As the newest budget was released by Mr Darling in late March, the vast majority of the country was looking at the impact it would have on our jobs, on our taxations, our education and health programs and our own individual spending habits. There was one particular initiative launched as part of the 2010 budget that most of us will not have noticed though. This post seeks to shed light on a few of the facts of this new initiative.
The announcement is in respect to fair payment within the public sector industry, with specific focus on contractors and their subsequent sub-contractors. The new ruling declares that from March 25th 2010, any service provider working for a division in the public sector will have a legal responsibility to pay their sub-contractors inside of 30 days.
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 first 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% of any unchallenged invoices for goods or services within 5 days.
Why It’s Being Done
This step has been made as part of an attempt to improve the timeliness of payments coming from public sector work up and down the supply chain. Public sector work has a decent reputation for the prompt payment of bills at the top levels of sub-contracted work, however this gain has not always been experienced by sub-contractors who are two or three levels of separation from that initial payment. The inclusion of a 30 day payment clause ought to help to distribute this benefit to all sub-contractors working on public sector jobs.
When viewed as part of the bigger picture, this particular payment move is being utilised to try to help the numbers of small as well as medium sized businesses (SMEs) that operate in this country. As we feel the tailing off of the latest recession, many businesses both large and small have experienced the strain. Merely surviving until now in the present financial situation has been an achievement for many.
To help these businesses manage their cash flow more effectively, suppliers to the public sector are being paid faster than has ever before been the case. 19 out of 20 invoices to central government departments from main contractors are being settled inside of 10 days. The government is now seeking to distribute this benefit throughout the sub-contracting supply chain.
Any public sector corporation planning any kind of commercial office fit out must currently adjust contracts for any contractors they use.
Who It Affects
The new ruling will impact any contractors and sub-contractors through the supply chain on works for any government departments, government agencies along with NDPBs (non-departmental public bodies). It’s designed to help the sub-contractors further down the chain rather than offering rewards only to the primary contractors at the higer levels.
Who It Doesn’t Affect
The 30 day payment system is only relevant to contractors in the supply chain for public segment works and isn’t part of standard business regulation. It therefore does not impact any contractors in the non-public sector. Since the measure does not need 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 step should mean for small firms that are involved with public segment projects is an increase in the pace with which they will collect payment for their performance. Whilst several repayment procedures have been recognised to contain range with regard to certain “bending” of the rules, this fresh plan does appear to be far more rigorous in terms of delivering on its potential. At least it looks that way so far.
It does of course mean that public sector contracts can no longer be won by primary contractors who don’t agree to the 30 day payment terms. Further than this, the swiftness of payments down the supply chain could turn out to be a factor while deciding which contractors will be selected. The government are positively encouraging their main contractors to pay 2nd and third tier firms before the 30 day deadline is up, which could see contractors using speed of payments as part of their own plans. This may increase competition for work because smaller sized businesses might be able to compete on something other than cost.
The new payment measures do not have to be applied to any existing contracts which the governmental departments in question currently have. This particular fact will help to reduce the period of time spent on adjusting these contracts and keep the paperwork necessary to a minimum, and it should enable the new program to come into practice much more smoothly.
If your business is thinking of getting any kinf of commercial office fit out and it operates inside the public segment then this particular post might assist you.
This new commitments to faster payments throughout the supply chain is a related measure to other policies and acts which are being executed in order to promote a fairer working atmosphere up and down the supply sequence.
Fair Payment Charter
The Fair Payment Charter forms one part of a larger guide developed by the Office for Government Commerce (OGC) designed to encourage the best “fair payment” procedures for companies working within the realm of public sector projects. The terms set out by the charter came into force from the 1st January 2008 targeted at all agreements in the public segment. While it is focused at the public segment, these recommendations can be used by businesses in the private sector as well.
This charter is by no means a lawfully binding record, and it does not supersede any of the conditions laid out in specific workers’ contracts. It is simply a document which lays out a number of responsibilities that are hoped to be adopted throughout the market. Some of the major factors in the charter are the swiftness and correctness of payments that are made, that the payment process should be transparent up and down the supply string and also that all points within the supply chain should work jointly to help appropriate cash flows at many levels.
Prompt Payment Code
The Prompt Payment Code is one more move that is tailored toward assisting small and medium sized firms, particularly in terms of their cash flow. It has been produced by the Government, with support from the Institute of Credit Management (ICM) and encourages the usage of best payment practices and transparency for any agency which adopts it.
Again, this particular code is not a legally binding contract and doesn’t override any stipulations of working agreements between companies and individuals. It is a guide for companies which sets out a standard set of fair payment policies developed to assist all affiliates operating inside the public segment. As well as timely and fair payments, it also lays out guidelines for the challenge of invoices and any complaints raised by suppliers.
Companies that sign up to the code must undertake an application procedure that establishes if they have appropriate measures in place to comply with the recommendations set out in the code. After they have passed all these checks they can display the PPC logo on their very own company brochures and web site as an indicator of their dedication to operating within a fair payment environment.
Governmental sections and branches don’t often have refurbishments although good workspace planning may yield enhancements in production.
Implementation Of The Code
The exact wording that must be adopted by organisations working within the public segment may be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. The specific clause that should be adopted within the market is :”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 would like companies to follow the contract models that it has developed as a program of best practice. This doesn’t always imply that they must be adopted word for word in every circumstance, because each organisation is different and works under a unique set of conditions.
Political Impact
As with any kind of measure introduced by Government there is a particular amount of political maneuvering that goes on. Whilst all sides of the political spectrum can certainly agree that there’s a critical need for fair payment in the public sector, there are still a number of additional steps that may be taken that could be used by all parties to boost their own campaigns.
David Cameron and the Tory party have recently created a promise to tackle unfair pay within the public sector. Their scheme will put into action a broad sweep of pay cuts across the senior workers within the public sector by associating the particular pay grades of the chief staff to the lowest paid employees inside of their company. A fair pay review would happen with the prime objective of establishing a 20-fold pay scale, so a senior worker couldn’t make more than 20 times what the lowest paid employee does.
Whilst Cameron acknowledges that there’s currently a commitment to pay transparency, justness and timeliness, 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 how his party has become the most progressive party in the British isles and ought to go some way to dispel the traditional prejudices linked with the Conservative party.