Can I ask for relief from KPIs or service credits under a contract with a public sector body if the Covid-19 outbreak means that I am having difficulty in performing it?
The Cabinet Office has published a useful Procurement Policy Note (“PPN”) on relief available to suppliers due to Covid-19 (available here). In brief, you should not be penalised by a public sector body, if, in the current circumstances, you are unable to comply (fully or partly) with your contractual obligations. Public sector bodies are expected to work with suppliers and, if appropriate, provide relief against current contractual terms. This is in order to maintain business and service continuity and avoid claims being accepted for other forms of contractual relief, such as the occurrence of a force majeure event.
The types of relief that may be available to suppliers to the public sector will depend on the existing contracts in place. Some contracts may have a payments by result mechanism, whereas others may be based on certain key performance indicators (KPIs) being met. Other contracts may not include any such mechanisms and therefore it will be a matter for discussion between suppliers and the public sector body.
The PPN provides that, rather than a supplier seeking to invoke a clause that would permit the supplier to suspend performance of its obligations (such as a force majeure clause), public sector bodies should first work with the supplier to amend or vary the contract. Any changes should be limited to the particular circumstances and considered on a case-by-case basis. Changes could include:
- Amending the contract requirements
- Varying timings of deliveries
- Relaxing KPIs or service levels
- Extending time for performance (e.g. revising a contract delivery plan), and/or
- Preventing the public sector from exercising any rights or remedies against the supplier for non-performance (e.g. liquidated damages or termination rights).
These should only be temporary variations and the contract should return to the original terms once the impact of the Covid-19 outbreak on the contract has ended. Discussions with the public sector body about any changes that are agreed should be documented, in a variation signed by both parties.
A public sector may also need to take account of regulation 72 of the Public Contract Regulations 2015, to ensure that any changes to a contract (even of a temporary nature) do not trigger a requirement to conduct a new tender process. Whilst this may be unlikely to be the case with temporary variations, suppliers should still bear this in mind when discussing any changes to a contract with a public sector body.
If you are a supplier to a public sector body and you are currently struggling to meet your contractual obligations, we recommend that you take legal advice as to whether it might be possible to take advantage of the flexible approach that the PPN requires public sector bodies to adopt – it could be that you can avoid service credits or other financial deductions, or the need to serve formal notices such as “force majeure” or other relief notices.
Related FAQs
Every company has to file accounts at Companies House every year. If they are filed late, a fine is automatically levied. If there is a long delay in filing them, the directors are at risk of prosecution and the Registrar of Companies might start a process which could ultimately lead to the company being struck from the register.
However, Companies House has recognised that businesses might currently face exceptional problems in preparing and filing their accounts on time and so have posted a notice on their website which says that if immediately before the filing deadline, it becomes apparent that accounts will not be filed on time due to coronavirus, you can make an application to extend the period allowed for filing.
The guidance is helpful and is likely to be useful to businesses as they seek to respond to the crisis and to restart their business activities as lockdown is eased. However, there remain outstanding questions. For example, can collaboration to prevent widespread insolvencies be viewed as in the interest of consumers? Businesses need to remain aware of the extremely high stakes involved in relation to competition law. Businesses contemplating collaboration with competitors should take legal advice before doing so.
There are four criteria which must be satisfied if an agreement is to be considered exempt:
- It must improve production or distribution, or promoting technical or economic progress – the guidance suggests that cooperation ensuring essential goods and services can be made available to the public, or an important sub-set of the public such as key workers, will satisfy this criterion.
- It must allow consumers a fair share of the resulting benefit – the guidance suggests this will be the case where the action prevents or reduces shortages.
- It must not impose on the undertakings concerned restrictions which are not indispensable to the attainment of the above benefits – the guidance suggests this will be the case where the cooperation is the only reasonable option due to the urgency of the crisis and where the cooperation is temporary in nature.
- It must not afford the undertakings concerned the possibility of eliminating competition – therefore the parties must endeavour to retain competition in respect of the products (in particular price competition).
It has also been proposed in the Corporate Insolvency and Governance Bill that public companies who were due to file their accounts in the period from 26 March 2020 to 30 September 2020 will have until the earlier of the 30 September 2020 and the date which is 12 months after the end of their relevant accounting period to do this.
This is separate from the pre-existing scheme, announced on 25 March 2020, whereby companies can apply to Companies House for a 3 month extension for filing their accounts.
- A taxable grant worth 80% of the average monthly profit over the last three years (one or two years will be reviewed for those who do not have three years of tax returns)
- The grant will be capped at £2,500 per month
- The scheme was initially available for three months and has been extended as necessary
- Individuals claiming a grant can continue to do business (unlike employees who must not work when furloughed)