22.  Frameworks and resolution planning

Concerns are expressed by client review participants as to the risk of supplier insolvency which include questions as to how frameworks can help to manage this risk. The Construction Playbook requires that:

■  Resolution planning information is provided by 'suppliers of critical public works contracts' to 'help to ensure government is prepared for any risk to the continuity of critical public works projects posed by the insolvency of critical suppliers' (p.12)

■  'Contracting authorities and suppliers should develop open and transparent relationships to enable both sides to act quickly in the event of financial distress' (p.60).

Frameworks establish relationships with multiple suppliers, and framework contracts can provide a strategic medium through which to maintain the continuity of critical public works projects in the event of a supplier's insolvency. Frameworks can govern the sharing of relevant information and the agreement of action plans that help to avoid the risk of supplier insolvency and to mitigate its effects on the projects called off by framework clients.

Gold Standard framework contracts state open and transparent resolution planning systems, at framework level and at project level, through which framework providers, clients, managers and suppliers respond quickly to signs of a supplier's financial distress. These systems are flexible and transparent and they include commitments to:

■  Create and update a shared risk register and participate in joint risk management

■  Give early warning of supplier distress

■  Participate in a Core Group or equivalent joint decision -making group to consider the impact of supplier distress and the potential for mitigating actions

■  Implement a shared plan and timetable of agreed mitigating actions.

Mitigating actions can include temporary or permanent adjustments in the allocation of works, services and supplies pursuant to the framework, provided that the nature and timing of these adjustments and any other mitigating actions:

■  Follow an open and transparent process

■  Include an opportunity for consultation with the relevant supplier

■  Are based on reliable information as to the supplier's financial distress

■  Take into account the risk that premature actions may exacerbate the supplier's financial distress.

Gold Standard framework providers, clients and managers explain the proposed resolution planning systems to prospective suppliers and ensure that suppliers understand and commit to implement these systems. Provisions for bonds, guarantees and other security intended to mitigate insolvency risk should be 'proportionate to the risk identified and the criticality of the contract, considering the impact on the overall value for money of a contract' (p.61).

Specific actions include:

Framework strategy

■  Consider and establish a resolution planning system for the framework provider and clients to manage any risk to the continuity of critical public works projects posed by the insolvency of critical suppliers.

Framework procurement

■  State open and transparent systems for resolution planning and ensure that suppliers understand and commit to implement these systems.

Framework contract

■  State transparent and flexible resolution planning systems, at framework level and project level, by which the framework provider, clients, manager and suppliers will act quickly in responding to and mitigating the effects of a supplier's financial distress.