As the latest budget was released by Alistair Darling in March, the majority of the nation was browsing at the impact it would take on our jobs, on our taxes, our education and health programs and our own personal spending patterns. There was one particular step launched as part of the 2010 budget that most of us will not have seen though. This post aims to shed light on a few of the details of this new initiative.
The announcement is in regard to fair payment in the public sector field, with particular focus on contractors and their subsequent sub-contractors. The new ruling declares that from March 25th 2010, any contractor working for a division in the public sector will have a contractual obligation to pay their own sub-contractors inside of 30 days. The scope of this particular initiative will only cover new deals.
It is worth noting that this 30 day clause doesn’t apply to payments from the governmental branches to 1st tier contractors, but to those first tier contractors making prompt payments to lower tier contractors that they are appointing themselves. Nevertheless, all central government units now have to pay 80% of any undisputed invoices for goods or services within 5 days.
Why It’s Being Done
This move has been made as part of an effort to enhance the timeliness of payments arising from public segment jobs up and down the supply chain. Public sector 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 who are two or three levels of separation away from that initial payment.
If viewed as part of the bigger 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 experience the tailing off of the most recent recession, many companies both large and small have felt the strain. Simply making it through until now in the current financial circumstances has been an achievement for most.
To help these businesses control 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 primary contractors are being paid inside of 10 days. The government is now looking to distribute this benefit across the sub-contracting supply chain.
With so many distinct companies working jointly on almost every office fit out cash circulation frequently becomes a complicated procedure.
Who It Affects
The new ruling will affect any contractors as well as sub-contractors through the supply chain on works for all government departments, government agencies along with NDPBs (non-departmental public bodies). It’s designed to support the sub-contractors further down the chain rather than providing benefits only to the primary contractors at the top levels. The 30 day payment condition is only applicable to new agreements for projects and does not need to be used retrospectively.
Who It Doesn’t Affect
This 30 day payment program is only relevant to contractors in the supply sequence for public segment projects and isn’t part of standard business law. It therefore does not impact any contractors in the private sector. Since the measure doesn’t have to be placed on to active contracts, several of the projects for the 2012 Olympic Games won’t be forced to adopt the system.
What It Means For Business
What this step ought to signify for small businesses that are engaged with public industry projects is an improvement with the pace with which they receive payment for their work. Whilst some payment procedures have been recognised to include range with regard to certain “bending” of the rules, this fresh scheme does seem to be much more rigorous in terms of delivering on its potential. At least it appears that way so far.
It does of course mean that public segment contracts can no more be won by primary contractors that do not agree to the 30 day payment clause. Even more than this, the swiftness of payments down the supply chain might become a variable while deciding which contractors will be chosen. The authorities are actively encouraging their main contractors to pay 2nd and 3rd tier businesses before the 30 day deadline is up, which might see contractors making use of speed of payments as one part of their proposals.
The new payment measures do not have to be put on to any existing contracts that the governmental bodies in question currently have. This fact will help to reduce the period of time spent on adjusting the contracts and keep the paperwork needed to a bare minimum, and it should enable the new program 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 feasible.
Several firms have already been signing up for fit outs over the past few years which should now slightly modify their company practices in connection to payments.
This new commitments to quicker payments all through the supply string is a sister measure to other plans and acts which are being implemented in order to promote a fairer working environment up and down the supply chain. A couple of of these other measures include:
Fair Payment Charter
The Fair Payment Charter forms one part of a larger guide created by the Office for Government Commerce (OGC) designed to encourage the very best “fair payment” practices for companies working within the realm of public sector works. The terms set down by this charter came into force from the 1st January 2008 directed at all contracts in the public segment. While it is focused at the public segment, these guidelines can be used by businesses in the private sector as well.
This charter is by no means a legally binding document, and it does not supersede any terms laid out in particular workers’ agreements. It is merely a document which lays out a range of commitments that are hoped to be adopted all through the market. Some of the major points in the charter are the timeliness and correctness of payments that are made, that the payment procedure should be transparent up and down the supply chain and that all points within the supply chain need to work collectively to ensure appropriate cash flows at many levels.
Prompt Payment Code
The Prompt Payment Code is one more move that is geared towards assisting small and medium sized companies, particularly in terms of their 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 transparency for any kind of agency which adopts it. It sits together with existing fair payment schemes.
Once again, this code is not a legally binding document and doesn’t outrank any stipulations of operating contracts between businesses and individuals. It’s a guide for organisations which lays out a standard collection of fair payment procedures developed to assist all affiliates operating inside the public sector.
Firms that sign up to the code have to go through an application procedure which establishes if they have appropriate procedures in place to comply with the guidelines laid out in the code. After they have passed these assessments they can then display the PPC logo on their own business brochures and website as an indicator of their dedication to working within a fair payment environment.
One specific business taking note of public segment pay ramifications are http://tjhall.co.ukwho specialize in workplace design and refurbishment in the Midlands.
Implementation Of The Code
The exact wording that must be adopted by companies 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 follow the contract models that it has developed as a system of best practice. This doesn’t necessarily mean that they have to be adopted word for word in every circumstance, given that every business is different and operates under a distinctive collection of conditions. By making public segment companies follow just the prompt payment condition set out above an industry wide scheme can be unveiled with out compromising the flexibility to set out department specific terms and conditions.
Political Impact
As with any program introduced by Government there is actually a particular amount of political maneuvering that happens. Whilst all parts of the political spectrum can agree that there’s a vital need for fair payment in the public segment, there are still a number of additional steps that may be undertaken that can be employed by all parties to promote their own campaigns. This is even more noticeable during an election year.
David Cameron and the Tory party have recently come forth with a promise to deal with unfair pay in the public segment. The scheme will implement a broad sweep of pay cuts across the senior employees within the public segment by associating the pay levels of the chief staff to the lowest paid workers in their organisation.
Although Cameron acknowledges that there’s currently a commitment to pay transparency, fairness and speed, he also says that “it is time to go further.” The party leader says that by dealing with the issue of fair pay in the public sector is an illustration of just how his party has grown to be the most modern party in the United kingdom and should go some way to dispel the conventional prejudices linked with the Conservative party.