The Cabinet Office has issued a new Procurement Policy Note (PPN) in relation to contracts with suppliers from Russia and Belarus, with guidance on how organisations might “cut ties” with companies backed by these states following the invasion of Ukraine.
Who does the PPN apply to?
The PPN applies to Central Government Departments, their Executive Agencies and Non Department Public Bodies. However, it also recommends consideration by other public bodies, such as registered providers of social housing, NHS trusts and local authorities.
It will be of particular interest to those organisations considering what steps to take in relation to energy contracts which it may hold with Russian or Belarusian suppliers or entities registered in / with substantive business operations in the UK which are controlled by an entity based in Russia or Belarus.
Key recommendations for your existing contracts
The PPN recommends that you:
Review and identify any contracts with Russian or Belarusian prime suppliers or UK companies controlled by an entity based in Russia or Belarus; Consider termination of any such contracts in accordance with the terms of the contract; Carry out a risk assessment relating to termination; Consider alternative sources of supply if you do terminate the contract; and Only terminate if alternative supply can be sourced in line with value for money.
What about new procurement processes?
The guidance also confirms that, in relation to new procurements, you can decline bids from suppliers constituted, controlled by, or organised under the law of Russia or Belarus. However, suppliers which are registered in or have substantive business operations in the UK (or a country the UK has reciprocal rights international agreements with) should not be automatically excluded from the procurement process as this will likely breach the Public Contracts Regulations 2015.
Guidance on this issue is welcome as our clients consider their position under contracts with Russian backed suppliers. The PPN does not, as some organisations have called for, mandate the termination of existing contracts or de-risk terminations. Each contract and procurement needs to be considered on a case-by-case basis.
Contractual terms in the energy sector often dictate a fixed term contract and require full payment to be made to the supplier if there is an attempt to exit early. The guidance reflects the volatile energy market, where procurement of replacement suppliers may well result in a significant increase in cost.
Date: 31 March