As the newest budget was unveiled by Mr Darling in March, the vast majority of the country was browsing at its effect it would take on our jobs, on our taxations, our education and health programs and our own individual spending patterns. There was one initiative launched as part of the 2010 budget that many of us will not have noticed however.
The announcement is in respect 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 sector will have a contractual responsibility to pay their sub-contractors inside of 30 days. The scope of this particular initiative does only cover new contracts.
It is certainly worth noting that this 30 day clause doesn’t apply to payments by the governmental departments to first tier contractors, but to those 1st tier contractors making prompt payments to lower level contractors that they are appointing on their own. Nevertheless, all central government departments now must pay 80% of any unchallenged invoices for goods or services inside of 5 days.
Why It’s Being Done
This step has been taken as one element of an attempt to enhance the timeliness of payments arising from public segment jobs up and down the supply chain. Public segment work has a great reputation for the prompt 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 from the 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 work.
When viewed as part of the bigger picture, this payment initiative is being used to try and help the numbers of small and medium sized businesses (SMEs) that operate in this country. As we feel the end of the latest recession, many businesses both large and small have experienced the strain. Just making it through until now in the present economic situation has been an achievement for most. The government is now looking to make sure that it can help as many of these enterprises as possible.
To help these businesses control 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 main contractors are being settled inside of 10 days.
One of the industries that will be influenced by these measures is the office construction sector on projects for governmental departments.
Who It Affects
The new 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 rewards only to the main contractors at the higer levels. The 30 day payment condition is solely applicable to any new contracts for work and does not need to be applied retrospectively.
Who It Doesn’t Affect
This 30 day payment system is only relevant to contractors in the supply sequence for public segment projects and is not part of standard business regulation. It therefore doesn’t impact any companies in the private segment. Since the measure doesn’t need to be placed on to existing agreements, many of the projects for the 2012 Olympic Games won’t be forced to follow the system.
What It Means For Business
What this step should signify with regard to small companies who are involved with public sector works is an improvement in the speed with which they collect payment for their work. While several payment procedures have been recognised to contain range for certain “bending” of the rules, this new scheme does appear to be much more rigid in terms of delivering on its possibilities. At least it seems that way so far.
It will naturally mean that public sector agreements can no longer be received by main contractors that don’t agree to the 30 day payment clause. Further than this, the swiftness of payments all the way down the supply chain could turn out to be a factor while deciding which contractors will be selected. The government are positively encouraging their main building contractors to pay 2nd and 3rd tier companies before the 30 day deadline is up, which can see contractors using speed of payments as part of their proposals.
The fresh payment measures do not need to be applied to any existing contracts that the governmental bodies in question currently have. This particular fact will help to lessen the period of time spent on adjusting the contracts and keep the paperwork necessary to a minimum, and it ought to allow the new system to come into practice much more smoothly. Departments are being asked to encourage their main contractors to adopt the 30 day payment system on a voluntary basis wherever possible.
Many firms have already been taking on a commercial office fit out for the past few years and should now slightly alter their business practices in connection to payments.
The new commitment to faster payments all through the supply chain is a sister measure to some other plans and acts which are being executed in order to encourage a fairer working atmosphere up and down the supply chain.
Fair Payment Charter
The Fair Payment Charter is part of a bigger instruction created by the Office for Government Commerce (OGC) designed to promote the best “fair payment” procedures for companies operating in the realm of public sector projects. The terms set out by the charter came into force from the 1st January 2008 targeted at all contracts in the public segment.
This charter is by no means a lawfully binding document, and it does not supersede any of the terms laid out in particular workers’ deals. It is simply a document which lays out a range of responsibilities that are hoped to be followed all through the industry. A few of the main factors in the charter are the timeliness and correctness of payments to be made, that the payment procedure should be clear up and down the supply string and also that all parties in the supply chain should work together to ensure appropriate cash flows at many levels. In several ways this charter set the foundations for the new 30 day payment plan.
Prompt Payment Code
The Prompt Payment Code is one more initiative that is geared towards assisting small and medium size firms, particularly in terms of cash flow. It has been produced by the Government, with support from the Institute of Credit Management (ICM) and promotes the usage of best payment practices and openness for any kind of agency that adopts it. It sits along with existing fair payment strategies.
Again, this particular code is not a legally binding document and doesn’t outrank any stipulations of operating contracts between businesses and individuals. It is a guideline for organisations which lays out a standard set of fair payment procedures designed to assist all affiliates working within the public sector.
Firms that sign up to the code have to undertake an application process that establishes if they have appropriate procedures in place to conform with the recommendations set out in the code. After they have passed these tests they can show the PPC logo on their very own company brochures and website as an indicator of their commitment to working inside of a fair payment environment.
Businesses around the country perform refurbs each day which usually hire many contractors with specific abilities.
Implementation Of The Code
The exact wording that should be followed by organisations operating in the public segment can 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 would like firms to follow the contract models that it has developed as a program of best practice. This does not always mean that they must be adopted word for word in every circumstance, since each company is unique and works under a unique set of conditions. By making public sector companies adopt just the prompt payment clause set out above an industry-wide system can easily be unveiled without compromising the flexibility to set out section specific terms and conditions.
Political Impact
As with any kind of measure introduced by Government there is actually a certain amount of political maneuvering that goes on. Although all parts of the political spectrum can certainly consent that there’s a critical requirement for fair payment within the public segment, there are still a number of further steps that may be undertaken that can be employed by all parties to promote their own campaigns.
David Cameron and the Tory party have recently created a promise to tackle unfair pay within the public segment. The scheme will implement a broad sweep of pay cuts throughout the senior employees in the public segment by associating the pay levels of the chief staff to the lowest paid staff in their company. A fair pay review would occur with the primary goal of creating a 20-fold pay scale, so a senior worker could not make more than 20 times what the lowest paid employee does.
While Cameron acknowledges that there is currently a commitment to pay transparency, justness and speed, he also says that “it is time to go further.” The party leader claims that by dealing with the issue of fair pay in the public segment is an indication of just 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 furthermore makes use of the measures to launch an attack on the Labour party, claiming that they are a government beyond their sell-by date.