been undertaken, amendment to existing payment mechanisms and advance payment(s) to the supplier. For further discussion on available PPN02/20 reliefs, please see our initial blog article “COVID-19: UK Public Sector Construction – Cash Flow Relief for Suppliers.”

Authorities should consider any bespoke supplier requests when agreeing on the most appropriate form of relief. The Cabinet Office notes that “[n]ot all relief options will be necessary or appropriate for each supplier under each contract” and as such, authorities and suppliers “will need to engage in discussions on a case-by-case basis to determine the most effective relief or combination of relief(s).”

Once the form of relief is agreed with the supplier, contractual variations will need to include accompanying provisions “around open book transparency and the provision by the supplier of supporting information.” This will allow the authority to check that the supplier complies with the terms of the agreed variation during the period of relief. Such provisions are already included in the Model Deeds (see new clause Z2.1.3 in the NEC3 Model Deed and new clause 10.1.3 in the JCT Model Deed).

The Cabinet Office has also listed the key principles which should be considered when implementing relief and which are incorporated into the Model Deeds:

• the supplier will be required to continue to pay employees and its supply chain partners “promptly within any specified time scale”;
• the supplier may be required “to warrant that it will not be in breach of any financial covenants by accepting the relief and ensure that the supplier does not enforce any security against a third party after receiving relief”;
• the authority will be able to recover any relief payments made where the supplier “fails to apply the relief for the purposes agreed by the authority, fails to act transparently and with integrity, or takes an undue advantage of the relief”; and
• relief under PPN02/20 is provided by an authority on the basis that the recipient supplier is prevented from claiming additional separate relief from the Government for the same underlying cash flow hardship, save where such “separate relief from the Government is in relation to recovery of costs (e.g. furloughed staff costsunder the Coronavirus Job Retention Scheme) which are distinct from any other relief available under the PPN.”

Site Operating Procedures

The latest PPN02/20 Guidance Notes follow on from the Government’s confirmation that construction sites should continue to operate in compliance with Site Operating Procedures. These procedures introduced new on-site measures on 23 March 2020 aimed at protecting workforces and reducing the risk of spread of infection. Such measures include regular cleaning and hand washing, procedures for when workers fall ill, changes to site congregation areas and an emphasis on social distancing wherever possible.

The Construction Leadership Council has confirmed that it will shortly release updated Site Operating Procedures to reflect the latest Public Health England (PHE) guidelines on social distancing in the workplace. The new PHE guidelines build on the measures set out in the initial Site Operating Procedures and interestingly provide that “[w]here it is not possible to follow the social distancing guidelines in full in relation to a particular activity, you should consider whether that activity needs to continue for the site to continue to operate, and, if so, take all the mitigating actions possible to reduce the risk of transmission.” A previous update to the Site Operating Procedures was swiftly withdrawn on 2 April 2020 following industry objections.

Our construction team is happy to advise you further regarding any questions you might have in relation to PN02/20 or the Site Operating Procedures.