Public Sector Payment Plans

As the latest budget was unveiled by Alistair Darling in late March, the vast majority of the country was browsing at the effect it would have 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 that most of us will not have noticed though.

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

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

Why It’s Being Done

This step has been taken as part of an effort to enhance the timeliness of payments coming from public sector work up and down the supply chain. Public segment work has a decent reputation for the speedy payment of accounts at the higher levels of sub-contracted work, however this gain has not always been experienced by sub-contractors who are two or three levels of separation away from that initial payment. The introduction of a 30 day payment clause ought to help to pass on this benefit to all sub-contractors doing work on public sector jobs.

When viewed as part of the greater picture, this particular payment initiative is being employed to try and help the thousands of small and medium sized businesses (SMEs) that trade in this nation. As we feel the end of the most recent recession, many businesses both large and small have experienced the strain. Merely surviving until now in the present economic circumstances has been an achievement for most. The government is now looking to ensure that it can help as many of these businesses as possible.

To help these companies manage their cash flow more effectively, suppliers to the public segment are being paid faster than has previously been the case. 19 out of 20 bills to central government sections from primary contractors are being paid inside of 10 days.

Making payment conditions reasonable could help promote competition among office construction firms which apply for numerous construction positions each month.

Who It Affects

The fresh ruling will impact any contractors as well as sub-contractors through the supply chain on works for any government departments, government agencies along with NDPBs (non-departmental public bodies). It’s designed to help the sub-contractors deeper down the chain rather than offering benefits simply to the main contractors at the top levels.

Who It Doesn’t Affect

The 30 day payment program is only appropriate to contractors in the supply sequence for public segment projects and isn’t part of standard business regulation. It therefore does not affect any companies in the private segment. Because the measure does not have to be applied to active agreements, several of the projects for the 2012 Olympic Games won’t be obligated to follow the program.

What It Means For Business

What this should signify with regard to small companies that are engaged with public segment projects is an increase in the pace with which they receive payment for their performance. While several payment procedures have been known to contain scope for certain “bending” of the rules, this fresh scheme does appear to be far more rigid in terms of delivering on its potential. At least it seems that way so far.

It will of course mean that public segment agreements can no longer be received by primary contractors which don’t agree to the 30 day payment clause. Even more than this, the swiftness of payments down the supply chain could become a variable while deciding which contractors will be chosen. The government are actively encouraging their main contractors to pay 2nd and 3rd tier companies 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 companies may be able to be competitive on something other than price.

The new payment measures do not have to be applied to any existing contracts that the governmental departments in question currently have. This particular fact will help to reduce the amount of time spent on adjusting these contracts and hold the paperwork required to a minimum, and it should allow the new system to come into practice much more easily. Departments are being asked to encourage their main contractors to follow the 30 day payment system on a voluntary basis where ever possible.

Several levels of sub-contractors are involved for building fit outs since services have to be installed in the structural work and also furnishings.

This new commitments to faster payments throughout the supply chain is a related measure to other policies and acts which are being implemented in order to promote a fairer working environment up and down the supply chain.

Fair Payment Charter

The Fair Payment Charter is part of a larger instruction created by the Office for Government Commerce (OGC) created to encourage the very best “fair payment” procedures for companies working within the world of public segment works. The conditions set out by this charter came into force from the 1st January 2008 targeted at all contracts in the public segment. Although it is focused at the public segment, these suggestions can be used by companies in the private industry as well.

This charter is by no means a lawfully binding record, and it doesn’t supersede any terms laid out by specific workers’ contracts. It’s simply a document that lays out a range of commitments that are hoped to be adopted throughout the market. Some of the principal points in the charter are the swiftness and correctness of payments to be made, that the payment procedure should be transparent up and down the supply string and also that all points in the supply chain need to work collectively to ensure appropriate cash flows at many levels. In many ways this charter laid the footings for the new 30 day payment plan.

Prompt Payment Code

The Prompt Payment Code is one more move that is tailored toward helping small and medium sized businesses, particularly in terms of cash flow. It has been created 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 agency which adopts it.

Again, this particular code is not a lawfully binding contract and doesn’t outrank any stipulations of working contracts between businesses and individuals. It is a guideline for companies that lays out a standard set of fair payment policies developed to assist all affiliates operating within the public segment.

Companies that sign up to the code have to go through an application procedure which determines if they have suitable measures 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 web site as a sign of their dedication to operating inside of a fair payment environment.
Economic planning has generally remained vital to refurb projects because businesses must keep a handle on payments going in and out.

Implementation Of The Code

The specific wording that must be followed by firms working within the public segment 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 adopted 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 firms to follow the contract models that it has developed as a system of best practice. This does not necessarily mean that they have to be followed word for word in every circumstance, because every business is different and works under a distinctive set of circumstances.

Political Impact

As with any program introduced by Government there is a certain amount of political maneuvering that takes place. Although all sides of the political spectrum can agree that there’s a crucial need for fair payment in the public sector, there are still a number of further actions that can be taken that can be employed by all parties to promote their own campaigns.

David Cameron and the Tory party have recently come out with a promise to deal with unfair pay within the public segment. The plan will put into action a wide sweep of pay cuts across the senior workers in the public segment by associating the pay levels of the senior personnel to the lowest paid workers in their company.

Whilst Cameron acknowledges 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 dealing with the problem of fair pay in the public sector is a sign of how his party has become the most progressive party in the British isles and should go some way to dismiss the traditional prejudices associated with the Conservative party. He also makes use of the measures to release an attack on the Labour party, proclaiming they are a government past their sell-by date.