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On 28 March 2022, the Cabinet Office published Procurement Policy Note 01/22: contracts with suppliers from Russia and Belarus (PPN 01/22), along with guidance and FAQs contained within Procurement Policy Note 01/22 – Frequently Asked Questions (FAQs), providing guidance on how contracting authorities can and should cut ties with companies supported by Russia and Belarus.
This PPN applies with immediate effect to all central government departments, their executive agencies and non-departmental public bodies, with other public sector contracting authorities advised to consider applying the approach set out in the PPN.
The PPN is to be applied to all contracts where it is relevant and proportionate to do so. Contracting authorities subject to section 17 of the Local Government Act 1988 cannot take into account non-commercial considerations, including the location of any country or territory of the business activities or interests of contractors, or from terminating contracts for non-commercial reasons. The Government is however considering secondary Legislation in relation to this issue.
It is intended that Public Sector entities should review their contract portfolio and identify any contracts where the prime contractor is a Russian or Belarusian supplier. If such a contractor is identified they should then consider termination, in accordance with the contract, following the usual legal, financial and commercial risk based procedure. This should only be done if a substitute contractor can be found in line with the original award and with the least possible disturbance to public services. The Guidance does not yet require termination where a subcontractor has Russian or Belarusian links, however open dialogue is encouraged with the contractor, if such a link is identified.
There are industry and legal implications with this PPN and as such there are likely to be difficult choices ahead for public sector entities when deciding whether or not to terminate. It is advised that decisions are made on a case by case basis however that in itself will cause further issue. This will no doubt be compounded by any media attention they may receive, should they not terminate.
It is key to note that the importance of a proper audit trail has been emphasised within the PPN, to be able to justify decision making in the long run, but also as a defence to potential future litigation. The oil and gas industry will probably be hardest hit, but the inevitable Russian or Belarusian connections further up the supply chain, will undoubtedly affect other industries also.
Whilst this PPN currently only applies to England and Wales, guidance of a similar nature is likely to follow in NI within the coming weeks.
If you require any advice in relation to the above, please get in touch with our Public Procurement team.
This article has been produced for general information purposes and further advice should be sought from a professional advisor.