New Procurement Policy Note on contracting with suppliers from Russia published

In the last few days the Cabinet Office has issued a new Procurement Policy Note – PPN 01 / 22. It applies to ‘all Central Government Departments, their Executive Agencies and Non Departmental Public Bodies’ – referred to as ‘In-Scope Organisations’. The Note states that ‘other public sector contracting authorities should consider applying the approach set out in this PPN.’

‘Contracting authorities should consider how they can further cut ties with companies backed by the states of Russia and Belarus.’

In essence the PPN requires Government Department, Executive Agencies and NDPDs to undertake a contract and supply chain review, with a view to considering terminating a contract (where lawful) where there is a Russian or Belarusian prime contractor.

In scope organisations are encouraged to apply the PPN to all contracts – not just those above the thresholds required by the Public Contracts Regulations 2015.

The PPN has immediate effect.

In scope organisations are required to:

• review their contracts and identify where the prime contractor is Russian or Belarusian;
• consider terminating those contracts in accordance with its contractual terms; and
• only proceed if an alternative supplier can be sourced, consistent with Value for Money and minimal disruption to public services.

This last bullet would seem to draw the teeth of the impact of the proposals. Treasury consent is also required where central government bodies take steps which ‘set precedents, are novel, contentious or would cause repercussions elsewhere in the public sector, in line with Managing Public Money’.

Terminations must be made lawfully ie in line with contractual requirements, approved by senior commercial or procurement leaders and Accounting Officers should approve final decisions to terminate contracts and only after Treasury consent has been obtained.

As respects new (or presumably on going) procurements, the advice states that contracting authorities could decline to consider (or could exclude) bidders’ offers who are ‘constituted or organised under the law of Russia of Belarus or whose ‘persons of significant control information state Russia or Belarus as the place of residency’. However this is not permissible if the supplier or its important subcontractors:

• are registered in the UK or a country with reciprocal procurement arrangements; and / or
• have significant business operations in the UK or a country with reciprocal rights of access.

This is because overriding public procurement obligations of non-discrimination, equal treatment apply and could be enforced.

The PPN also recommends that a thorough risk assessment, including identifying clauses in existing contracts governing lawful termination, the business critical nature of the contract and alternative sources of supply is undertaken in advance of termination. It also recommends the costing of the implications of termination, for example new procurement costs, the prospect of increased prices and legal costs.

Overall the need for careful assessment of the contract for lawful terms of termination, the obligation to identify the nationality of chief contractors and the need for risk and cost assessment before proceeding with the termination, means that care should be taken and appropriate legal support sought.

Please don’t hesitate to contact your usual BDB Pitmans adviser if we can advise you in this difficult area.