As the newest budget was released by Alistair Darling in March, the majority of the country was looking at its impact it would take on our work, on our taxations, our education and health systems and our own personal spending habits. There was one step launched as part of the 2010 budget that many of us will not have seen however. This write-up aims to shed light on some of the details of this fresh initiative.
The announcement is in respect to fair payment within the public sector industry, with particular focus on contractors and their subsequent sub-contractors. The new ruling states that from March 25th 2010, any contractor working for a department in the public sector will have a contractual responsibility to pay their own sub-contractors inside of 30 days.
It is certainly worth noting that this 30 day clause doesn’t apply to payments from the governmental departments to first tier contractors, but to those first 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% of any unchallenged invoices for goods or services within 5 days. This is a gauge of their own commitment to a more fair payment program.
Why It’s Being Done
This step has been made as part of an effort to improve the timeliness of payments arising from public segment jobs up and down the supply chain. Public sector work has a great reputation for the prompt payment of bills at the higher levels of sub-contracted work, but this gain has not always been experienced by sub-contractors who are two or three levels of separation away from the initial payment.
If viewed as part of the larger picture, this particular payment move is being employed to try and help the numbers of small and medium sized businesses (SMEs) that operate in this country. As we experience 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 accomplishment for most. The government is now looking to ensure that it can help as many of these enterprises as possible.
To help these companies control their cash flow more effectively, suppliers to the public sector are being paid faster than has previously been the case. 19 out of 20 invoices to central government departments from main contractors are being settled within 10 days.
The 30 day repayment contract will have to be adopted by an office construction company planning to bid for jobs that concern organisations within the public sector.
Who It Affects
The new ruling will affect any contractors as well as sub-contractors all through the supply chain on works for any government departments, government agencies along with NDPBs (non-departmental public bodies). It is designed to help the sub-contractors further down the chain rather than offering benefits only to the main contractors at the higer levels. The 30 day payment condition is solely relevant to any new contracts for work and doesn’t have to be applied retrospectively.
Who It Doesn’t Affect
This 30 day payment system is only relevant to personnel in the supply chain for public segment projects and is not part of general business regulation. It therefore doesn’t affect any companies in the non-public segment. Since the measure does not need to be applied to existing agreements, many of the projects for the 2012 Olympic Games won’t be forced to follow the program. The usage of the program by current construction contracts on a voluntary basis is currently being invited however.
What It Means For Business
What this step should signify with regard to small businesses that are involved with public industry works is an improvement with the pace with which they will collect payment for their performance. Whilst some repayment policies have been known to contain range for certain “bending” of the rules, this fresh plan does seem to be much more rigorous in terms of delivering on its possibilities.
It will of course mean that public sector agreements can no longer be won by primary contractors who do not agree to the 30 day payment clause. Further than this, the speed of payments all the way down the supply chain might turn out to be a variable when deciding which contractors will be chosen. The authorities are positively encouraging their main building contractors to pay 2nd and third tier firms before the 30 day deadline is up, which can see contractors using speed of payments as one part of their own plans. This could increase competition for work because smaller sized businesses may be able to be competitive on something other than price.
The fresh payment measures do not need to be put on to any existing contracts that the governmental bodies in question already have. This particular fact may help to reduce the period of time spent on adjusting these contracts and keep the paperwork required to a bare minimum, and it ought to enable the new system to come into practice much more easily. Departments are being asked to really encourage their main contractors to follow the 30 day payment program on a voluntary basis where ever feasible.
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This fresh commitment to faster payments throughout the supply chain is a related measure to some other plans and acts which are being implemented in order to promote a fairer working atmosphere up and down the supply chain.
Fair Payment Charter
The Fair Payment Charter forms one part of a bigger guide created by the Office for Government Commerce (OGC) created to promote the best “fair payment” procedures for companies operating within the world of public segment works. The terms set out by this charter came into force from the 1st January 2008 directed at all agreements in the public sector. Although it is focused at the public sector, these guidelines can be employed by businesses in the private sector as well.
This charter is by no means a legally binding record, and it does not supersede any terms laid out by specific workers’ contracts. It’s simply a document that lays out a range of responsibilities 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 that are made, that the payment procedure should be transparent up and down the supply string and that all points in the supply chain should work together to ensure appropriate cash flows at all levels.
Prompt Payment Code
The Prompt Payment Code is another initiative that is geared toward helping small and medium sized businesses, especially in terms of cash flow. It has been created by the Government, together with support from the Institute of Credit Management (ICM) and encourages the usage of best payment tactics and transparency for any kind of agency that adopts it.
Again, this code is not a lawfully binding contract and doesn’t override any stipulations of working agreements between companies and individuals. It is a guideline for companies that sets out a standard set of fair payment policies developed to assist all affiliates operating within the public segment. As well as well-timed and reasonable payments, it also sets out recommendations for the dispute of invoices and any complaints raised by suppliers.
Businesses that sign up to the code must undergo an application process which determines if they have appropriate procedures in place to comply with the recommendations laid out in the code. Once they have passed all these checks they can show the PPC logo on their own business brochures and website as an indicator of their commitment to working within a fair payment environment. This provides a good opinion of the company, which can be crucial during tough financial times.
While in the recent period of economic downturn there has been a diminishment in refurbishments however the trend was experienced throughout many industries.
Implementation Of The Code
The exact wording that should be adopted by organisations 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 followed within the market is as follows:”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 produced as a system of best practice. This does not always mean that they must be followed word for word in each circumstance, given that every organisation is different and operates under a distinctive set of conditions.
Political Impact
As with any kind of program introduced by Government there is actually a certain amount of political maneuvering that happens. Although all parts of the political spectrum can agree that there’s a vital need for fair payment within the public sector, there are still a number of additional actions that may be undertaken that could be employed by all parties to promote their own campaigns.
David Cameron and the Tory party have recently come out with a pledge to deal with unfair pay within the public sector. Their plan will put into action a broad sweep of pay cuts throughout the senior employees within the public sector by associating the pay grades of the senior staff to the lowest paid individuals within their organisation.
While Cameron recognises that there’s already 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 sector is a sign of how his party has become the most modern party in the United kingdom and should go some way to dispel the conventional prejudices linked with the Conservative party. He furthermore uses the measures to launch an attack on the Labour party, proclaiming that they are a government beyond their sell-by date.