Cabinet Office issues policy note on taking account of payment approaches of bidders in procurement of major Government contracts

The Cabinet Office has issued a procurement policy note on taking account of a bidder’s approach to payment in the procurement of major contracts.

The PPN, which can be viewed here and replaces PPN 08/21 from 1 April 2024, says: “The Government understands the importance of prompt, fair and effective payment in all businesses. Being paid promptly for work done ensures businesses have a healthy cash flow.

It applies to all Central Government Departments, their Executive Agencies and Non Departmental Public Bodies (‘In-Scope Organisations’). It does not apply to NHS trusts or to contracting authorities whose functions are devolved or mainly devolved functions of Scotland, Wales or Northern Ireland.

The Cabinet Office says In-Scope Organisations should take action to apply the PPN when procuring goods and/or services and/or works with an anticipated contract value above £5 million per annum (excluding VAT) which are subject to the Public Contracts Regulations 2015 save where, in exceptional circumstances, it would not be relevant or proportionate to do so.

Where the PPN applies, In-Scope organisations must use the questions in Part 3 (Technical and Professional Ability) in the standard selection questionnaire.

“The questions require bidders to demonstrate they are paying 95% of invoices within 60 days (90% with an action plan), and also paying all their invoices within an average of 55 days,” the Cabinet Office says.

Accompanying guidance explains how to assess (with specific questions) a bidder’s payment systems to demonstrate it has a reliable supply chain and when it would be appropriate to exclude those bidders that cannot demonstrate they have effective systems in place. It also gives examples of exceptional circumstances where it might not be relevant or proportionate to apply this PPN, and explains the process for an exemption request.

The Cabinet Office said: “The key update to PPN 08/21 is a new threshold based on average payment days bidders have to meet to demonstrate they have effective payment systems in place to ensure the reliability of their supply chains.”