All public authorities, including councils, schools, government departments and hospitals, should keep paying suppliers even if services have been scaled back or are temporarily suspended, the UK government has said.
In return for the payments, however, suppliers will be obliged to show their full accounts to the government to ensure the money gets through to employees.
The instructions from the Cabinet Office include guidance to suppliers that where possible they should seek to redeploy staff, such as from cleaning empty offices to hospitals. If that is not practical companies should continue to pay employees regardless.
The edict takes immediate effect and remains in place until the end of June. The move covers all goods, services and works contracts to the public sector and is aimed at ensuring that the supply chain survives the coronavirus crisis.
The Cabinet Office said examples of staff covered include those involved in facilities management at now empty government offices because civil servants are working from home or school bus drivers who are not needed now that schools are closed to almost all pupils.
The briefing note urged authorities to get in touch with suppliers to tell them of the temporary arrangements. It also encouraged them to support supplier cash flow by, for example, ordering or paying in advance, or making interim payments — though this would require consent from the Treasury.
In the case of performance-related contracts, payment should be based on average monthly billing over the previous three months, it added.
“To qualify suppliers should agree to act on an open book basis and make cost data available to the contracting authority during this period,” the notice said. “They should continue to pay employees and flow down funding to their subcontractors.”
Noble Francis, economics director at the Construction Products Association, welcomed the move, including the transparency, but added that there was “a major question as to whether councils, in particular, have the resource to monitor and enforce this”.
“The main problem will be, as ever in construction, whether this goes through the supply chain to the subcontractors and the subcontractors of those subcontractors. These are the firms that are most vulnerable at the moment and the ones most reliant on cash flow.”
Matthew Fell, policy director at business lobby group the CBI, said: “At this critical time close partnership working between the public and private sectors is vital to ensure the smooth delivery of goods and services across hospitals, schools and other essential public bodies.
“Supporting suppliers of all sizes with cash flow is an example of quick and decisive action by government to ensure a sustainable marketplace for public sector providers, which will also help protect jobs.”
Alistair Watson, of law firm Taylor Wessing, said the government may be acting now to avoid legal claims. “It will be keen to avoid debates over force majeure which could see the private sector and local government battling it out in the future.”
