On 28 March 2022, the Procurement Policy Note 01/22 – Contracts with suppliers from Russia and Belarus was published, in addition to a list of frequently asked questions (the PPN). The PPN applies to all central government departments, their executive agencies and non-departmental public bodies and is the first official document to consider how contracting authorities can or should consider cutting ties with companies backed by Russia/Belarus with immediate effect. The wider public sector is encouraged to follow suit.
The PPN states that in-scope organisations should:
- Review their contract portfolio to identify any instances where the main contractor is Russian/Belarusian
- Where such main contractor is identified, steps should be taken to terminate the contract in a legally compliant manner
- Only proceed to terminate if an alternative supplier can be sourced in line with value for money, affordability and with minimal disruption to public services
The PPN makes clear that any decision to terminate an existing contract or decline the award of a new contract because of a supplier’s Russian or Belarussian backing must be implemented lawfully. In other words, authorities must use the existing lawful means at their disposal to cease or refuse trading with Russian or Belarussian entities; the PPN is not a carte blanche to terminate or decline award of contracts to entities with Russian/Belarussian ties with impunity. Local authorities, in particular, will be aware of the restraint of s.17 of the Local Government Act 1988, which prohibits “non-commercial considerations” such as geography or nationality for contract awards.
In respect of any new procurements, the PPN provides that the in-scope organisation could decline to consider (or otherwise exclude from participating) bids from suppliers who are constituted or organised under the law of Russia or Belarus.
Our expectation is that the contracts likely to be caught by this PPN are substantially in the energy sectors, but the extent of Russian/Belarussian influence in supplier organisations may take the public sector by surprise.
It is highly unusual for the government to use public procurement as a policy tool (e.g. for anything other than buying) in this way. However, as covered extensively by the press, various local authorities have been severing ties with Russian/Belarussian suppliers and, as such, they must be confident that the political benefit will outweigh any risk of challenge.