As the response to Covid-19 intensifies we are seeing a wide range of behaviours from suppliers engaged in PFI contracts. In many instances Project Companies and FM providers are making a concerted effort to support the NHS, going above and beyond normal operational requirements to help hospitals respond to the current circumstances.
Examples of positive actions being taken include:
Each of these have assisted the NHS Trusts in question to focus their resources on meeting the growing challenge that Covid-19 presents and efforts of the suppliers in question should be recognised.
Unfortunately this approach is not universal and we have encountered a number of PFI providers who appear to be focused on using the Project Agreement to maximise their contractual and commercial advantage and/or are proving unresponsive to the changing requirements of their NHS clients.
This raises the issues of how a PFI contract responds to the current circumstances and what approach the parties should be adopting to ensure that essential clinical services are maintained to the best of the NHS’s ability.
The Cabinet Office has provided helpful guidance in a Procurement Policy Note (PPN 02/20) setting out “a pragmatic approach”.
This suggests that, in the interests of business continuity and employment, the Trust should consider paying on receipt of invoice on the basis of previous invoices (e.g. a 3 month average figure) on the proviso that suppliers:
However, it is specifically noted that:
“Suppliers should not expect to make profits on elements of a contract that are undelivered during this period and all suppliers are expected to operate with integrity. Suppliers should be made aware that in cases where they are found to be taking undue advantage, or failing in their duty to act transparently and with integrity, contracting authorities will take action to recover payments made.”
This suggests that rather than a wholesale suspension of the paymech, the Trust agrees to continue to pay invoices at the level of performance experienced prior to the current situation and that, at some later date, a true-up is agreed, with any increase or decrease in payment then accounted for.
Where a contractor requests relief, the guidance provides the following:
Force Majeure
The Trust should work to vary contracts instead, including “changes to contract requirements, delivery locations, frequency and timing of delivery, targets and performance indicators etc”.
Such changes are to “be limited to the specific circumstances of the situation, and considered on a case by case basis.”
Excusing cause & relief events
“excusing cause and relief event provisions generally give a supplier relief from its contractual obligations, which contracting authorities may be able to use to provide relief, for example, to change the KPI regime, payment mechanism or reduce service level requirements. Some contracts may have other relief mechanisms. Whatever the regime, contracting authorities should maximising any commercial flexibilities within the contract, including agreeing new measures such as on meeting lead times, waiving or delaying exercising the authority’s rights and/or remedies (e.g. to claim liquidated and ascertained damages, service credits or terminate the contract), revising milestones or delivery dates. In these circumstances, if there is one, use the contract change control procedure to keep records of any changes made and the decision making behind each one.”
Note that the guidance states:
“Contracting authorities should not accept claims from suppliers who were already struggling to meet their contractual obligations prior to the COVID-19 outbreak.“
Conclusion
The guidance suggests that a pragmatic approach might look as follows:
Trusts and Project Companies may wish to enhance the resilience of certain core systems at this time (potentially at the expense of non-core systems) and could consider:
In addition, the nature of the crisis is likely to necessitate rapid implementation of (temporary) variations at the behest of the Trust. Trusts and Project Companies should consider implementing an accelerated variation process when effecting Covid-19 related temporary variations, including:
This is an unprecedented crisis and it is inevitable that there will be some initial difficulties. However, we believe that it is in all parties’ interests to work proactively and pragmatically to facilitate the best possible response to Covid-19. How the parties respond will be remembered long after life gets back to normal.
Examples of positive actions being taken include:
- Increasing resilience of the hospital’s key systems - for example through the proactive replacement of HEPA filters, bringing forward key statutory inspections and accelerating Planned Preventative Maintenance;
- Supplementing existing site teams with engineers from schools / commercial property maintenance teams to provide additional resource to meet demand; and
- Taking a flexible and transparent approach to requests for variations, re-configuration works and changes to services.
Each of these have assisted the NHS Trusts in question to focus their resources on meeting the growing challenge that Covid-19 presents and efforts of the suppliers in question should be recognised.
Unfortunately this approach is not universal and we have encountered a number of PFI providers who appear to be focused on using the Project Agreement to maximise their contractual and commercial advantage and/or are proving unresponsive to the changing requirements of their NHS clients.
This raises the issues of how a PFI contract responds to the current circumstances and what approach the parties should be adopting to ensure that essential clinical services are maintained to the best of the NHS’s ability.
The Cabinet Office has provided helpful guidance in a Procurement Policy Note (PPN 02/20) setting out “a pragmatic approach”.
This suggests that, in the interests of business continuity and employment, the Trust should consider paying on receipt of invoice on the basis of previous invoices (e.g. a 3 month average figure) on the proviso that suppliers:
- Agree to open book basis, sharing the necessary cost data
- Continue to pay employees
- Flow down to subcontractors
However, it is specifically noted that:
“Suppliers should not expect to make profits on elements of a contract that are undelivered during this period and all suppliers are expected to operate with integrity. Suppliers should be made aware that in cases where they are found to be taking undue advantage, or failing in their duty to act transparently and with integrity, contracting authorities will take action to recover payments made.”
This suggests that rather than a wholesale suspension of the paymech, the Trust agrees to continue to pay invoices at the level of performance experienced prior to the current situation and that, at some later date, a true-up is agreed, with any increase or decrease in payment then accounted for.
Where a contractor requests relief, the guidance provides the following:
Force Majeure
The Trust should work to vary contracts instead, including “changes to contract requirements, delivery locations, frequency and timing of delivery, targets and performance indicators etc”.
Such changes are to “be limited to the specific circumstances of the situation, and considered on a case by case basis.”
Excusing cause & relief events
“excusing cause and relief event provisions generally give a supplier relief from its contractual obligations, which contracting authorities may be able to use to provide relief, for example, to change the KPI regime, payment mechanism or reduce service level requirements. Some contracts may have other relief mechanisms. Whatever the regime, contracting authorities should maximising any commercial flexibilities within the contract, including agreeing new measures such as on meeting lead times, waiving or delaying exercising the authority’s rights and/or remedies (e.g. to claim liquidated and ascertained damages, service credits or terminate the contract), revising milestones or delivery dates. In these circumstances, if there is one, use the contract change control procedure to keep records of any changes made and the decision making behind each one.”
Note that the guidance states:
“Contracting authorities should not accept claims from suppliers who were already struggling to meet their contractual obligations prior to the COVID-19 outbreak.“
Conclusion
The guidance suggests that a pragmatic approach might look as follows:
- Seek agreement from Project Co & Service Providers to adopt open book delivery of the services in return for payment consistent with pre-crisis averages.
- Where Project Co requests relief via an excusing cause or relief event, agree a temporary revision to the service specification or performance targets (KPIs).
Trusts and Project Companies may wish to enhance the resilience of certain core systems at this time (potentially at the expense of non-core systems) and could consider:
- Temporary revision to PPM plans - bringing forward mandatory and statutory activities to put systems in the best operational state and safeguard against reduced access to personnel and critical spares at a later date, and minimising the need for works to be undertaken in critical clinical environments;
- Revisions to Call Categorisation Protocols - enabling providers to prioritise critical / essential activities and providing relief from non-critical / non-essential activities (provided that records of what has / has not been undertaken are maintained and provided in a transparent manner);
- Working with suppliers to increase critical spare stocks and considering the ability to pool employees and resources across projects / sites to maintain access to skilled technicians over the coming weeks.
In addition, the nature of the crisis is likely to necessitate rapid implementation of (temporary) variations at the behest of the Trust. Trusts and Project Companies should consider implementing an accelerated variation process when effecting Covid-19 related temporary variations, including:
- Advance consent from lenders and/or a deemed variation process to enable the Trust Representative to quickly implement necessary variations, with relevant documentation to be put in place in parallel with works being undertaken, or after the event;
- Open book accounting to determine variation pricing in arrears, with both parties keeping records of changes agreed and implemented and a recognition from both parties that a reasonable “no better no worse” position will include an assessment of services not delivered;
- Relief from exclusivity (where applicable) where Project Co cannot deliver as required and/or the Trust is better placed to undertake necessary works in the timescales necessary.
This is an unprecedented crisis and it is inevitable that there will be some initial difficulties. However, we believe that it is in all parties’ interests to work proactively and pragmatically to facilitate the best possible response to Covid-19. How the parties respond will be remembered long after life gets back to normal.
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