Procurement in a Nutshell – Procurement Policy Note 01/22
21st April, 2022
The Cabinet Office has issued Procurement Policy Note 01/22 (PPN 01/22) as guidance to public sector bodies on how they should "cut ties" with companies which are sponsored or "backed" by Russia or Belarus.
The guidance applies to Central Government Departments, their Executive Agencies and Non Department Government Bodies (In-Scope Organisations) who should comply with its terms. However, it also recommends consideration by all other public bodies, including NHS trusts and local authorities. This will apply to all contracts, ie those above and below the thresholds set out in the Public Contracts Regulations 2015 (PCR 2015).
PPN 01/22 provides that all contracting authorities should:
- Identify any contracts where the prime contractor is a Russian or Belarusian supplier
- Consider terminating the contract, if there is provision within the contract to do so
Further guidance indicates that contracting authorities should:
- Only terminate a contract where there is an available and affordable alternative provider
- Only terminate a contract where an alternative can be sourced within the requirements of the PCR 2015
- Only terminate a contract validly, in accordance with the contractual terms and where the implications of termination have been considered and mitigated
Decisions on contracts should be made on a case by case basis and take account of legal restrictions, financial allocations and budgets. In line with good practice, the decision and the decision-making process should be documented and auditable.
For clarification, the guidance defines a ‘Russian or Belarusian prime contractor’ as an entity which is constituted under Russian or Belarusian law, and/or has a parent company or ‘person of significant control’ based in Russia or Belarus.
The PPN notes that public sector contracts with Russian and Belarusian suppliers are primarily related to energy supplies, where the market is already volatile and careful consideration will have to be given to ensure alternative suppliers are available and affordable.
It further notes that contracts which cannot be terminated but are volume-based may allow for the volumes to be reduced significantly or even to zero.
For new procurements, contracting authorities can decline to consider bids from suppliers linked to Russia and Belarus. However, if the supplier is registered in the UK or has significant business operations in the UK then they may fall under the non-discrimination, equal treatment and remedy provisions of the PCR 2015. In this case the potential supplier cannot be automatically excluded.
What this means
It is to be noted that this policy does not call for automatic termination of affected contracts. However, contracting authorities should review all existing contracts and ensure that decisions are legally compliant and in accordance with the spirit of the government’s wider sanctions advice.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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