The UK government will take account of a supplier’s approach to payment when it comes to allowing it to tender for public sector projects, according to new payment practice rules.
Headline measures say that tenderers will have to confirm that they have robust processes in place to pay at least 95% of their invoices within 60 days or more or risk being barred from government work.
The new hardline on late payments came into force on 1 September. Already however big question marks surround whether the new policy represents much of a hardline at all.
The government is effectively claiming that it only wants to do business with companies that promptly pay their suppliers, many of which are small businesses that can be destroyed because of the impact of late payment on cash flow.
Under the new regime businesses that cannot demonstrate prompt payment face being cut out of public sector procurement processes. Not being able to win government contracts would be a crushing blow for even the largest contractors and other suppliers.
Cabinet Office explanations of the new policy warn that all ‘in scope’ organisations will implement the new policy; this includes all central government departments, their executive agencies and non-departmental public bodies.
It will cover major contracts, framework agreements and DPS’ where the total contracts awarded are anticipated to exceed £5 million (excluding VAT) per year.
In addition to the traditional tendering hoops that will have to be jumped through, tenderers will have to answer a set of selection questions to assess the effectiveness of their payments systems, to prove that a system exists whereby their suppliers can in fact be paid on time.
Government spokesmen have said they expect to lose some major suppliers as a result of the new rules. Tier one suppliers will no doubt make some changes and begin to reform their processes, but there is deep scepticism that any of the major firms will be banished from tender lists even if they don’t do any more than pay lip service to the new regime and take full advantage of what look like loopholes in the rules.
The new rules say that companies failing to reach the 95% standard will still be able to bid for work providing they are either a new entrant or have paid at least 75% of invoices within 60 days in at least one of the two previous reporting periods. They would also have to show that they have a plan to achieve the required standard.
Disputed invoices would also be able to be set aside for the purposes of passing the compliance test. The Cabinet Office recognises the difficulty of raising cash to finance the hit to cash flows that will be suffered by main contractors, but says the 75% concession is temporary, perhaps for a year. But perhaps for longer?
Some are going to struggle to even meet a 75% target but the concessions are fuelling suspicions that the new rules won’t be enforced as strongly as they would need to be to end late payment practices. If they are, large suppliers are going to struggle to fund the cash flow hit. There are no easy routes away from the problem of late payments.
Nick Barrett
Editor