Fair Payment Practices

When the newest budget was released by Alistair Darling in late March, the bulk of the nation was browsing at its impact it would take on our jobs, on our taxes, our schooling and health systems and our own personal spending habits. There was one step launched as part of the 2010 budget which many of us will not have observed though.

The announcement is in respect to fair payment in the public sector industry, with particular focus on contractors and subsequent sub-contractors. The new judgment says that from March 25th 2010, any service provider working for a department in the public segment will have a contractual obligation to pay their sub-contractors within 30 days.

It is certainly worth noting that the 30 day clause does not 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 on their own. Nevertheless, all central government units now have to pay 80% of any unchallenged invoices for goods or services within 5 days.

Why It’s Being Done

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

If viewed as part of the bigger picture, this payment move is being utilised to try to help the thousands of small and 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 suffered the strain. Simply surviving until now in the present economic situation has been an achievement for most. The government is now seeking to make sure that it can assist as many of these companies as possible.

To help these companies control their income flow more efficiently, suppliers to the public segment are being paid more quickly than has previously been the case. 19 out of 20 bills to central government sections from main contractors are being paid within 10 days.

One of the industries which will be influenced by these measures will be the office construction field on jobs for government departments.

Who It Affects

The new ruling will impact any contractors as well as sub-contractors throughout the supply chain on works for any government departments, government agencies along with NDPBs (non-departmental public bodies). It’s designed to help the sub-contractors deeper down the chain rather than offering rewards only to the primary contractors at the top levels. The 30 day payment condition is only applicable to any new agreements for work and doesn’t need to be applied retrospectively.

Who It Doesn’t Affect

This 30 day payment program is only relevant to personnel in the supply sequence for public sector projects and isn’t part of general business regulation. It therefore doesn’t affect any companies in the non-public market. Since the measure doesn’t have to be placed on to active contracts, many of the projects for the 2012 Olympic Games will not be obligated to follow the program.

What It Means For Business

What this step ought to mean for small businesses who are involved with public industry works is an increase in the speed with which they collect payment for their work. While several payment policies have been recognised to include range with regard to certain “bending” of the guidelines, this new plan does appear to be far more rigorous in terms of delivering on its possibilities. At least it seems that way so far.

It does naturally mean that public sector agreements can no longer be won by main contractors which do not agree to the 30 day payment clause. Further than this, the speed of payments all the way down the supply chain could become a factor when deciding which contractors will be selected. The authorities are positively encouraging their main building contractors to pay second and 3rd tier firms before the 30 day deadline is up, which might see contractors using speed of payments as one part of their proposals. This may improve competition for work since smaller companies may be able to be competitive on something other than cost.

The fresh payment measures do not need to be applied to any existing contracts that the governmental bodies in question already have. This particular fact will help to reduce the period of time put in on adjusting the contracts and hold the paperwork necessary to a minimum, and it should enable the new system to come into practice much much more easily. Departments are being asked to encourage their main contractors to follow the 30 day payment system on a voluntary basis wherever feasible.

If your business is thinking of getting an commercial office fit out and it works within the public sector then this particular article may assist you.

This fresh commitment to faster payments throughout the supply chain is a sister measure to some other policies and acts which are being implemented in order to encourage a fairer working atmosphere up and down the supply chain.

Fair Payment Charter

The Fair Payment Charter is one part of a larger guide created by the Office for Government Commerce (OGC) designed to encourage the best “fair payment” practices for businesses working within the realm of public sector works. The conditions set down by the charter came into force from the 1st January 2008 aimed at all contracts in the public segment. Although it is aimed at the public segment, all these suggestions can be used by businesses in the private sector as well.

This charter is by no means a lawfully binding document, and it doesn’t supersede any terms laid out in particular workers’ agreements. It is simply a document that sets out a number of responsibilities that are hoped to be followed throughout the industry. Some of the principal factors in the charter are the swiftness and correctness of payments that are made, that the payment process ought to be clear up and down the supply string and also that all points within the supply chain need to work collectively to ensure appropriate cash flows at all levels.

Prompt Payment Code

The Prompt Payment Code is yet another move that is tailored toward helping small and medium sized companies, particularly in terms of their cash flow. It has been produced by the Government, together with help from the Institute of Credit Management (ICM) and encourages the usage of best payment tactics and openness for any agency which adopts it.

Once again, this particular code is not a legally binding contract and does not override any stipulations of working contracts between businesses and individuals. It is a guide for businesses that sets out a standard set of fair payment policies designed to help all members operating within the public segment.

Businesses that sign up to the code have to go through an application process which establishes if they have appropriate procedures in place to conform with the recommendations set out in the code. After they have passed all these tests they can then display the PPC logo on their very own business brochures and web site as a sign of their dedication to operating inside of a fair payment environment.

During the latest phase of recession there has been a new lessening of refurbishments though the pattern was experienced across many market sectors.

Implementation Of The Code

The exact wording that should be adopted by firms working in the public segment may be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. The particular clause that ought to be adopted within the market 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 would like businesses to follow the contract models that it has produced as a program of best practice. This doesn’t necessarily imply that they have to be followed word for word in every circumstance, given that every company is different and works under a unique set of circumstances.

Political Impact

As with any program introduced by Government there is a particular amount of political maneuvering that happens. Although all sides of the political spectrum can agree that there is a critical need for fair payment within the public segment, there are still a range of further 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 forth with a pledge to tackle unfair pay within the public segment. The plan will implement a wide sweep of pay cuts throughout the senior employees in the public segment by associating the particular pay grades of the chief personnel to the lowest paid workers within their organisation.

While Cameron recognises that there is currently a commitment to pay transparency, justness and speed, he also says that “it is time to go further.” The party head says that by dealing with the issue of fair pay in the public sector is a sign of just how his party has become the most modern party in the United kingdom and should go some way to dispel the conventional prejudices associated with the Conservative party.