Good News For Public Sector Sub-Contractors
When the latest budget was unveiled by Mr Darling in late March, the majority of the nation was browsing at its impact it would take on our jobs, on our taxations, our schooling and health programs and our own personal spending habits. There was one step launched as part of the 2010 budget which most of us will not have noticed though.
The announcement was in respect to fair payment within the public sector industry, with specific focus on contractors and their subsequent sub-contractors. The new judgment declares that from March 25th 2010, any service provider working for a division in the public segment will have a contractual obligation to pay their own sub-contractors within 30 days. The scope of this initiative will only cover new contracts.
It is certainly worth noting that the 30 day clause does not apply to payments by the governmental departments to 1st tier contractors, but to those first tier contractors making prompt payments to lower level contractors that they are appointing themselves. However, all central government units now have to pay 80% of any undisputed invoices for goods or services inside of 5 days.
Why It’s Being Done
This move has been taken as part of an effort to improve the timeliness of payments arising from public sector jobs up and down the supply chain. Public sector work has a good reputation for the prompt payment of invoices at the top levels of sub-contracted work, but this benefit has not always been experienced by sub-contractors which are two or three levels of separation away from that initial payment. The introduction of a 30 day payment clause should help to spread this benefit to all sub-contractors working on public sector projects.
When viewed as part of the bigger picture, this particular payment move is being utilised to try and help the numbers of small as well as medium sized businesses (SMEs) that operate in this nation. As we experience the tailing off of the latest recession, many companies both large and small have suffered the strain. Simply surviving until now in the current financial situation has been an accomplishment for most. The government is now looking to ensure that it can assist as many of these enterprises as possible.
To help these businesses manage their income flow more efficiently, suppliers to the public segment are being paid more quickly than has ever before been the case. 19 out of 20 bills to central government departments from primary contractors are being paid within 10 days.
A public sector company looking into any kind of office fit out must currently alter deals for any contractors they will employ.
Who It Affects
The new ruling will impact any contractors as well as sub-contractors through the supply chain on works for all government departments, government agencies along with NDPBs (non-departmental public bodies). It is designed to aid the sub-contractors deeper down the chain rather than providing benefits only to the primary contractors at the top levels. The 30 day payment condition is solely applicable to new contracts for work and doesn’t 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 segment works and is not part of standard business law. It therefore does not impact any companies within the non-public sector. Since the measure doesn’t need to be placed on to active contracts, many of the projects for the 2012 Olympic Games will not be obligated to follow the system. The adoption of the system by existing construction contracts on a voluntary basis is currently being invited though.
What It Means For Business
What this step should mean with regard to small companies that are engaged with public segment works is an increase in the pace with which they receive payment for their work. Whilst several payment procedures have been known to include range for certain “bending” of the rules, this fresh plan does seem to be much more rigid in terms of delivering on its possibilities. At least it looks that way so far.
It does of course mean that public segment agreements can no more be won by main contractors that do not agree to the 30 day payment clause. Even more than this, the speed of payments down the supply chain could turn out to be a variable when deciding which contractors will be selected. The authorities are actively encouraging their main contractors to pay second and 3rd tier businesses before the 30 day deadline is up, which may see contractors using speed of payments as one part of their own proposals.
The new payment measures do not need to be applied to any existing contracts which the governmental departments in question currently have. This particular fact will help to reduce the amount of time put in on adjusting the contracts and keep the paperwork necessary to a minimum, and it should enable the new system to come into practice much much more easily.
Several companies have already been signing up for fit outs over the past few years and must now slightly alter their business practices in relation to repayments.
The new commitment to faster payments all through the supply string is a related measure to other plans and acts which are being implemented in order to encourage a fairer working environment up and down the supply chain.
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 very best “fair payment” practices for companies working within the world of public segment projects. The conditions set down by this charter came into force from the 1st January 2008 aimed at all agreements in the public sector. Whilst it is focused at the public segment, all these recommendations can be used by companies in the private sector as well.
This charter is by no means a legally binding record, and it doesn’t supersede any of the terms laid out in particular workers’ contracts. It is simply a record which lays out a range of responsibilities that are hoped to be adopted all through the market. A few of the major points in the charter are the timeliness and correctness of payments that are made, that the payment procedure ought to be transparent up and down the supply chain and that all points in the supply chain need to work together to help appropriate cash flows at all levels.
Prompt Payment Code
The Prompt Payment Code is another initiative that is tailored toward helping small and medium size companies, especially in terms of cash flow. It has been developed by the Government, together with assistance from the Institute of Credit Management (ICM) and promotes the usage of best payment tactics and transparency for any kind of agency which adopts it. It sits alongside existing fair payment schemes.
Again, this code is not a lawfully binding document and doesn’t outrank any stipulations of working agreements between businesses and individuals. It is a guideline for organisations which lays out a standard set of fair payment policies designed to assist all members operating inside the public sector.
Businesses that sign up to the code have to undergo an application process that determines if they have appropriate measures in place to conform with the guidelines set out in the code. Once they have passed all these tests they can then display the PPC logo on their own business brochures and web site as a sign of their dedication to operating within a fair payment environment.
One particular company taking note of public segment pay ramifications are http://tjhall.co.ukwho specialize at workplace construction and refurbishment in the Midlands.
Implementation Of The Code
The specific wording that should be adopted by firms operating in the public segment may 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 wants businesses to follow the contract models that it has produced as a program of best practice. This does not necessarily imply that they have to be followed word for word in every circumstance, because every organisation is unique and works under a unique set of conditions. By making public segment firms adopt just the prompt payment clause set out above an industry-wide system can easily be unveiled without compromising the flexibility to set down section specific terms and conditions.
Political Impact
As with any measure introduced by Government there is a certain amount of political maneuvering that takes place. Although all parts of the political spectrum can certainly consent that there’s a critical need for fair payment within the public sector, there are still a number of additional actions that can be taken that could be employed by all parties to promote their own campaigns.
David Cameron and the Tory party have recently created a pledge to deal with unfair pay within the public segment. The plan will put into action a broad sweep of pay cuts throughout the senior workers in the public sector by associating the pay levels of the chief personnel to the lowest paid staff within their business.
Whilst Cameron recognises that there’s currently a commitment to pay transparency, justness and timeliness, he also says that “it is time to go further.” The party head claims that by tackling the issue of fair pay in the public segment is a sign of just how his party has grown to be the most progressive party in the Uk and should go some way to dismiss the conventional prejudices associated with the Conservative party. He also uses the steps to release an attack on the Labour party, claiming they are a government beyond their sell-by date.