Fair Payment Practices
When the newest budget was released by Mr Darling in March, the bulk of the country was looking at the impact it would have on our work, on our taxations, our education and health programs and our own personal spending patterns. There was one initiative launched as part of the 2010 budget which many of us will not have noticed though.
The announcement is in regard to fair payment within the public sector field, with particular focus on contractors and their subsequent sub-contractors. The new judgment states that from March 25th 2010, any contractor working for a department in the public segment will have a legal obligation to pay their sub-contractors inside of 30 days. The scope of this initiative does only cover new deals.
It is certainly worth noting that the 30 day clause does not apply to payments from the governmental branches to first tier contractors, but to the first tier contractors making prompt payments to lower level contractors that they are employing on their own. Nevertheless, all central government units now must pay 80% of any unchallenged invoices for goods or services within 5 days. This is a gauge of their own dedication to a fairer payment system.
Why It's Being Done
This move has been made as one element of an attempt to improve the timeliness of payments coming from public sector jobs up and down the supply chain. Public sector work has a great reputation for the prompt payment of invoices at the higher levels of sub-contracted work, but this gain has not always been experienced by sub-contractors which 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 employed to try to help the numbers of small and medium sized businesses (SMEs) that operate in this country. As we experience the tailing off of the most recent recession, many businesses both large and small have experienced the strain. Simply making it through until now in the current financial situation has been an achievement for many. The government is now seeking to ensure that it can help as many of these companies as possible.
To help these companies manage their cash flow more effectively, suppliers to the public sector are being paid more quickly than has previously been the case. 19 out of 20 bills to central government departments from main contractors are being paid inside of 10 days. The government is now seeking to spread this benefit across the sub-contracting supply cycle.
There are implications for all public segment projects, even any office fit out on a governing agency should follow these steps.
Who It Affects
This new ruling will affect any contractors as well as sub-contractors throughout the supply chain on projects for all government departments, government agencies and NDPBs (non-departmental public bodies). It is designed to support the sub-contractors further down the chain rather than providing rewards simply to the main contractors at the top levels. The 30 day payment condition is only relevant to any new agreements for work and does not have to be applied retrospectively.
Who It Doesn't Affect
The 30 day payment system is only appropriate to personnel in the supply chain for public segment works and is not part of standard business law. It therefore doesn't affect any contractors in the private market. Since the measure does not need to be applied to active agreements, several of the projects for the 2012 Olympic Games won't be forced to adopt the program.
What It Means For Business
What this ought to signify with regard to small companies who are engaged with public segment works is an improvement in the speed with which they will receive payment for their work. Whilst several repayment procedures have been recognised to include range with regard to certain "bending" of the rules, this fresh plan does appear to be far more rigid in terms of delivering on its possibilities.
It does naturally mean that public sector contracts can no longer be received by main contractors which do not agree to the 30 day payment clause. Further than this, the speed of payments down the supply chain might become a factor when deciding which contractors will be picked. The government are positively encouraging their main building contractors to pay 2nd and 3rd tier companies before the 30 day deadline is up, which may see contractors using speed of payments as part of their proposals.
The new payment steps do not have to be applied to any existing contracts that the governmental bodies in question already have. This particular fact may help to reduce the amount of time spent on adjusting these contracts and hold the paperwork necessary to a minimum, and it ought to enable the new system to come into practice much more smoothly.
Any company that makes use of office room should budget for fit outs given that better operating environments promote more productive staff.
This new commitments to faster payments all through the supply string is a related measure to other policies and acts which are being executed in order to promote a fairer working environment up and down the supply sequence. Two of these other steps include:
Fair Payment Charter
The Fair Payment Charter forms one part of a larger instruction developed by the Office for Government Commerce (OGC) designed to encourage the best "fair payment" procedures for businesses operating within the world of public segment works. The terms set out by the charter came into force from the 1st January 2008 aimed at all contracts in the public sector. Although it is focused at the public sector, these suggestions can be employed by firms in the private industry as well.
This charter is by no means a legally binding record, and it does not supersede any terms laid out by particular workers' contracts. It's simply a record that sets out a number of responsibilities that are hoped to be followed throughout the market. A few of the principal points in the charter are the timeliness and correctness of payments that are made, that the payment process should be transparent up and down the supply chain and also that all parties in the supply chain should work collectively to ensure appropriate cash flows at all levels.
Prompt Payment Code
The Prompt Payment Code is one more move that is tailored towards assisting small and medium size businesses, especially in terms of their cash flow. It has been produced by the Government, together with support from the Institute of Credit Management (ICM) and encourages the usage of best payment practices and transparency for any agency that adopts it.
Again, this particular code is not a lawfully binding document and does not override any stipulations of operating agreements between companies and individuals. It's a guideline for businesses that lays out a standard collection of fair payment procedures designed to help all members operating inside the public sector.
Companies that sign up to the code have to undertake an application process that determines if they have suitable procedures in place to comply with the recommendations laid out in the code. Once they have passed these assessments they can show the PPC logo on their own company brochures and website as an indicator of their dedication to operating inside of a fair payment environment. This gives a good impression of the company, that may be crucial in the course of tough economic times.
Government departments and agencies do not frequently undergo office refurbs although decent office organisation can yield improvements in production.
Implementation Of The Code
The exact wording that must be followed by companies working in the public sector may be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. The specific section that ought to be adopted within the industry is :"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 wants companies to follow the contract models that it has created as a program of best practice. This doesn't necessarily imply that they have to be adopted word for word in each circumstance, given that every business is different and works under a unique set of conditions. By making public sector firms follow just the prompt payment clause set out above an industry wide scheme can easily be unveiled without compromising the flexibility to set down department specific terms .
Political Impact
As with any kind of measure introduced by Government there is actually a certain amount of political maneuvering that happens. Whilst all parts of the political spectrum can agree that there is a vital need for fair payment within the public segment, there are still a number of further actions that can be undertaken that can be used by all parties to promote their own campaigns.
David Cameron and the Tory party have recently come out with a pledge to tackle unfair pay in the public segment. The plan will put into action a broad sweep of pay cuts across the senior employees in the public sector by associating the particular pay levels of the senior personnel to the lowest paid workers in their company. A fair pay assessment would occur with the primary objective of establishing a 20-fold pay scale, so a senior worker couldn't earn more than 20 times what the lowest paid staff member does.
Although Cameron acknowledges that there is already 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 segment 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 dismiss the conventional prejudices linked with the Conservative party. He furthermore makes use of the measures to launch an attack on the Labour party, claiming they are a government beyond their sell-by date.
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