UK public procurement: Poor payers may find it harder to win government contracts

A look at Procurement Policy Note 08/21

Background

• Procurement Policy Note (PPN) 08/21 has been published by the Cabinet Office to encourage bidders in central government contracts to pay their supply chain promptly.
• This PPN increases the threshold introduced by last year’s PPN 07/20, which PPN 08/21 replaces, that bidders must meet to demonstrate that they have effective payment systems in place to ensure the reliability of their supply chains. The goal is to reduce instances of delayed payments and resulting supply chain disruption.

Applicability

• PPN 08/21 applies:
  • to all Central Government Departments, their Executive Agencies and Non Departmental Public Bodies (referred to as In-Scope Organisations);
  • when procuring goods and/or services and/or works with an anticipated contract value above £5 million per annum (averaged over the life of the contract); and
  • on or after 1 April 2022.
• The scope of application is narrower than last year’s PPN 07/20 because it does not include  NHS trusts or contracting authorities whose functions are devolved or mainly devolved functions of Scotland, Wales or Northern Ireland.

Mechanism

• From 1 April 2022, the standard selection questionnaire submitted by bidders on all relevant procurements will include a set of additional questions prescribed by Appendix A of the guidance to PPN 08/21.These questions must be added as sub-questions to question 6.2 of the questionnaire. The guidance also provides a template pass/fail evaluation methodology for each of the questions. The questions assess whether a bidder has paid its suppliers in accordance with the terms it has applied, and whether payment has been prompt (95% of invoices within 60 days is considered prompt overall).
• These questions are essentially not new, and similar questions previously formed part of the standard selection questionnaire – but PPN 08/21 increases their stringency.

Criteria

From 1 April 2022, in all relevant procurements:

• Bidders must demonstrate that they have paid 95% or more of all supply chain invoices within 60 days in at least one of the last two (six month long) reporting periods. (This part of the assessment has not changed since 2020.); and
• If bidders fail to meet this standard, they may still pass if they have paid between 90% and 95% of their supply chain invoices within 60 days in at least one of the previous two reporting periods, and they submit an action plan identifying why the threshold was not met and their intended rectification steps. This is more stringent than the previous lower threshold of 85%.

The bottom line

• Bidders must be asked to provide evidence allowing verification that they meet the required selection criteria, unless the authority can access it free of charge from a national database. If a bidder has failed to pay at least 90% of its supply chain invoices within 60 days in at least one of the previous two reporting periods, they are unlikely to be allowed to bid – unless exceptional circumstances render the requirement irrelevant or disproportionate in a given case.