As the newest budget was unveiled by Mr Darling in late March, the vast majority of the country was looking at the effect it would take on our work, on our taxations, our education and health programs and our own individual spending habits. There was one particular initiative launched as part of the 2010 budget which most of us will not have noticed though. This article seeks to uncover a few of the details of this new initiative.

The announcement was in respect to fair payment within the public sector field, with particular focus on contractors and their subsequent sub-contractors. The new ruling declares that from March 25th 2010, any service provider working for a division in the public segment will have a legal responsibility to pay their own sub-contractors within 30 days.

It is worth noting that this 30 day clause doesn’t apply to payments from the governmental departments to first tier contractors, but to those first tier contractors making prompt payments to lower tier contractors that they are appointing themselves. However, all central government departments now have to pay 80 percent of any undisputed invoices for goods or services inside of 5 days. This is a gauge of their dedication to a more fair payment system.

Why It’s Being Done

This move has been made as part of an effort to improve the timeliness of payments coming from public segment jobs up and down the supply chain. Public sector work has a good reputation for the prompt payment of bills at the top levels of sub-contracted work, but this gain has not always been experienced by sub-contractors which are two or three levels of separation from that initial payment.

When viewed as part of the larger picture, this particular payment initiative is being used to try to help the numbers 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 current financial circumstances has been an accomplishment for many. The government is now looking to make sure that it can help as many of these businesses as possible.

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

Regarding construction companies working upon fresh office construction assignments, repayment guidelines may well become a deciding issue.

Who It Affects

This new ruling will impact any contractors and sub-contractors through the supply chain on works for any government departments, government agencies and NDPBs (non-departmental public bodies). It is designed to support the sub-contractors deeper down the chain rather than offering rewards simply to the main contractors at the top levels.

Who It Doesn’t Affect

This 30 day payment system is only appropriate to contractors in the supply sequence for public segment works and isn’t part of common business law. It therefore doesn’t impact any contractors in the private sector. Since the measure doesn’t need to be applied to active contracts, several of the projects for the 2012 Olympic Games will not be obligated to adopt the program.

What It Means For Business

What this step ought to mean with regard to small companies that are involved with public industry works is an increase in the speed with which they collect payment for their performance. Whilst some repayment policies have been known to contain scope with regard to certain “bending” of the rules, this new plan does appear to be much more rigorous in terms of delivering on its potential. At least it seems that way so far.

It will naturally mean that public segment contracts can no longer be received by main contractors that don’t agree to the 30 day payment clause. Even more than this, the swiftness of payments all the way down the supply chain might become a variable when deciding which contractors will be selected. The authorities are positively encouraging their main building contractors to pay 2nd and 3rd tier businesses before the 30 day deadline is up, which could see contractors making use of speed of payments as one part of their own plans.

The new payment steps do not need to be applied to any existing contracts which the governmental departments in question currently have. This particular fact may help to lessen the period of time spent on adjusting the contracts and keep the paperwork necessary to a bare minimum, and it ought to allow the new system to come into practice much more easily. Divisions are being asked to really encourage their primary contractors to adopt the 30 day payment system on a voluntary basis wherever possible.

The 30 day payment structure does not apply to existing office refurbishment agreements although voluntary adoption of the plan is urged.

This new commitments to faster payments throughout the supply chain is a sister measure to some other policies and acts that are being executed in order to encourage a fairer working atmosphere up and down the supply sequence.

Fair Payment Charter

The Fair Payment Charter is part of a bigger guide created by the Office for Government Commerce (OGC) designed to encourage the very best “fair payment” practices for companies operating in the world of public sector projects. The conditions set down by the charter came into force from the 1st January 2008 aimed at all contracts in the public sector.

This charter is by no means a lawfully binding record, and it doesn’t supersede any terms laid out by particular workers’ contracts. It’s simply a document that sets out a range of responsibilities that are hoped to be followed throughout the market. Some of the main points in the charter are the timeliness and correctness of payments to be made, that the payment process should be clear up and down the supply chain and that all points in the supply chain should work together to ensure appropriate cash flows at many levels. In several ways this charter laid the footings for the new 30 day payment plan.

Prompt Payment Code

The Prompt Payment Code is one more initiative that is tailored toward helping small and medium sized firms, particularly in terms of cash flow. It has been created by the Government, together with help from the Institute of Credit Management (ICM) and promotes the adoption of best payment tactics and openness for any agency which adopts it.

Again, this code is not a lawfully binding document and doesn’t outrank any stipulations of working agreements between businesses and individuals. It’s a guideline for businesses that lays out a standard set of fair payment policies designed to assist all members working inside the public sector.

Firms that sign up to the code must go through an application process 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 tests they can show the PPC logo on their very own business brochures and website as a sign of their commitment to operating inside of a fair payment environment. This provides a great impression of the business, which may be crucial in the course of tough economic times.
Any building companies which are applying on office refurbs must demonstrate adequately their ability to make payments to sub-contractors by the due date.

Implementation Of The Code

The specific wording that should be followed by companies operating 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 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 businesses to follow the contract models that it has produced as a program of best practice. This does not always mean that they have to be adopted word for word in every circumstance, since every company is unique and operates under a unique set of conditions. By making public segment companies follow just the prompt payment condition set out above an industry wide system can easily be unveiled with out compromising the flexibility to set down department specific terms and conditions.

Political Impact

As with any program introduced by Government there is actually a certain amount of political maneuvering that happens. Although all sides of the political spectrum can consent that there’s a vital requirement for fair payment in the public segment, there are still a number of additional steps that may 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 sector. The scheme will put into action a broad sweep of pay cuts throughout the senior employees in the public sector by associating the pay grades of the chief staff to the lowest paid employees within their business. A fair pay review would happen with the prime objective of creating a 20-fold pay scale, so a senior worker could not earn more than 20 times what the lowest paid employee does.

Whilst Cameron recognises that there’s currently a commitment to pay transparency, fairness and speed, 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 an indication of how his party has grown to be the most progressive party in the Uk and ought to go some way to dispel the conventional prejudices linked with the Conservative party.

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