Recently we have been asked to advise a number of schools on their catering contracts as there have been a number of communications from contractors and the Government which have created a lot of confusion in the sector.
We are aware that the Cabinet Office has issued a Procurement Policy Note (PPN No.2) called ‘Supplier relief due to COVID-19’ which states that, subject to certain conditions, where goods and services are either reduced or paused temporarily as a result of the coronavirus outbreak, contracting authorities should continue to pay at risk suppliers to ensure cash flow and supplier survival.
Schools and academy trusts are contracting authorities for the purposes of the Procurement Regulations 2015 and so the PPN is relevant guidance.
In addition, the Department for Education (‘DfE’) issued guidance for schools and academies (available here) on school food contracts on 31 March 2020 called, ‘Coronavirus (COVID-19): free school meals guidance for schools’. This references the PPN and states, “You should, therefore, continue to make payments to food suppliers that are considered at risk in relation to the cost of free school meals and universal infant free school meals. This can apply to up to 25% of the value of a contract and applies until the end of June 2020. It does not apply to the costs of meals usually purchased by parents for children who are not eligible for free school meals.”
As a result of the PPN, some of our clients have been contacted by contractors who have requested continued payment of their invoices and have said that they will not apply to the Government’s Job Retention Scheme (the ‘Scheme’) and place staff on furlough.
Care should be taken in any dealings with contractors and advice sought. We recommend that current contractual arrangements are reviewed. Hopefully schools can access their current contracts swiftly but if need be request a copy from the contractor.
It is our view that it may not be appropriate for most schools and academies to simply continue paying contractors, not least because the arrangements may well be complex and will be dependent on the receipt of funding. Notwithstanding the message in the PPN, schools and academies have a duty to manage public funds carefully and should not expose the school to an unacceptable level of financial risk, either by committing funds where there are shortfalls or to making payments without proper checks being made as to whether payment is prudent to organisations at serious risk.
As with other situations, it is difficult to generalise and variations in existing contracts might need to be looked at carefully, but we believe there is some scope to approach these arrangements having regard to some basic principles and reflecting a consistent approach where a number of schools are involved. We therefore suggest that schools consider the following when they are dealing with enquiries from their catering suppliers:
Free School Meals
- Where primary schools have received funding for universal infant free school meals and some provision is still being made by the contractor, then subject to the terms of your contract, it may be appropriate to pass that funding on to suppliers.
- The position in relation to free school meals (FSM), the support for families on low incomes, is more complicated. This is because schools are expected to continue to provide FSM to those who are eligible, whether they are from one of the limited groups of children who can continue to attend school or if they are staying at home.
The Government has given schools the discretion to decide how to provide FSM in the current circumstances so if schools are not able to provide eligible pupils with meals or food parcels through their current food provider, they can provide eligible families with supermarket vouchers now helpfully both during term time and for the moment during the Easter holidays. Details of the new scheme have now been published (click here). The voucher scheme is being managed by Edenred and anticipates schools making claims for vouchers which they distribute to families.
Our advice is that if schools are managing the issuing of vouchers, it would not be appropriate to pass funding to contractors.
It will be important to check if any payments from the Government will cover the entire cost of the alternative arrangements or if they are just intended to ‘top-up’ any funding that has already been allocated for FSMs. One interpretation of the guidance is that the entire cost of the voucher scheme could be centrally funded by the Government and other costs will be reimbursed to ‘top-up’ any shortfall but this is not clear and clarification is needed before agreeing to pay this funding to a contractor.
Non Free School Meals
- Schools should not and indeed cannot make payments to contractors for other meals which are funded by parents (as obviously there is no income to support this).
Schools being asked to make payments to contractors for 100%, or even 20%, of their staffing costs should ask contractors for clarity as to the basis for payment. Clearly a request being made simply because parents are no longer making payments to the contractor (where direct payment was made) is not a reasonable basis for the schools to now make payment. Catering contractors are able to use the Government’s Coronavirus Job Retention Scheme and contractors should be asked whether they intend to use the scheme (and if not why not). The Scheme enables employers to make a claim which will fund up to 80% of an employee’s salary up to a maximum of £2,500 per month. Staff must be placed on furlough leave (which means they cannot work) and must have been on PAYE as at 28th February 2020. The employer is not required to top up the 20% and as the contractor is not required to top up funding to the employee, there is no justification for the school doing so.
Unplanned Closure Clauses and Force Majeure
- Some contractors have been seeking to rely on ‘unplanned closure’ and “force majeure” clauses in contracts and are asking schools to pay a daily charge in relation to all staff costs, even if a service is not being provided by the contractor. Advice should be sought before any payment is agreed.
While it is appropriate to pay an appropriate proportion of the costs if a caterer is continuing to provide some level of service, it is important to check if the contract also includes a clause which requires the supplier to mitigate its losses. In these circumstances, we take the view that contractors should be seeking to mitigate their losses by putting staff on furlough leave, instead of asking the school to pick up the costs. There might be some justification for paying an amount on account of management costs, but contractors will need to provide what these are by opening up their books to the school.
Helpfully, the RPA has said that it will provide support for schools who become embroiled in contract disputes and a claim may need to be made in the normal way. You should contact us immediately if a letter before action or statutory demand is received and it may be sensible to check the school’s general email inbox and/or whatever notice provisions there are in the catering contract.
Termination and Re-opening
- Schools should also be cautious about terminating the contract if the contractor provided a capital contribution at the outset. It’s possible the contract may make provision for the undepreciated amount of any contribution to be paid as a lump sum on termination, although there might be issues with how that sum is now calculated.
- Any termination may also trigger a TUPE transfer of staff “back” to the school. Contractors will be obliged to provide the usual statutory information but the first question the school will want answered is whether any staff TUPEing back have been furloughed.
- Schools will also need to keep in mind that if the contractor becomes insolvent, it is likely that any money provided to the contractor (by way of top up or to secure provision) will be lost.
- Given the spirit of the Government’s guidance, schools should be mindful of what arrangements might need to be put in place when schools fully reopen. It is likely contractors will need some support remobilising and we feel it’s likely the recent events will trigger a review of contractual arrangements. We can help with that.
Whatever you ultimately agree with your catering supplier, the arrangements should be documented to ensure there is clarity. You will need to take into account the individual contractual arrangements in place and the school’s particular circumstances at this point in time, which our School Support Service team can advise further on if required (firstname.lastname@example.org or 0345 070 7437).