PPN 01/22 - Contracts with suppliers from Russia and Belarus

The UK Government has published a new PPN (01/22), Contracts with suppliers from Russia and Belarus. PPN 01/22 follows financial sanctions levied by the Government in response to Russia’s invasion of Ukraine and requests that “Contracting authorities should consider how they can further cut ties with companies backed by the states of Russia and Belarus.”

The critical point to note is that there is no requirement to terminate contracts with Russian and Belarusian suppliers but to review whether these contracts should be terminated. Termination should only occur if certain criteria are met, and all contractual termination requirements must be complied with.

The PPN does not require prime contractors to terminate sub-contracts with Russian or Belarusian suppliers or look at their entire supply chain.

There is also no requirement to exclude Russian and Belarusian suppliers from new procurements but, provided they are not registered in the UK or have significant business operations in the UK, it is possible to “decline to consider (or otherwise exclude from participating in the procurement process)” bids from Russian or Belarusian suppliers.

Russia and Belarusian prime contractors

PPN 01/22 defines Russian and Belarusian suppliers as:

• (i) an entity constituted or organised under the law of Russia or Belarus; or
• (ii) an entity registered in the UK or with substantive business operations in the UK, or another country but controlled by an entity based in Russia or Belarus (e.g. a parent company or by ‘Persons of Significant Control’)

Application

PPN 01/22 applies with immediate effect to:

• all Central Government Departments, their Executive Agencies and Non Departmental Public Bodies (“In-Scope Organisations”); and
• all contracts “where it is relevant and proportionate to do so”.

Public sector contracting authorities which are not In-Scope Organisations should also consider following the guidance. The guidance does not apply to Contracting Authorities subject to Section 17 of the Local Government Act 1998 who are prohibited from taking account of a supplier’s country in procurement decisions.

Existing Contracts

In-Scope Organisations should review all contracts and consider terminating contracts with Russian and/or Belarusian prime contractors where the following circumstances apply:

• There are suitable, commercially acceptable termination provisions contained in the contract.
• An assessment has been made as to the criticality of the contract and the availability and affordability of alternative providers.
• An assessment has been made of the financial and other implications of termination and these have been mitigated.

Assessments must be documented and any recommendations approved by the relevant Commercial Director and Accounting Officer. Contractual termination procedures must then be followed.

As an alternative to termination, the PPN suggests reducing volume-based contracts to zero.

The PPN provides further guidance on how to identify relevant contracts, undertaking risk assessments, terminating contracts, managing costs, and reporting and record keeping.

New Procurements

The PPN does not require In-Scope Organisations to exclude bids from Russian or Belarusian suppliers but it is possible to do so. The exception to this is where the supplier or a member of their supply chain delivering the contract:

• is registered in the UK or in a country the UK has a relevant international agreement with reciprocal rights of access to public procurement; and/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 these circumstances, the non-discrimination and equal treatment provisions of the Public Contract Regulations 2015 will apply.