A call to review public contracts with Russian suppliers

Juli Lau and Gonzalo Puertas discuss the first official document to consider public sector contracts with companies linked to the Russian and Belarusian state regimes, issued by the Cabinet Office.Icons Court

On 28 March, the Cabinet Office issued the Procurement Policy Note 01/22 – Contracts with suppliers from Russia and Belarus, alongside a list of frequently asked questions (“PPN”). This is the first official document to consider public sector contracts with companies linked to the Russian and Belarusian state regimes following the invasion of Ukraine by Russia. The PPN concerns the termination of such contracts and considers the related issue of new procurements involving such companies. It also draws important distinctions between central and local government statutory obligations.

Scope and timing

All central government departments, their executive agencies, and non-departmental public bodies are expected to apply PPN 01/22 provisions with immediate effect, while other public sector contracting authorities “should consider applying” its approach. The PPN notes that contracting authorities subject to section 17 of the Local Government Act 1988 are prohibited from considering non-commercial reasons in their procurement decisions, or for terminating contracts, and indicates that the Department for Levelling Up, Housing and Communities is considering an amendment through secondary legislation to address the issue.

Three key takeaways

The following issues of note arise for public authorities:

Identifying contracts – A proportionate and risk-based approach is suggested to identify Russian and Belarusian prime contractors. The focus should be on major contracts and those which could have the most impact and influence on the Russian or Belarusian regimes. However, the PPN applies to contracts below and above the thresholds of the Public Contracts Regulations 2015, indicating that monetary value is not the only factor to be considered when identifying relevant contracts.

Assessing risks – Terminating a contract should only be considered if there are suitable, commercially acceptable termination provisions in the contract, and assessments have been made as to (i) the criticality of the contract and the availability and affordability of alternative providers, and (ii) the financial and other implications and these have been mitigated. Assessments should be documented, and any recommendations approved by the appropriate senior commercial or procurement leader in the organisation. The guidance appended to the PPN provides example methodologies for assessing risk. The process set out in the contract should be followed precisely to ensure the termination is valid.

Exclusion from procurements –Regarding new procurements, public authorities could decline to consider (or otherwise exclude from participating in the procurement) bids from suppliers who are constituted or organised under the law of Russia or Belarus (as neither are party to any procurement agreements with the UK), unless the supplier is registered or has significant business operations in the UK, or in a country the UK has a relevant international agreement with reciprocal rights of access to public procurement. In this case, the non-discrimination, equal treatment, and remedy provisions contained within the Public Contracts Regulations 2015 apply.

Next steps

While the overarching recommendation of the PPN is that public sector organisations consider the specific circumstances, conduct appropriate and proportionate due diligence, and pursue legal routes of cancelling their contracts with Russian/Belarusian suppliers, it suggests seeking legal advice on more nuanced issues, most notably around contractual termination provisions and their implications, complying with public procurement obligations, and in the case of local authorities, being alive to specific local government legislation, which may change in the near future.

Juli Lau is Legal Director and Gonzalo Puertas is an Associate at Sharpe Pritchard LLP.

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