The perennial late payments problem has been getting a lot of attention recently with news from the government that it is considering new laws including giving trade bodies the right to tackle abuses (see news).
That would probably help larger contractors and other suppliers get paid more promptly by clients. Action might be coming to help those further down the supply chain as well as the news comes at the same time as a report from Lord Young – The Report on Small Firms 2010– 2015 – that highlights what has to be done to ensure smaller firms are not overburdened by payment problems, should they ever manage to get a public sector contract in a world of mega frameworks.
Lord Young, the prime minister’s own enterprise advisor, calls for a legal requirement for public bodies and their supply chains to pay invoices within 30 days. The government should consider automatic payment of interest if the changes fail to improve late payments to suppliers, he recommends.
The fact that much needs to be done to free up vital cash flows is widely enough recognised, and the guilty parties are well known; in construction main contractors shoulder most of the blame most of the time. They might even deserve it.
It also might appear from the news of government consultations and the production of a steady stream of procurement and payment practice reports in recent years that the public sector is leading the way to a brave new prompt payment world; but the embarrassing thing for the public sector is that it is emerging as a very poor payments performer itself.
Using the Freedom of Information Act the Specialist Engineering Contractors’ Group (SECG) has assembled a damning dossier of routine payment abuses across the public sector. The SECG research showed that 38% of public bodies fail to pay main contractors within 30 days of invoice.
Some 90% admitted to holding retentions of as much as 10%, using the cash for their own cashflow needs. There have been reports recently that some councils are managing to stockpile cash despite the austerity imposed on them by central government – now we can see where some of them get it.
The public sector bodies investigated included councils, NHS Trusts, universities and fire and police services. Only about 25% of them could claim to have measures in place to track payment performance of their supply chains. Some authorities were starting to use Project Bank Accounts (PBAs) but 86% were not making exclusive use of the PAS91 pre qualification questionnaire. The SECG is unsurprisingly demanding action to replace reports and voluntary fair payment charters to stamp out public sector abuses.
The SECG says action should include excluding main contractors not paying within 30 days from further public sector contracts for 12 months. Retentions should be placed in trust and PBAs introduced across the public sector.
Since public sector bodies seem to be adroit at manipulating payments to suit themselves the specialists are also calling for a procurement regulator to be created to monitor payment practices, and armed with powers to order changes in behaviour. Construction contracts are already effectively regulated since the introduction of the Construction Act. It is only a short step from there to setting up a payments regulator.
Nick Barrett
Editor