When the newest budget was released by Alistair Darling in late March, the bulk of the country was browsing at the effect it would have on our jobs, on our taxations, our schooling and health systems and our own individual spending patterns. There was one initiative launched as part of the 2010 budget that most of us will not have seen though. This article aims to shed light on a few of the facts of this new initiative.
The announcement was in regard to fair payment in the public sector field, with specific focus on contractors and subsequent sub-contractors. The new ruling says that from March 25th 2010, any contractor working for a department in the public segment will have a legal responsibility to pay their sub-contractors inside of 30 days. The scope of this initiative does only cover new contracts.
It is worth noting that this 30 day clause does not apply to payments from the governmental branches to first tier contractors, but to those 1st tier contractors making prompt payments to lower level contractors that they are hiring on their own. Nevertheless, all central government units now have to pay 80 percent of any unchallenged invoices for goods or services inside of 5 days.
Why It’s Being Done
This move has been made as one element of an effort to enhance the timeliness of payments arising from public sector jobs up and down the supply chain. Public segment work has a good reputation for the prompt payment of bills at the top levels of sub-contracted work, however this gain has not at all times been felt by sub-contractors who are two or three levels of separation from that initial payment.
When viewed as part of the larger picture, this payment initiative is being used to try to help the numbers of small as well as medium sized businesses (SMEs) that operate in this nation. As we feel the end of the latest recession, many businesses both large and small have experienced the strain. Merely surviving until now in the current financial situation has been an accomplishment for most. The government is now looking to ensure that it can assist as many of these businesses as possible.
To help these businesses manage their cash flow more efficiently, suppliers to the public sector are being paid more quickly than has previously been the case. 19 out of 20 invoices to central government departments from primary contractors are being paid inside of 10 days.
For building organisations working upon brand new East Midlands fit out contractors projects, payment policies may well become a determining factor.
Who It Affects
The new ruling will affect any contractors and sub-contractors through the supply chain on works for all government departments, government agencies and NDPBs (non-departmental public bodies). It’s designed to aid the sub-contractors further down the chain rather than providing benefits simply to the main contractors at the top levels.
Who It Doesn’t Affect
The 30 day payment program is only applicable to personnel in the supply chain for public segment projects and is not part of common business law. It therefore doesn’t affect any contractors within the non-public market. Because the measure does not have to be applied to existing agreements, many of the works for the 2012 Olympic Games won’t be obligated to adopt the program.
What It Means For Business
What this step should mean with regard to small firms that are engaged with public segment projects is an increase with the pace with which they collect payment for their performance. While several payment policies have been recognised to contain range with regard to certain “bending” of the guidelines, this fresh scheme does seem to be far more rigid in terms of delivering on its potential.
It will of course mean that public segment contracts can no longer be won by main contractors that don’t agree to the 30 day payment clause. Further than this, the swiftness of payments all the way down the supply chain might become a factor when deciding which contractors will be picked. The government are positively encouraging their main contractors to pay second and third tier businesses before the 30 day deadline is up, which can see contractors making use of speed of payments as one part of their proposals. This could improve competition for work because smaller sized businesses might be able to be competitive on something other than cost.
The fresh payment measures do not have to be put on to any existing contracts which the governmental departments in question already have. This particular fact may help to reduce the amount of time spent on adjusting the contracts and hold the paperwork needed to a minimum, and it should enable the new system to come into practice much more smoothly.
Managing the long supply chain of employees taking part with fit outsdemands competence and experience which are available from professional contactors.
This fresh commitment to quicker payments throughout the supply chain is a related measure to some other policies and acts which are being executed in order to encourage a fairer working atmosphere up and down the supply chain. Two of those other measures include:
Fair Payment Charter
The Fair Payment Charter forms part of a bigger instruction created by the Office for Government Commerce (OGC) designed to encourage the best “fair payment” procedures for companies working in the realm of public segment projects. The conditions set down by this charter came into force from the 1st January 2008 directed at all agreements in the public segment. While it is focused at the public segment, all these recommendations can be used by firms in the private sector as well.
This charter is by no means a lawfully binding record, and it doesn’t supersede any terms laid out by specific workers’ contracts. It’s simply a document that lays out a number of responsibilities that are hoped to be followed throughout the industry. Some of the main factors 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 help appropriate cash flows at all levels.
Prompt Payment Code
The Prompt Payment Code is another move that is geared toward assisting small and medium sized firms, particularly in terms of cash flow. It has been created by the Government, with assistance from the Institute of Credit Management (ICM) and encourages the adoption of best payment practices and openness for any kind of agency which adopts it.
Once again, this code is not a legally binding contract and doesn’t override any stipulations of working agreements between businesses and individuals. It’s a guideline for businesses that sets out a standard collection of fair payment procedures developed to help all members operating within the public segment.
Firms that sign up to the code have to go through an application process which establishes if they have suitable measures in place to comply with the recommendations laid out in the code. After they have passed these checks they can show the PPC logo on their own business brochures and website as a sign of their commitment to working inside of a fair payment environment.
Companies across this nation perform refurbs each and every day which hire many contractors with unique abilities.
Implementation Of The Code
The specific wording that must be followed by organisations operating within the public segment may be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. “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 firms to follow the contract models that it has produced as a program of best practice. This does not always imply that they must be followed word for word in each circumstance, given that each business is different and works under a unique collection of conditions. By making public sector firms adopt just the prompt payment clause set out over an industry wide scheme can be introduced with out compromising the versatility to set out department specific terms .
Political Impact
As with any program introduced by Government there is actually a particular amount of political maneuvering that takes place. Although all sides of the political spectrum can agree that there is a critical requirement for fair payment within the public sector, there are still a number of further actions that may be taken that can be employed by all parties to boost their own campaigns. This becomes even more apparent during an election year.
David Cameron and the Tory party have recently come out with a pledge to tackle unfair pay in the public sector. The plan will implement a broad sweep of pay cuts throughout the senior workers within the public sector by associating the pay grades of the senior staff to the lowest paid individuals within their organisation.
Although Cameron acknowledges that there is currently a commitment to pay transparency, justness and timeliness, he also says that “it is time to go further.” The party head claims that by dealing with the issue of fair pay in the public segment is a sign of how his party has become the most progressive party in the British isles and ought to go some way to dispel the traditional prejudices associated with the Conservative party. He also uses the steps to release an attack on the Labour party, claiming that they are a government past their sell-by date.