When the newest budget was released by Mr Darling in late March, the vast majority of the country was looking at its effect it would have on our jobs, on our taxes, our schooling and health programs and our own individual spending habits. There was one particular step launched as part of the 2010 budget which many of us will not have observed however. This post aims to shed light on a few of the facts of this fresh initiative.
The announcement is in respect to fair payment in the public sector industry, with specific focus on contractors and their subsequent sub-contractors. The new judgment says that from March 25th 2010, any service provider working for a division in the public sector will have a legal responsibility to pay their own sub-contractors within 30 days.
It is certainly worth noting that this 30 day clause doesn’t apply to payments by the governmental departments to 1st tier contractors, but to those first tier contractors making prompt payments to lower tier contractors that they are appointing themselves. However, all central government units now must pay 80 percent of any unchallenged invoices for goods or services within 5 days.
Why It’s Being Done
This move has been taken as one element of an attempt to improve the timeliness of payments coming from public sector work up and down the supply chain. Public sector work has a decent reputation for the prompt payment of accounts at the top levels of sub-contracted work, but this benefit has not always been felt by sub-contractors which are two or three levels of separation away from that initial payment. The introduction of a 30 day payment clause should help to spread this benefit between all sub-contractors working on public sector work.
When viewed as part of the bigger picture, this particular payment move is being employed to try and help the numbers of small as well as medium sized businesses (SMEs) that operate in this country. As we experience the tailing off of the latest recession, many businesses both large and small have felt the strain. Merely surviving until now in the current economic situation has been an achievement for most. The government is now looking to ensure that it can assist as many of these businesses as possible.
To help these businesses control their income flow more efficiently, suppliers to the public sector are being paid more quickly than has ever before been the case. 19 out of 20 bills to central government departments from primary contractors are being settled inside of 10 days. The government is now looking to distribute this benefit across the sub-contracting supply chain.
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Who It Affects
This fresh ruling will impact any contractors as well as sub-contractors all through the supply chain on projects for all government departments, government agencies and NDPBs (non-departmental public bodies). It’s designed to aid the sub-contractors deeper down the chain rather than providing benefits simply to the primary contractors at the higer levels.
Who It Doesn’t Affect
The 30 day payment program is only appropriate to personnel in the supply sequence for public segment works and is not part of general business law. It therefore doesn’t impact any companies within the non-public segment. Since the measure doesn’t have to be placed on to active contracts, many of the works for the 2012 Olympic Games will not be obligated to adopt the program.
What It Means For Business
What this step ought to signify with regard to small firms who are involved with public sector projects is an increase in the pace with which they collect payment for their performance. Whilst some payment policies have been recognised to contain range with regard to certain “bending” of the guidelines, this fresh scheme does appear to be much more rigorous in terms of delivering on its possibilities.
It will naturally mean that public sector contracts can no longer be received by main contractors that don’t agree to the 30 day payment terms. Even more than this, the speed of payments all the way down the supply chain might become a factor while deciding which contractors will be chosen. The government are positively encouraging their main contractors to pay 2nd and third tier businesses before the 30 day deadline is up, which might see contractors using speed of payments as part of their own plans. This may improve competition for work since smaller businesses may be able to compete on something other than cost.
The fresh payment steps do not need to be applied to any existing contracts that the governmental bodies in question currently have. This 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 program to come into practice much much more smoothly. Departments are being asked to encourage their main contractors to adopt the 30 day payment program on a voluntary basis wherever possible.
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This fresh commitment to faster payments all through the supply string is a sister measure to other policies and acts that are being implemented in order to promote a fairer working atmosphere up and down the supply chain. 2 of these other measures include:
Fair Payment Charter
The Fair Payment Charter is part of a bigger instruction created by the Office for Government Commerce (OGC) designed to encourage the best “fair payment” practices for companies operating within the world of public sector projects. The conditions set out by the charter came into force from the 1st January 2008 aimed at all agreements in the public segment. Although it is focused at the public sector, all these guidelines can be employed by businesses in the private sector as well.
This charter is by no means a legally binding record, and it does not supersede any of the conditions laid out by specific workers’ contracts. It’s simply a record which lays out a range of responsibilities that are hoped to be adopted throughout the market. A few of the principal 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 string and also that all points in the supply chain need to work collectively to help appropriate cash flows at many levels.
Prompt Payment Code
The Prompt Payment Code is yet another move that is geared toward helping small and medium sized businesses, especially in terms of their cash flow. It has been developed by the Government, with support from the Institute of Credit Management (ICM) and promotes the usage of best payment tactics and transparency for any kind of agency which adopts it.
Again, this code is not a lawfully binding contract and does not outrank any stipulations of working agreements between businesses and individuals. It’s a guideline for organisations which sets out a standard collection of fair payment policies designed to help all affiliates operating within the public sector. As well as timely and fair payments, it also lays out guidelines for the dispute of invoices and any issues raised by suppliers.
Businesses that sign up to the code must undergo an application procedure that establishes if they have appropriate procedures in place to comply with the guidelines laid out in the code. After they have passed all these tests they can display the PPC logo on their very own business brochures and web site as a sign of their dedication to working inside of a fair payment environment. This gives a great impression of the company, that may be crucial in the course of tough economic periods.
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Implementation Of The Code
The exact wording that must be followed by companies working within the public segment 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 companies to follow the contract models that it has created as a program of best practice. This doesn’t always imply that they must be adopted word for word in each circumstance, given that every company is unique and works under a unique collection of circumstances.
Political Impact
As with any kind of program introduced by Government there is a certain amount of political maneuvering that goes on. Although all parts of the political spectrum can agree that there’s a critical need for fair payment within the public sector, there are still a number of additional actions that can be taken that can be used by all parties to promote their own campaigns.
David Cameron and the Tory party have recently come forth with a promise to deal with unfair pay within the public segment. The scheme will implement a broad sweep of pay cuts throughout the senior employees in the public sector by associating the particular pay grades of the senior personnel to the lowest paid workers in their organisation.
Although 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 says that by tackling the problem of fair pay within the public segment is an illustration of just how his party has become the most progressive party in the British isles and ought to go some way to dispel the traditional prejudices linked with the Conservative party.
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