New Payment Terms For Public Sector Contractors

When the latest budget was released by Alistair Darling in late March, the vast majority of the country was looking at its impact it would have on our jobs, on our taxations, our schooling and health systems and our own personal spending patterns. There was one step launched as part of the 2010 budget which many of us will not have seen though. This write-up aims to uncover some of the details of this fresh initiative.

The announcement was in respect to fair payment in the public sector industry, with specific focus on contractors and their subsequent sub-contractors. The new ruling says that from March 25th 2010, any service provider working for a department in the public sector will have a contractual responsibility to pay their own sub-contractors inside of 30 days.

It is certainly worth noting that the 30 day clause doesn’t apply to payments from the governmental branches to first tier contractors, but to those 1st tier contractors making punctual payments to lower level contractors that they are hiring on their own. Nevertheless, all central government departments now have to pay 80 percent of any undisputed invoices for goods or services within 5 days. This is a measure of their own commitment to a more fair payment system.

Why It’s Being Done

This step has been made as one element of an attempt to enhance the timeliness of payments arising from public segment work up and down the supply chain. Public segment work has a decent reputation for the prompt payment of accounts at the top levels of sub-contracted work, however this gain has not always been felt by sub-contractors who are two or three levels of separation from that initial payment.

If viewed as part of the larger picture, this particular payment move is being utilised to try and help the numbers of small and medium sized businesses (SMEs) that operate in this country. As we experience the tailing off of the latest recession, many businesses both large and small have suffered the strain. Simply surviving until now in the current financial circumstances has been an accomplishment for many.

To help these companies manage their cash flow more efficiently, suppliers to the public segment are being paid faster than has previously been the case. 19 out of 20 bills to central government departments from primary contractors are being settled within 10 days. The government is now seeking to spread this benefit throughout the sub-contracting supply chain.

With so many different agencies working together on every office fit out cash circulation frequently becomes a complex process.

Who It Affects

This new ruling will impact any contractors and sub-contractors all through the supply chain on projects for any government departments, government agencies along with NDPBs (non-departmental public bodies). It is designed to help the sub-contractors deeper down the chain rather than offering rewards simply to the primary contractors at the top levels. The 30 day payment condition is only relevant to any new contracts for projects and doesn’t need to be used retrospectively.

Who It Doesn’t Affect

The 30 day payment system is only appropriate to personnel in the supply sequence for public sector projects and is not part of common business law. It therefore doesn’t affect any contractors in the non-public sector. Since the measure does not have to be applied to active agreements, several of the works for the 2012 Olympic Games won’t be obligated to adopt the system.

What It Means For Business

What this should mean for small companies that are engaged with public industry works is an improvement in the speed with which they will collect payment for their work. While some repayment policies have been recognised to contain range with regard to certain “bending” of the guidelines, this new scheme does seem to be far more rigorous in terms of delivering on its potential. At least it seems that way so far.

It does naturally mean that public sector agreements can no longer be received by primary contractors which do not agree to the 30 day payment clause. Further than this, the swiftness of payments all the way down the supply chain might turn out to be a variable while deciding which contractors will be chosen. The government are actively encouraging their main building contractors to pay second and third tier companies before the 30 day deadline is up, which may see contractors making use of speed of payments as one part of their own proposals. This may increase competition for work since smaller sized companies may be able to be competitive on something other than cost.

The new payment steps do not have to be applied to any existing contracts that the governmental departments in question already have. This particular fact will help to lessen the period of time spent on adjusting these contracts and keep the paperwork required to a minimum, and it ought to allow the new program to come into practice much much more easily. Divisions are being asked to encourage their main contractors to follow the 30 day payment program on a voluntary basis where ever possible.

From now, if any government department determines that a fit out is required they must include payments deadlines as part of the deal.

This new commitment to faster payments throughout the supply string is a sister measure to some other policies and acts that are being implemented in order to promote a fairer working environment up and down the supply sequence.

Fair Payment Charter

The Fair Payment Charter is one part of a larger instruction created by the Office for Government Commerce (OGC) designed to promote the very best “fair payment” practices for businesses operating within the world of public sector works. The terms set out by this charter came into force from the 1st January 2008 aimed at all contracts in the public segment. Whilst it is aimed at the public segment, all these recommendations can be used by companies in the private sector as well.

This charter is by no means a legally binding document, and it does not supersede any terms laid out in particular workers’ deals. It’s simply a record that sets out a range of responsibilities that are hoped to be adopted throughout the market. Some of the main points in the charter are the timeliness and correctness of payments that are made, that the payment procedure should be transparent up and down the supply chain and that all parties within the supply chain need to work collectively to ensure appropriate cash flows at all levels.

Prompt Payment Code

The Prompt Payment Code is one more initiative that is tailored toward helping small and medium size businesses, particularly in terms of their cash flow. It has been produced by the Government, with assistance from the Institute of Credit Management (ICM) and promotes the adoption of best payment practices and openness for any kind of agency that adopts it. It sits alongside existing fair payment schemes.

Once again, this particular code is not a legally binding document and does not outrank any stipulations of working contracts between companies and individuals. It’s a guide for companies which lays out a standard set of fair payment procedures designed to assist all affiliates operating within the public segment. As well as well-timed and reasonable payments, it also sets out guidelines for the dispute of invoices and any complaints raised by suppliers.

Companies that sign up to the code must undergo an application procedure which establishes if they have suitable procedures in place to comply with the guidelines laid out in the code. After they have passed these checks they can then display the PPC logo on their own business brochures and website as a sign of their dedication to working inside of a fair payment environment.
One particular company taking note of public sector pay implications are http://tjhall.co.ukwho specialize in office design and refurbishment in the Midlands.

Implementation Of The Code

The specific wording that should be followed by firms operating in the public segment can be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. The particular clause that should be adopted within the market is as follows:”Where the Contractor enters into a sub-contract with a supplier or contractor for the purpose of performing its obligations under the Contract, it shall ensure that a provision is included in such a sub-contract which requires payment to be made of all sums due by the Contractor to the sub-contractor within a specified period not exceeding 30 days from the receipt of a valid invoice.”

The OGC wants companies to adopt the contract models that it has produced as a system of best practice. This doesn’t always mean that they have to be adopted word for word in every circumstance, because every business is unique and operates under a unique collection of conditions.

Political Impact

As with any kind of program introduced by Government there is a certain amount of political maneuvering that takes place. Although all sides of the political spectrum can certainly consent that there’s a vital requirement for fair payment within the public sector, there are still a number of additional steps that can be taken that can be employed by all parties to boost their own campaigns.

David Cameron and the Tory party have recently come out with a promise to deal with unfair pay in the public segment. The scheme will put into action a broad sweep of pay cuts throughout the senior employees within the public segment by associating the particular pay grades of the chief personnel to the lowest paid staff in their business. A fair pay review would happen with the prime goal of creating a 20-fold pay scale, so a senior worker could not earn more than 20 times what the lowest paid staff member does.

Whilst Cameron recognises that there is already a commitment to pay transparency, justness and speed, he also says that “it is time to go further.” The party leader says that by dealing with the issue of fair pay within the public segment is a sign of just how his party has grown to be the most progressive party in the United kingdom and ought to go some way to dispel the traditional prejudices linked with the Conservative party. He furthermore uses the steps to launch an attack on the Labour party, claiming that they are a government past their sell-by date.