Contracting Authorities: Updated Procurement Guidance PPN 02/20: Not a Model Update
If you are a contracting authority, the document contains updated guidance on providing relief to construction suppliers together with some frequently asked questions. This part of the document is helpful but the model variation agreements to the NEC3 ECC and JCT D&B 2016 are contradictory and inadequate. If you wish to or need to vary your contracts be aware of these limitations and seek further advice.
What is the aim of the update?
The aim of the guidance is for public bodies to ensure continuity of service for at risk suppliers during and following the coronavirus disruption with differing payment relief options. The guidance is for construction contracts and will be welcomed by the construction industry as it confirms that contracting authorities should continue to pay suppliers on a “continuity and retention” basis during this period of disruption until the end of June 2020.
The potential forms of relief to supplier cash flow include:
- accelerated payment of invoices
- certification of interim valuations where work has not been undertaken, based on previous valuations
- amendment to existing payment mechanisms to make more regular payments or reorder existing payment schedule
- early release of retentions where the review of completed milestones support such an action
- the provision of advance payment(s) to the supplier
Any relief is to be contingent on an open book basis accompanied with the provision of supporting information by the supplier proving compliance with the commercial principles behind the relief are complied with. These commercial principles include paying employees as well as the supply chain and not enforcing security against a third party once relief is given. Additionally, the guidance requires that claw back provisions accompany any payment relief in the event that the supplier has claimed on a non-transparent basis.
A supplier is unable to claim relief under these provisions if it has accessed another source of government relief, although furloughed staff costs under the Coronavirus Job Retention Scheme are expressly not included.
The Model Forms
So far so good but the model forms provided with the updated guidance then ignore and preclude the relief of time extensions due to supply chain difficulties emphasised in the previous guidance. The worst of the model variation deeds relates to the NEC3 ECC. The problems with this form include:
The definition of “Average Amount”
One of the provisions of the contract allows payments of an average of the three previous payment certificates. In the event that no certificates have been raised by the time relief is sought, the form confusingly states that the amount would be that “reasonably forecast by the Contractor in accordance with the [Shorter Schedule of Cost Components] / [Schedule of Cost Components]. There is a lack of understanding of the role of the Shorter Schedules of Cost Components (“SSCC”).
For an Option A contract (Priced with Activity Schedule), the SSCC is used only for calculation of compensation events and would not support the use asked of it here. It would be easier for the parties simply to agree a payment profile.
The model form assumes that retention is a default or core provision of the ECC when it is only relevant if Option X16 is utilised.
Prevention, Change in Law and Compensation Events
The form defines COVID Related Hardship as “the Contractor’s inability to meet its contractual obligations pursuant to this contract, having been adversely affected as a result of COVID-19”. The document then expressly states that a COVID event is not an event of prevention (the NEC equivalent to force majeure) and cannot be grounds for a compensation event due either to prevention or to a change in law. In obtaining the potential relief of payments during from the date of the variation deed to 30 June, the contractor is then unable to defend against liquated damages claims or general damages for delay due to an event that would otherwise probably be a compensation event. It should be remembered that the period between now and 30 June is usually the period of the driest weather in Britain and would be programmed as such. Additionally, the coronavirus disruption may well extend in some form beyond 30 June but a compensation event for prevention after that date would still be precluded by the suggested document.
This approach to compensation events is in contradiction with previous guidance issued by the Cabinet Office. A better solution would be to allow the contractor a programme extension but not additional costs under the compensation event provisions.
The model deed of variation ignores the drafting style of the NEC. Whilst this appears to be a very small point to raise, it may well prove to be significant. Where the provisions of the deed will be read in conjunction with the usual core and optional clauses of the NEC it will create ambiguity and confusion.
The objective and aims of the guidance note are laudable but if you wish to vary your JCT or NEC3 contracts to implement its recommendation you would do well to start with a blank sheet of paper.
For further information and advice on any of the issues raised in this update please contact Ian Griffiths.
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