As the latest budget was unveiled by Mr Darling in March, the majority of the nation was browsing at the effect it would have on our work, on our taxes, our schooling and health programs and our own individual spending habits. There was one step launched as part of the 2010 budget which many of us will not have observed however. This article aims to shed light on a few of the details of this new initiative.
The announcement is in respect to fair payment in the public sector industry, with particular focus on contractors and subsequent sub-contractors. The new ruling says that from March 25th 2010, any service provider working for a department in the public segment will have a legal responsibility to pay their own sub-contractors within 30 days.
It is certainly worth noting that this 30 day clause does not apply to payments by the governmental departments to 1st tier contractors, but to the 1st tier contractors making punctual payments to lower tier contractors that they are appointing on their own. However, all central government units now have to pay 80 percent of any unchallenged invoices for goods or services within 5 days.
Why It’s Being Done
This move has been taken as part of an effort to improve the timeliness of payments coming from public segment work up and down the supply chain. Public sector work has a decent reputation for the speedy payment of bills at the top levels of sub-contracted work, but this benefit has not at all times been felt by sub-contractors which are two or three levels of separation away from the initial payment.
If viewed as part of the greater picture, this particular payment move is being employed to try and help the thousands of small and medium sized businesses (SMEs) that operate in this country. As we experience the tailing off of the latest recession, many companies both large and small have experienced the strain. Merely surviving until now in the current financial situation has been an accomplishment for most.
To help these businesses manage their cash flow more effectively, suppliers to the public sector are being paid more quickly than has previously been the case. 19 out of 20 invoices to central government sections from primary contractors are being settled inside of 10 days.
By introducing payment terms covering all tiers, companies in the factory refurbishments trade may gain through smoother cash flow.
Who It Affects
The fresh ruling will impact any contractors as well as sub-contractors through the supply chain on works for any government departments, government agencies and NDPBs (non-departmental public bodies). It’s designed to aid the sub-contractors deeper down the chain rather than providing rewards only to the primary contractors at the top levels. The 30 day payment condition is only applicable to new contracts for work and does not need to be applied retrospectively.
Who It Doesn’t Affect
This 30 day payment system is only relevant to contractors in the supply chain for public sector works and isn’t part of general business law. It therefore doesn’t impact any companies within the non-public segment. Because the measure doesn’t need to be placed on to active contracts, many of the projects for the 2012 Olympic Games will not be forced to adopt the program.
What It Means For Business
What this step should mean with regard to small firms that are engaged with public sector works is an improvement with the pace with which they will collect payment for their work. While some payment policies have been known to include scope for certain “bending” of the guidelines, this fresh plan does appear to be far more rigorous in terms of delivering on its potential. At least it seems that way so far.
It does of course mean that public sector agreements can no more be received by main contractors who don’t agree to the 30 day payment clause. Even more 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 may see contractors using speed of payments as part of their plans.
The fresh payment steps do not need to be put on to any existing contracts which the governmental bodies in question already have. This fact may help to reduce the period of time put in on adjusting the contracts and hold the paperwork needed to a minimum, and it should enable the new program to come into practice much much more smoothly. Departments are being asked to encourage their main contractors to adopt the 30 day payment program on a voluntary basis where ever possible.
The financial demands associated with fit outs shouldn’t prohibit firms doing these jobs when they are essential.
The new commitments to quicker payments throughout the supply string is a related measure to other policies and acts that are being executed in order to encourage a fairer working atmosphere up and down the supply chain.
Fair Payment Charter
The Fair Payment Charter is one part of a bigger guide created by the Office for Government Commerce (OGC) created to encourage the very best “fair payment” procedures for businesses operating in the realm of public sector works. The conditions set down by this charter came into force from the 1st January 2008 targeted at all contracts in the public segment. Although it is aimed at the public segment, all these suggestions can be used by businesses in the private sector as well.
This charter is by no means a lawfully binding record, and it doesn’t supersede any of the terms laid out by specific workers’ deals. It is merely a record which sets out a number of commitments that are hoped to be followed throughout the industry. Some of the principal points in the charter are the timeliness and correctness of payments to be made, that the payment procedure ought to be transparent up and down the supply chain and also that all points within the supply chain should work together to help appropriate cash flows at many levels.
Prompt Payment Code
The Prompt Payment Code is yet another move that is tailored towards helping small and medium size companies, especially in terms of cash flow. It has been created by the Government, together with help from the Institute of Credit Management (ICM) and encourages the adoption of best payment tactics and transparency for any agency that adopts it. It sits along with existing fair payment strategies.
Again, this particular code is not a lawfully binding document and does not outrank any stipulations of operating agreements between businesses and individuals. It’s a guideline for organisations that lays out a standard set of fair payment policies designed to help all affiliates operating inside the public segment.
Businesses that sign up to the code have to undergo an application process which establishes if they have suitable measures in place to conform with the recommendations laid out in the code. After they have passed these tests they can then show the PPC logo on their own business brochures and website as a sign of their dedication to working within a fair payment environment. This gives a great opinion of the company, that may be crucial in the course of tough financial periods.
The 30 day settlement plan will just affect office refurbs at organisations operating inside the public sector and doesn’t stretch to private enterprises. For more information click here.
Implementation Of The Code
The exact wording that should be adopted by organisations working in the public sector can 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 would like businesses to adopt the contract models that it has created as a system of best practice. This doesn’t necessarily mean that they must be followed word for word in every circumstance, given that each company is unique and operates under a distinctive set of circumstances.
Political Impact
As with any measure introduced by Government there is a particular amount of political maneuvering that goes on. Although all parts of the political spectrum can consent that there’s a critical requirement for fair payment within the public sector, there are still a range of further steps that can be undertaken that could be employed by all parties to promote their own campaigns. This becomes even more apparent in an election year.
David Cameron and the Tory party have recently come forth with a pledge to deal with unfair pay in the public sector. Their plan will implement a wide sweep of pay cuts across the senior workers in the public sector by associating the pay levels of the senior staff to the lowest paid individuals inside of their business. A fair pay assessment would occur with the primary objective of creating a 20-fold pay scale, so a senior worker could not earn more than 20 times what the lowest paid staff member does.
Although Cameron acknowledges that there’s currently a commitment to pay transparency, justness and speed, he also states that “it is time to go further.” The party leader says that by tackling the issue of fair pay within the public segment is an indication of just how his party has grown to be the most progressive party in the British isles and should go some way to dispel the traditional prejudices linked with the Conservative party. He also makes use of the measures to launch an attack on the Labour party, proclaiming they are a government past their sell-by date.