Good News For Public Sector Sub-Contractors
When the newest budget was released by Alistair Darling in late March, the bulk of the country was browsing at its impact it would take on our jobs, on our taxes, our schooling and health systems and our own individual spending habits. There was one initiative launched as part of the 2010 budget that most of us will not have observed though. This article seeks to uncover some of the facts of this fresh initiative.
The announcement was in respect to fair payment in the public sector field, with particular focus on contractors and subsequent sub-contractors. The new judgment says that from March 25th 2010, any service provider working for a division in the public segment will have a contractual responsibility to pay their 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 first tier contractors, but to those 1st tier contractors making punctual payments to lower tier contractors that they are appointing themselves. Nevertheless, all central government departments now have to pay 80% of any undisputed invoices for goods or services inside of 5 days. This is a measure of their commitment to a fairer payment system.
Why It's Being Done
This step has been made as one element of an attempt to enhance 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 higher levels of sub-contracted work, but this gain has not always been felt by sub-contractors who are two or three levels of separation away from the initial payment.
If viewed as part of the greater picture, this 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 feel the tailing off of the most recent recession, many businesses both large and small have suffered the strain. Just surviving until now in the current financial situation has been an accomplishment for most.
To help these companies control their cash flow more efficiently, suppliers to the public sector are being paid faster than has ever before been the case. 19 out of 20 bills to central government sections from primary contractors are being paid within 10 days. The government is now looking to distribute this benefit throughout the sub-contracting supply cycle.
There is a demand for fair pay ideal procedures in the office construction sector because several businesses are usually involved in any one venture.
Who It Affects
This new ruling will affect any contractors as well as sub-contractors all through the supply chain on works for any government departments, government agencies and NDPBs (non-departmental public bodies). It is 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
This 30 day payment program is only relevant to personnel in the supply chain for public sector projects and isn't part of common business regulation. It therefore does not affect any companies in the non-public sector. Since the measure doesn't need to be applied to existing contracts, many of the projects for the 2012 Olympic Games will not be forced to adopt the system.
What It Means For Business
What this should signify with regard to small businesses who are engaged with public industry projects is an improvement with the speed with which they will receive payment for their performance. While several repayment policies have been known to contain scope with regard to certain "bending" of the guidelines, this new scheme does appear to be much more rigorous in terms of delivering on its possibilities.
It does of course mean that public segment contracts can no more be won by primary 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 when deciding which contractors will be selected. The government are actively encouraging their main contractors to pay 2nd and 3rd tier firms before the 30 day deadline is up, which may see contractors making use of speed of payments as one part of their proposals. This may improve competition for work because smaller sized businesses may be able to be competitive on something other than price.
The new payment measures do not have to be put on to any existing contracts that the governmental bodies in question already have. This particular fact may help to lessen the amount of time put in on adjusting these contracts and keep the paperwork required to a minimum, and it ought to allow the new program to come into practice much more smoothly. Divisions are being asked to encourage their main contractors to follow the 30 day payment program on a voluntary basis where ever feasible.
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The fresh commitments to quicker payments throughout the supply string is a sister measure to other policies and acts which are being implemented in order to promote a fairer working atmosphere up and down the supply chain. 2 of those other steps include:
Fair Payment Charter
The Fair Payment Charter forms one part of a bigger instruction created by the Office for Government Commerce (OGC) created to encourage the very best "fair payment" practices for businesses operating in the world of public sector projects. The terms set down by this charter came into force from the 1st January 2008 directed at all contracts in the public sector.
This charter is by no means a lawfully binding record, and it does not supersede any terms laid out in specific workers' deals. It's merely a record that sets out a range of commitments that are hoped to be followed all through the market. Some of the main factors in the charter are the timeliness and correctness of payments to be made, that the payment procedure ought to be clear up and down the supply chain and also that all points within the supply chain should work collectively to ensure appropriate cash flows at all levels. In several ways this charter set the foundations for the new 30 day payment plan.
Prompt Payment Code
The Prompt Payment Code is one more move that is geared toward helping small and medium sized businesses, especially in terms of their cash flow. It has been produced by the Government, with help from the Institute of Credit Management (ICM) and promotes the adoption of best payment tactics and transparency for any kind of agency that adopts it. It sits together with existing fair payment strategies.
Again, this code is not a legally binding document and does not outrank any stipulations of working contracts between companies and individuals. It's a guideline for companies that sets out a standard set of fair payment procedures developed to assist all affiliates working within the public sector. As well as timely and reasonable payments, it also sets out recommendations for the dispute of invoices and any complaints raised by suppliers.
Firms that sign up to the code have to go through an application process that determines if they have appropriate measures in place to conform with the guidelines set out in the code. After they have passed all these tests they can then show the PPC logo on their own business brochures and website as an indicator of their dedication to working within a fair payment environment. This gives a good opinion of the company, that can be crucial during tough economic periods.
Firms throughout this nation perform refurbs every day which hire several contractors with particular skills.
Implementation Of The Code
The exact wording that should be followed by firms working within the public segment can be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. The particular clause that ought to be adopted within the market is the following:"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 firms to follow the contract models that it has produced as a system of best practice. This doesn't necessarily imply that they have to be adopted word for word in each circumstance, since each business is unique and operates under a unique collection of conditions.
Political Impact
As with any measure introduced by Government there is actually a certain amount of political maneuvering that takes place. Although all parts of the political spectrum can agree that there's a crucial requirement for fair payment within the public sector, there are still a range of further actions that can be undertaken that can be used by all parties to promote their own campaigns.
David Cameron and the Tory party have recently come forth with a pledge to deal with unfair pay within the public segment. Their scheme will put into action a wide sweep of pay cuts across the senior workers within the public segment by associating the particular pay grades of the senior staff to the lowest paid individuals in their business. A fair pay review would occur with the prime goal of creating a 20-fold pay scale, so a senior worker could not earn more than 20 times what the lowest paid employee does.
Whilst Cameron recognises that there is currently a commitment to pay transparency, justness and speed, he also says that "it is time to go further." The party leader says that by tackling the problem of fair pay in the public sector is an indication of how his party has grown to be the most modern party in the British isles and ought to go some way to dispel the traditional prejudices associated with the Conservative party. He also makes use of the steps to release an attack on the Labour party, claiming that they are a government beyond their sell-by date.