Good News For Public Sector Sub-Contractors

Monday, September 6th, 2010 | local info

As the newest budget was released by Alistair Darling in March, the vast majority of the country was looking at its effect it would take on our work, on our taxations, our education and health programs and our own personal spending patterns. There was one particular initiative launched as part of the 2010 budget that many of us will not have noticed however.

The announcement was in regard to fair payment in the public sector field, with particular focus on contractors and their 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 contractual 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 prompt payments to lower tier contractors that they are employing on their own. Nevertheless, all central government departments now must pay 80% of any undisputed 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 sector jobs up and down the supply chain. Public segment work has a great reputation for the prompt payment of bills at the higher levels of sub-contracted work, but this gain has not at all times been felt by sub-contractors which are two or three levels of separation from that initial payment.

If viewed as part of the bigger picture, this payment move is being utilised to try and help the numbers of small as well as medium sized businesses (SMEs) that operate in this nation. As we experience the end of the most recent recession, many companies both large and small have felt the strain. Just surviving until now in the present financial situation has been an achievement for most. The government is now looking to ensure that it can assist as many of these enterprises as possible.

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 bills to central government sections from main contractors are being settled within 10 days.

Making payment terms fair could help promote competition amongst office construction businesses which apply to get numerous construction positions each month.

Who It Affects

The new ruling will impact any contractors and sub-contractors all 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 further down the chain rather than offering rewards simply to the primary contractors at the higer levels.

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 common business law. It therefore does not impact any companies in the non-public segment. Since the measure doesn’t need to be applied to active contracts, several of the projects for the 2012 Olympic Games won’t be obligated to follow the system. The usage of the program by existing construction contracts on a voluntary basis is actually currently being invited however.

What It Means For Business

What this ought to mean for small businesses who are involved with public segment works is an improvement with the speed with which they will receive payment for their work. Whilst some repayment procedures have been recognised to include range for certain “bending” of the rules, this new scheme does appear to be much more rigid in terms of delivering on its potential.

It will naturally mean that public sector agreements can no longer be won by main contractors who don’t agree to the 30 day payment clause. Even more than this, the speed of payments down the supply chain could turn out to be a factor when deciding which contractors will be picked. The authorities are positively encouraging their main building contractors to pay second 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 own proposals.

The new payment measures do not have to be put on to any existing contracts which the governmental bodies in question already have. This fact will help to reduce the amount of time put in on adjusting these contracts and keep the paperwork required to a bare minimum, and it ought to allow the new program to come into practice much more smoothly.

There’s a specific business which specialize in fit outs that are actually gladly bringing these payment steps aboard.

This fresh commitments to quicker payments throughout the supply chain is a related measure to some other policies and acts that are being executed in order to promote a fairer working atmosphere up and down the supply chain.

Fair Payment Charter

The Fair Payment Charter is one 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 terms set out by this charter came into force from the 1st January 2008 directed at all contracts in the public sector. Whilst it is aimed at the public sector, these guidelines can be used by companies in the private industry as well.

This charter is by no means a legally binding record, and it doesn’t supersede any terms laid out in specific workers’ agreements. It is merely a record that lays out a range of responsibilities that are hoped to be adopted throughout the industry. Some of the primary points in the charter are the timeliness and correctness of payments to be made, that the payment process should be transparent up and down the supply string and also that all points in the supply chain should work together to ensure appropriate cash flows at many levels. In many ways this charter set the foundations for the new 30 day payment policy.

Prompt Payment Code

The Prompt Payment Code is another 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 support from the Institute of Credit Management (ICM) and promotes the usage of best payment tactics and transparency for any agency that adopts it.

Once again, this code is not a lawfully binding contract and doesn’t override any stipulations of operating contracts between businesses and individuals. It’s a guideline for organisations which lays out a standard set of fair payment policies developed to help all affiliates operating inside the public sector. As well as timely and fair payments, it also sets out recommendations for the challenge of invoices and any complaints raised by suppliers.

Businesses that sign up to the code must undergo an application procedure that establishes if they have appropriate measures in place to comply with the guidelines laid out in the code. Once they have passed these assessments they can then show the PPC logo on their own company brochures and web site as a sign of their dedication to working inside of a fair payment environment. This gives a good impression of the business, that may be crucial in the course of tough economic times.

Now the appropriate design and pleasing colours for any workplace refurb aren’t just your only factors that should be made.

Implementation Of The Code

 The exact wording that should be adopted by organisations working 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 adopt 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 each circumstance, given that each business is unique and works under a distinctive set of conditions.

Political Impact

As with any measure introduced by Government there is a particular amount of political maneuvering that happens. Whilst all parts of the political spectrum can certainly consent that there’s a critical need for fair payment in the public sector, there are still a number of further steps that can be taken that can be employed by all parties to boost their own campaigns. This is even more noticeable in an election year.

David Cameron and the Tory party have recently come out with a pledge to deal with unfair pay in the public sector. The scheme will put into action a wide sweep of pay cuts across the senior staff within the public segment by associating the particular pay levels of the chief personnel to the lowest paid workers inside of their organisation.

Whilst Cameron acknowledges that there is currently a commitment to pay transparency, fairness and timeliness, he also says that “it is time to go further.” The party leader claims that by tackling the problem of fair pay in the public sector is an indication of just how his party has become the most modern party in the British isles and ought to go some way to dispel the conventional prejudices associated with the Conservative party.

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