As the latest budget was unveiled by Mr Darling in late March, the vast majority of the nation was browsing at the impact it would have on our jobs, on our taxations, our education and health programs and our own individual spending habits. There was one initiative launched as part of the 2010 budget which most of us will not have seen though. This article aims to uncover a few of the facts of this fresh initiative.
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 ruling says that from March 25th 2010, any contractor working for a department in the public segment will have a legal obligation to pay their own sub-contractors within 30 days.
It is worth noting that this 30 day clause doesn’t apply to payments by the governmental departments to first tier contractors, but to those first tier contractors making punctual payments to lower tier 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 inside of 5 days.
Why It’s Being Done
This move has been taken as one element of an attempt 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 accounts at the higher levels of sub-contracted work, however this gain has not at all times been experienced by sub-contractors which are two or three levels of separation from the initial payment. The inclusion of a 30 day payment clause should help pass on this benefit to all sub-contractors working on public sector work.
When viewed as part of the bigger picture, this payment initiative is being utilised to try and help the thousands of small as well as medium sized businesses (SMEs) that trade in this nation. As we feel the end of the most recent recession, many companies both large and small have felt the strain. Simply surviving until now in the current financial situation has been an accomplishment for most.
To help these companies control their cash flow more efficiently, suppliers to the public sector are being paid more quickly than has previously been the case. 19 out of 20 invoices to central government departments from main contractors are being settled inside of 10 days.
There are implications for all public sector projects, so even any commercial fit out specialists on any government department must follow these measures.
Who It Affects
This new ruling will affect any contractors as well as sub-contractors throughout the supply chain on works for any government departments, government agencies and NDPBs (non-departmental public bodies). It’s designed to support the sub-contractors further down the chain rather than offering benefits only to the primary contractors at the higer levels. The 30 day payment condition is solely relevant to any new agreements for work and doesn’t need to be applied retrospectively.
Who It Doesn’t Affect
The 30 day payment system is only relevant to personnel in the supply chain for public sector projects and isn’t part of general business law. It therefore doesn’t affect any contractors in the non-public segment. Since the measure does not have to be applied to existing contracts, several of the works for the 2012 Olympic Games will not be forced to adopt the system.
What It Means For Business
What this ought to signify with regard to small firms who are involved with public sector projects is an increase with the speed with which they will collect payment for their performance. Whilst several payment policies have been recognised to include range for certain “bending” of the guidelines, this fresh plan does seem to be far more rigorous in terms of delivering on its possibilities. At least it seems that way so far.
It will of course mean that public sector contracts can no more 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 might turn out to be a variable when deciding which contractors will be selected. The government are actively encouraging their main building contractors to pay second and 3rd tier firms before the 30 day deadline is up, which could see contractors making use of speed of payments as one part of their plans. This could increase competition for work since smaller companies might be able to be competitive on something other than cost.
The fresh payment measures do not have to be applied to any existing contracts that the governmental bodies in question already have. This fact may help to lessen the period of time put in on adjusting the contracts and keep the paperwork necessary to a bare minimum, and it should enable the new program to come into practice much much more smoothly.
If your business is considering getting an fit out and it works in the public segment then this article might assist you.
This new commitments to faster payments throughout the supply chain is a related measure to some other policies and acts which are being executed 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 bigger guide created by the Office for Government Commerce (OGC) designed to promote the best “fair payment” procedures for businesses working in the world of public segment projects. The conditions set down by the charter came into force from the 1st January 2008 aimed at all contracts in the public sector. Although it is focused at the public segment, these guidelines can be employed by firms in the private industry as well.
This charter is by no means a legally binding document, and it doesn’t supersede any conditions laid out in specific workers’ deals. It’s simply a document which sets out a number of responsibilities that are hoped to be followed throughout the market. A few of the main factors in the charter are the swiftness and correctness of payments that are made, that the payment procedure should be transparent up and down the supply chain and also that all parties within the supply chain should work collectively to help appropriate cash flows at all levels.
Prompt Payment Code
The Prompt Payment Code is one more initiative that is geared toward helping small and medium size firms, especially in terms of cash flow. It has been developed by the Government, together with assistance from the Institute of Credit Management (ICM) and encourages the adoption of best payment tactics and openness for any kind of agency that adopts it.
Again, this particular code is not a lawfully binding document and doesn’t override any stipulations of operating contracts between companies and individuals. It’s a guideline for companies that lays out a standard collection of fair payment policies developed to assist all affiliates working inside the public sector. As well as well-timed and reasonable payments, it also lays out recommendations for the dispute of invoices and any issues raised by vendors.
Firms that sign up to the code have to undergo an application process which determines if they have appropriate procedures in place to conform with the recommendations 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 an indicator of their commitment to working within a fair payment environment. This gives a great impression of the company, which may be crucial in the course of tough financial periods.
During the latest period of economic downturn there has been a diminishment in Leicester fit out contractors though the trend was experienced across most industries.
Implementation Of The Code
The specific wording that should be adopted by organisations operating in the public sector 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 would like firms to adopt the contract models that it has developed as a system of best practice. This does not always imply that they must be followed word for word in each circumstance, because each organisation is different and works under a distinctive collection of circumstances.
Political Impact
As with any kind of program introduced by Government there is a particular amount of political maneuvering that happens. Whilst all sides of the political spectrum can certainly consent that there is a critical requirement for fair payment in the public sector, there are still a number of further steps that may be taken that can be used by all parties to boost their own campaigns.
David Cameron and the Tory party have recently created a promise to tackle unfair pay in the public sector. Their plan will put into action a wide sweep of pay cuts across the senior workers in the public sector by associating the pay levels of the senior staff to the lowest paid workers in their organisation.
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 claims that by dealing with the problem of fair pay in the public segment is an illustration of how his party has become the most progressive party in the British isles and should go some way to dismiss the conventional prejudices linked with the Conservative party. He also uses the measures to launch an attack on the Labour party, claiming they are a government beyond their sell-by date.