Prompt payment to SMEs critical for government contractors

The government is launching a package of measures designed to level the playing field for smaller businesses bidding to win government contracts, including proposals to exclude suppliers from major government procurements if they cannot demonstrate fair and effective payment practices with their subcontractors

Other plans include allowing subcontractors to have greater access to buying authorities to report poor payment performance, as part of moves to improve payment practice.

Further requirements mean suppliers will have to advertise subcontracting opportunities via the contracts finder website, and to provide the government with data showing how businesses in their supply chain, including small businesses, are benefiting from supplying to central government.

Each government department will be required to nominate a small business champion minister to ensure that small-and medium-sized enterprises (SMEs) are given a fair opportunity.

Oliver Dowden, minister for implementation, said: ‘We have set a challenging aspiration that 33% of procurement spend should be with small businesses by 2022 - and are doing more than ever to break down barriers for smaller firms.’

Mike Cherry, Federation of Small Businesses national chairman, said: ‘Each year, the UK public sector spends over £200bn on goods and services from third parties. As such a large and prominent customer in the economy, the government has a pivotal role to play in demonstrating what it is to be a good client.’

The Crown Commercial Service has launched a consultation on the proposals, which closes on 5 June. Under the plans, suppliers bidding for government contracts above a specific financial threshold, would have their approach to payment of their subcontractors assessed as part of the selection process.

This policy would apply to all central government departments, their executive agencies and non-departmental public bodies when undertaking procurements under the public contracts regulations 2015. The proposed financial threshold would be contracts over £5m per annum.

The government proposes that paying 95% of undisputed invoices within 60 days, over two consecutive six month periods, provides an appropriate benchmark of payment performance. The consultation considers the technical detail of how assessments would be made under existing government procurement arrangements.

Research from commercial law firm EMW shows that many of  top contractor groups used by the public sector paid their suppliers even later last year.

The average time taken to pay suppliers for ten major outsourcing groups, with a combined annual turnover of more than £39bn, increased to 31 days in 2017, from 29 days in 2016. EMW explains that central government departments are required to pay 80% of their invoices within five days.

Despite this, and even with Carillion removed, the average wait for payment for the other major outsourcing groups increased from 26 days to 28 days. Carillion was the worst performer in the group, taking an average of 62 days to pay its suppliers last year, a full week longer than the year before.

EMW says that late payment by major outsourcing groups hits SMEs in the supply chain the hardest, and argues that previous policies such as allowing businesses to levy interest and costs on late payments, and the creation of a small business commissioner have not had a significant effect on the problem.

Kam O’Neill, senior solicitor at EMW, said: ‘The problem of late payment among the outsourcing groups is not limited to Carillion – delays in paying invoices is virtually endemic across the sector.

‘SMEs will be hoping that the government’s plan to deny contracts to late payers will work – several other flagship policies on payment delays seem to have had little impact.’

Prompt payment by government suppliers is here.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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