Fair Payment For Public Sector Sub-Contractors
As the latest budget was unveiled by Alistair Darling in March, the majority of the country was browsing at its effect it would have on our work, on our taxations, our schooling and health programs and our own personal spending habits. There was one particular step launched as part of the 2010 budget that most of us will not have observed however. This article seeks to uncover some of the details of this new initiative.
The announcement was in regard to fair payment in the public sector industry, with specific 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 sub-contractors inside of 30 days.
It is certainly worth noting that the 30 day clause does not apply to payments from the governmental branches to 1st tier contractors, but to those 1st tier contractors making punctual payments to lower level contractors that they are employing themselves. However, all central government units now have to pay 80% of any undisputed invoices for goods or services within 5 days. This is a gauge of their own dedication to a fairer payment system.
Why It’s Being Done
This move has been taken as one element of an effort to improve the timeliness of payments coming from public sector jobs up and down the supply chain. Public segment work has a good reputation for the prompt payment of bills at the top levels of sub-contracted work, however this benefit has not always been felt 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 to spread this benefit to all sub-contractors doing work on public sector jobs.
If viewed as part of the bigger picture, this particular payment initiative is being used to try to 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 companies both large and small have suffered the strain. Just surviving until now in the current financial circumstances has been an accomplishment for many.
To help these companies manage their income 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 sections from primary contractors are being settled within 10 days. The government is now looking to distribute this benefit throughout the sub-contracting supply cycle.
There are implications for all public sector projects, so even an commercial fit out specialists on any governing agency must follow these measures.
Who It Affects
The fresh ruling will affect any contractors and sub-contractors through the supply chain on projects for any government departments, government agencies along with NDPBs (non-departmental public bodies). It is designed to aid the sub-contractors further down the chain rather than offering rewards only to the main contractors at the top levels. The 30 day payment condition is solely applicable to any new agreements for work and does not need to be used retrospectively.
Who It Doesn’t Affect
This 30 day payment system is only relevant to contractors in the supply chain for public segment projects and is not part of general business law. It therefore doesn’t impact any contractors within the non-public market. Because the measure doesn’t have to be placed on to active contracts, many of the works for the 2012 Olympic Games won’t be forced to follow the program.
What It Means For Business
What this step ought to mean for small companies that are involved with public segment projects is an increase in the speed with which they receive payment for their work. While some payment procedures have been recognised to include range with regard to certain “bending” of the guidelines, this fresh scheme does appear to be much more rigid in terms of delivering on its possibilities.
It will of course mean that public segment contracts can no longer be received by main contractors which do not agree to the 30 day payment clause. Even more than this, the speed of payments down the supply chain might turn out to be a variable while deciding which contractors will be chosen. The government are positively encouraging their main building contractors to pay second and 3rd tier firms before the 30 day deadline is up, which may see contractors making use of speed of payments as part of their own proposals.
The fresh payment steps do not need to be put on to any existing contracts which the governmental departments in question already have. This fact may help to reduce the amount of time spent on adjusting the contracts and keep the paperwork necessary to a bare minimum, and it should allow the new system to come into practice much more smoothly.
Controlling the lengthy supply string of employees included with fit outsdemands knowledge as well as experience that are available through professional companies.
This fresh commitments to faster payments throughout the supply string is a sister measure to other plans and acts which are being executed in order to encourage a fairer working atmosphere up and down the supply chain. Two of those other measures include:
Fair Payment Charter
The Fair Payment Charter forms one part of a bigger guide created by the Office for Government Commerce (OGC) created to encourage the best “fair payment” practices for companies operating in the world of public sector works. The terms set out by the charter came into force from the 1st January 2008 aimed at all agreements in the public sector. Although it is focused at the public sector, these recommendations can be employed by businesses in the private industry as well.
This charter is by no means a legally binding document, and it doesn’t supersede any of the terms laid out by specific workers’ contracts. It is merely a record that lays out a number of responsibilities that are hoped to be adopted all through the industry. A few of the major points in the charter are the timeliness and correctness of payments to be made, that the payment process ought to be transparent up and down the supply chain and also that all parties in the supply chain should work together to help appropriate cash flows at all levels.
Prompt Payment Code
The Prompt Payment Code is one more initiative that is geared toward assisting small and medium sized firms, particularly in terms of their cash flow. It has been developed by the Government, together with support from the Institute of Credit Management (ICM) and encourages the usage of best payment tactics and openness for any agency that adopts it.
Again, this particular code is not a legally binding document and doesn’t override any stipulations of working agreements between companies and individuals. It is a guideline for organisations which sets out a standard collection of fair payment procedures designed to assist all members operating inside the public segment. As well as timely and reasonable payments, it also lays out guidelines for the challenge of invoices and any complaints raised by vendors.
Companies that sign up to the code have to undergo an application procedure that determines if they have appropriate measures in place to comply with the guidelines set out in the code. After they have passed these checks they can then show the PPC logo on their own business brochures and web site as a sign of their dedication to operating inside of a fair payment environment. This provides a great opinion of the company, that can be crucial in the course of tough financial periods.
The 30 day settlement scheme will certainly only affect refurbishments for enterprises working within the public sector and does not stretch to private businesses.
Implementation Of The Code
The specific wording that should be followed by companies operating 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 should be adopted within the industry 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 wants firms to adopt the contract models that it has produced as a program of best practice. This doesn’t always imply that they must be adopted word for word in every circumstance, because every organisation is unique and works under a unique set of circumstances.
Political Impact
As with any measure introduced by Government there is a particular amount of political maneuvering that takes place. Whilst all parts of the political spectrum can consent that there is a crucial requirement for fair payment within the public segment, there are still a number of additional steps 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 tackle unfair pay within the public sector. Their plan will put into action a broad sweep of pay cuts across the senior employees in the public segment by associating the pay levels of the senior personnel to the lowest paid individuals in their business. A fair pay assessment would happen with the primary objective of establishing a 20-fold pay scale, so a senior worker could not earn more than 20 times what the lowest paid employee does.
Although Cameron recognises that there is already a commitment to pay transparency, fairness and speed, he also says that “it is time to go further.” The party head says that by dealing with the problem of fair pay in the public segment is an indication of how his party has become the most progressive party in the United kingdom and ought to go some way to dismiss the conventional prejudices associated with the Conservative party.
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