Article Blog Wiki

When the newest budget was unveiled by Alistair Darling in late March, the bulk of the nation was looking at the effect it would take on our work, on our taxations, our schooling and health programs and our own personal spending patterns. There was one particular initiative launched as part of the 2010 budget which most of us will not have seen however. This write-up aims to shed light on some of the details of this new initiative.

The announcement is in regard to fair payment within the public sector industry, with particular focus on contractors and subsequent sub-contractors. The new ruling says that from March 25th 2010, any contractor working for a department in the public segment will have a legal obligation to pay their own sub-contractors within 30 days. The scope of this initiative does only cover new deals.

It is worth noting that the 30 day clause does not apply to payments by the governmental departments to first tier contractors, but to those 1st tier contractors making prompt payments to lower tier contractors that they are hiring themselves. Nevertheless, all central government departments now have to pay 80 percent of any unchallenged invoices for goods or services inside of 5 days. This is a gauge of their own commitment to a more fair payment system.

Why It’s Being Done

This move has been taken as part of an attempt to enhance the timeliness of payments coming from public sector work up and down the supply chain. Public sector work has a good reputation for the speedy payment of bills at the higher levels of sub-contracted work, but this gain has not at all times been experienced by sub-contractors that are two or three levels of separation away from that initial payment. The addition of a 30 day payment clause should help distribute this benefit between all sub-contractors doing work on public sector jobs.

If viewed as part of the larger picture, this payment move is being used to try and help the thousands of small and medium sized businesses (SMEs) that trade in this country. As we experience the tailing off of the latest recession, many businesses both large and small have suffered the strain. Merely surviving until now in the current financial circumstances has been an accomplishment for many. The government is now seeking to ensure that it can support as many of these companies as possible.

To help these companies manage their income 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 primary contractors are being settled within 10 days.

There are ramifications for all public sector works, so even any office fit out on any governing agency should follow these measures.

Who It Affects

This fresh ruling will affect any contractors and sub-contractors throughout the supply chain on works for any government departments, government agencies along with NDPBs (non-departmental public bodies). It’s designed to aid the sub-contractors deeper down the chain rather than offering benefits only to the primary contractors at the higer levels. The 30 day payment condition is only applicable to new contracts for work and doesn’t have to be applied retrospectively.

Who It Doesn’t Affect

This 30 day payment program is only appropriate to contractors in the supply sequence for public sector works and isn’t part of general business regulation. It therefore does not affect any companies within the private segment. Because the measure doesn’t need to be applied to existing contracts, many of the works for the 2012 Olympic Games will not be forced to follow the system.

What It Means For Business

What this should mean for small businesses that are engaged with public sector projects is an increase in the pace with which they receive payment for their performance. Whilst some repayment policies have been recognised to contain range with regard to certain “bending” of the guidelines, this new plan does seem to be much more rigorous in terms of delivering on its potential. At least it looks that way so far.

It will naturally mean that public sector contracts can no more be received by primary contractors that do not agree to the 30 day payment terms. Even more than this, the swiftness of payments down the supply chain might turn out to be a variable while deciding which contractors will be selected. The authorities are actively encouraging their main building contractors to pay second and third tier firms before the 30 day deadline is up, which could see contractors making use of speed of payments as one part of their own proposals. This could improve competition for work since smaller businesses may be able to compete on something other than price.

The fresh payment steps do not need to be put on to any existing contracts that the governmental bodies in question already have. This particular fact will help to lessen the period of time put in on adjusting these contracts and hold the paperwork necessary to a bare minimum, and it ought to allow the new system to come into practice much more easily.

There’s one particular company that specialise at fit outs that are actually gladly bringing these payment measures on board.

The new commitment to faster payments throughout the supply string is a related measure to some other policies and acts which are being implemented in order to promote a fairer working environment up and down the supply sequence.

Fair Payment Charter

The Fair Payment Charter forms part of a bigger guide created by the Office for Government Commerce (OGC) designed to promote the best “fair payment” practices for companies working in the realm of public sector works. The conditions set down by the charter came into force from the 1st January 2008 targeted at all agreements in the public sector.

This charter is by no means a lawfully binding document, and it doesn’t supersede any of the conditions laid out in particular workers’ agreements. It is simply a record which sets out a number of commitments that are hoped to be adopted all through the market. A few of the primary points in the charter are the swiftness and correctness of payments to be made, that the payment process ought to be clear up and down the supply string and that all parties within the supply chain should work jointly to ensure appropriate cash flows at many levels.

Prompt Payment Code

The Prompt Payment Code is another initiative that is tailored toward helping small and medium sized businesses, particularly in terms of their cash flow. It has been created by the Government, with assistance from the Institute of Credit Management (ICM) and encourages the adoption of best payment practices and transparency for any kind of agency which adopts it.

Again, this particular code is not a legally binding contract and doesn’t outrank any stipulations of operating agreements between businesses and individuals. It is a guide for businesses which sets out a standard collection of fair payment procedures designed to assist all affiliates working within the public segment. As well as well-timed and fair payments, it also lays out recommendations for the challenge of invoices and any issues raised by suppliers.

Companies that sign up to the code have to undergo an application process which determines if they have suitable measures in place to conform with the guidelines set out in the code. Once they have passed these checks they can then display the PPC logo on their own company brochures and web site as an indicator of their dedication to operating within a fair payment environment.

Companies around the nation perform refurbs each and every day which usually employ many contractors with particular abilities.

Implementation Of The Code

 The specific wording that must be adopted by firms operating within the public sector may be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. The specific section that should be followed 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 wants firms to follow the contract models that it has created as a system of best practice. This does not always imply that they have to be adopted word for word in every circumstance, given that every business is different and operates under a unique set of conditions. By making public sector firms adopt just the prompt payment clause set out over an industry-wide system can be introduced without compromising the flexibility to set down department specific terms .

Political Impact

As with any measure introduced by Government there is a certain amount of political maneuvering that happens. Whilst all parts of the political spectrum can certainly consent that there’s a vital need for fair payment within the public sector, there are still a number of further steps that can be taken that could be used by all parties to boost their own campaigns. This becomes even more apparent during an election year.

David Cameron and the Tory party have recently come forth with a pledge to tackle unfair pay within the public sector. The plan will implement a broad sweep of pay cuts throughout the senior staff in the public sector by associating the particular pay levels of the senior personnel to the lowest paid workers within their company.

Although Cameron acknowledges that there is currently a commitment to pay transparency, fairness and timeliness, he also says that “it is time to go further.” The party head says that by tackling the problem of fair pay in the public sector is a sign of how his party has become the most progressive party in the United kingdom and should go some way to dismiss the traditional prejudices linked with the Conservative party. He also makes use of the measures to launch an attack on the Labour party, claiming they are a government beyond their sell-by date.