Departments told to review contracts with Russian suppliers

Public bodies urged to find ways to "sever their commercial ties to Russia" – but guidance show the action they can take is limited
Public bodies are most exposed to Russian and Belarusian suppliers in the energy markets, the guidance says. Photo: Tom Page/Flickr/CC BY-SA 2.0

Government departments have been told to consider cancelling any contracts they have with Russian or Belarusian suppliers in light of Russia's war on Ukraine.

Guidance issued by the Cabinet Office yesterday instructs public bodies to review their contract portfolios and identify any deals where the prime contractor is a Russian or Belarusian supplier. Having done so, they should consider terminating any such contracts.

There are significant constraints on when departments can cut contracts short, however.

Contract terminations must follow a legally compliant process, and can only go ahead if the department can find an alternative supplier “in line with value for money, affordability and with minimal disruption to public services”.

The guidance includes a particular warning on ending contracts with energy suppliers – the area where the public sector is most exposed to Russian and Belarusian suppliers – because of fluctuating prices and the market’s volatility.

“You must seek advice from an energy expert and/or a relevant public sector buying organisation before taking action to terminate an existing energy supply contract to ensure an alternative source of supply is available and affordable,” the document says.

Meanwhile, departments must get Treasury approval before ending any transactions that “set precedents, are novel, contentious or could cause repercussions elsewhere in the public sector”, in line with the exchequer’s Managing Public Money guidance.

“In-scope organisations should take a proportionate and risk-based approach to reviewing their contract portfolio to identify Russian and Belarusian prime contractors,” the guidance, which applies to all central government departments, their executive agencies and non-departmental public bodies, says.

“The focus should be on major contracts and those which could have the most impact and influence on the Russian or Belarusian regimes,” it adds.

The guidance also notes that, while departments can opt to exclude bids from some Russian or Belarusian suppliers from new procurement processes, there are several instances where they cannot do so.

If the supplier – or any member of their supply chain – is registered in the UK or in a country the UK has a relevant international agreement with reciprocal rights of access to public procurement, they cannot be automatically excluded from a new procurement because this would contravene non-discrimination rules, the guidance says.

For the same reason, departments cannot automatically exclude suppliers that have “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”.

“The government is supportive of public bodies seeking to divest from Russia and contracting authorities should consider how they can further cut ties with companies backed by, or linked to, the Russian and Belarusian state regimes, while minimising the impact to taxpayers and the delivery of public services,” the guidance says.

The document stresses the importance of taking a “proportionate” and “risk-based approach”.

“Contracts may be complex and take a period of time to exit from; you should ensure you prioritise and take action on the areas of the highest impact. The reasons for terminating a contract should be documented and transparent; the final decision to terminate a contract rests with the contracting authority with responsibility for the contract,” it adds.

Announcing the new guidance, Cabinet Office minister Steve Barclay said: “Public money should not fund Putin’s war machine. We are asking hospitals, councils and other organisations across the public sector to urgently look at all the ways they can go further to sever their commercial ties to Russia.

“The government will continue to work closely with these organisations, ensuring they are able to take the necessary steps as quickly as possible, including taking legal routes where necessary.”

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