In a positive move for the construction sector, the Cabinet Office has written to more than 10,000 suppliers to remind them of new rules, which require companies that bid for government contracts above £5m per annum to pay 95 per cent of invoices within 60 days and to work towards a payment term of 30 days or risk being barred from future public sector work.
Oliver Dowden, the Government Minister for Implementation, said: “Prompt payment is critical for all companies helping to deliver public services, particularly small businesses which are the backbone of our economy. That’s why, from September, if government contractors are late with supplier payments, they could be prevented from winning public contracts until they clean up their act.”
As something that ACE has long been suggesting, we’re delighted that the Government has taken forward steps to ensure that subcontractors working on public sector projects are paid in good time.
Following the Chancellor’s Spring Statement, I called for the possible deselection from government-run tenders of companies who took liberties in their payments to those working along the supply chain, so I’m glad to hear that the Government is now enforcing the policy towards those who do this will lead to a full eventual ban when the policy comes into force on September.
PPN 04/18 set out how payment approaches can be taken into account in the procurement of major Government contracts recognised “the importance of prompt, fair and effective payment in all businesses.”
However, it’s also important to recognise the challenges of tier 1 contractors’ business models and that many suppliers simply do not have the cashflow to adhere to these terms. It’s a flaw that we are actively striving to fix working with CECA and through our Future of Consultancy campaign, and it’s imperative that we appreciate that while this is a step up in reinforcing the PPN, we may just be treating a symptom rather than addressing the underlying cause of the problem.
It is vital that all companies who deliver public sector projects are paid promptly. Our industry relies on SMEs who often cannot afford a gap in their cashflow, and this gentle reminder of a supplier’s responsibilities is timely. Let’s hope it’s just the first step in making the sector work better for all.