When the newest budget was released by Alistair Darling in late March, the bulk of the nation was looking at its impact it would have on our work, on our taxations, our education and health systems and our own personal spending patterns. There was one particular initiative launched as part of the 2010 budget which many of us will not have noticed however.

The announcement was in regard to fair payment within the public sector field, with specific focus on contractors and subsequent sub-contractors. The new ruling declares that from March 25th 2010, any contractor working for a division in the public segment will have a contractual obligation to pay their sub-contractors within 30 days.

It is worth noting that the 30 day clause doesn’t apply to payments by the governmental departments to 1st tier contractors, but to those 1st tier contractors making prompt payments to lower level contractors that they are employing themselves. Nevertheless, all central government units now have to pay 80% of any unchallenged invoices for goods or services inside of 5 days.

Why It’s Being Done

This step has been taken as part of an effort to improve 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 top levels of sub-contracted work, however this benefit has not at all times been felt by sub-contractors who are two or three levels of separation from the initial payment. The addition of a 30 day payment clause ought to help to distribute this benefit between all sub-contractors doing work on public sector projects.

When viewed as part of the larger picture, this particular payment initiative is being employed to try and help the thousands of small and medium sized businesses (SMEs) that trade in this nation. As we experience the end of the most recent recession, many companies both large and small have experienced the strain. Just making it through until now in the current financial circumstances has been an achievement for most. The government is now seeking to ensure that it can assist as many of these businesses as possible.

To help these companies control their cash flow more efficiently, suppliers to the public segment are being paid faster than has previously been the case. 19 out of 20 bills to central government departments from primary contractors are being paid inside of 10 days. The government is now seeking to spread this benefit throughout the sub-contracting supply cycle.

With so many distinct agencies doing work jointly on every office fit out money circulation frequently will become a tricky procedure.

Who It Affects

This 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 rewards only to the main contractors at the higer levels.

Who It Doesn’t Affect

The 30 day payment system is only relevant to contractors in the supply sequence for public sector works and isn’t part of common business regulation. It therefore does not affect any contractors in the non-public sector. Since the measure does not need to be placed on to active contracts, many of the works for the 2012 Olympic Games won’t be forced to follow the program.

What It Means For Business

What this step should signify for small firms who are engaged with public segment works is an improvement in the speed with which they will receive payment for their performance. Whilst several repayment procedures have been recognised to include scope for certain “bending” of the guidelines, this new scheme does appear to be far more rigid in terms of delivering on its possibilities. At least it looks that way so far.

It does of course mean that public segment agreements can no more be won by primary contractors which do not agree to the 30 day payment terms. Even more than this, the swiftness of payments all the way down the supply chain might turn out to be a variable when deciding which contractors will be chosen. The authorities are positively encouraging their main contractors to pay second and 3rd tier companies before the 30 day deadline is up, which could see contractors making use of speed of payments as one part of their own plans. This may increase competition for work because smaller companies might be able to compete on something other than price.

The fresh payment measures do not have to be applied to any existing contracts which the governmental departments in question already have. This fact will help to lessen the amount of time put in on adjusting the contracts and hold the paperwork necessary to a minimum, and it should allow the new system to come into practice much more easily. Divisions are being asked to really encourage their primary contractors to follow the 30 day payment program on a voluntary basis where ever feasible.

Any company that uses office room ought to plan for fit outs given that superior operating environments promote much more effective employees.

The fresh commitment to quicker payments all through the supply string is a related measure to some other policies and acts which are being implemented in order to promote a fairer working atmosphere up and down the supply chain. Two of these other measures include:

Fair Payment Charter

The Fair Payment Charter is one part of a bigger instruction developed by the Office for Government Commerce (OGC) designed to encourage the best “fair payment” practices for companies working in the world of public segment works. The terms set down by the charter came into force from the 1st January 2008 directed at all contracts in the public segment. Although it is focused at the public segment, all these recommendations can be employed by firms in the private industry as well.

This charter is by no means a lawfully binding record, and it doesn’t supersede any of the conditions laid out in particular workers’ agreements. It’s simply a document which sets out a range of commitments that are hoped to be followed throughout the industry. A few of the principal points in the charter are the timeliness and correctness of payments to be made, that the payment process ought to be clear up and down the supply chain and also that all parties in the supply chain need to work jointly to ensure appropriate cash flows at many levels. In many ways this charter set the footings for the new 30 day payment policy.

Prompt Payment Code

The Prompt Payment Code is one more move that is tailored toward assisting small and medium size companies, especially in terms of cash flow. It has been produced by the Government, with support from the Institute of Credit Management (ICM) and promotes the usage of best payment practices and transparency for any agency which adopts it.

Once again, this particular code is not a lawfully binding document and doesn’t outrank any stipulations of working agreements between businesses and individuals. It is a guideline for organisations that sets out a standard set of fair payment policies designed to assist all members working inside the public segment.

Firms that sign up to the code must go through an application process that establishes if they have suitable measures in place to conform with the guidelines laid out in the code. Once they have passed these checks they can show the PPC logo on their very own company brochures and web site as a sign of their dedication to operating within a fair payment environment. This gives a great opinion of the business, that may be crucial during tough financial periods.

Any construction firms that are bidding on refurbishments ought to demonstrate adequately their own ability to make payments to sub-contractors on time.

Implementation Of The Code

The specific wording that should be adopted 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 clause that should be adopted within the market 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 firms to follow the contract models that it has produced as a program of best practice. This does not necessarily imply that they have to be adopted word for word in each circumstance, given that every company is different and works under a distinctive collection of circumstances. By making public segment firms follow just the prompt payment clause set out over an industry wide system can be unveiled without compromising the flexibility to set out department specific terms .

Political Impact

As with any kind of program introduced by Government there is a particular amount of political maneuvering that happens. Whilst all sides of the political spectrum can agree that there’s a crucial requirement for fair payment in the public sector, there are still a number of further actions that can be undertaken that can be used by all parties to promote their own campaigns. This becomes even more apparent in an election year.

David Cameron and the Tory party have recently created a promise to tackle unfair pay within the public segment. The plan will put into action a broad sweep of pay cuts throughout the senior employees in the public segment by associating the particular pay levels of the senior staff to the lowest paid staff within their organisation. A fair pay assessment would take place with the primary objective of establishing a 20-fold pay scale, so a senior worker could not earn more than 20 times what the lowest paid staff member does.

Although Cameron acknowledges that there’s already a commitment to pay transparency, fairness and speed, he also states that “it is time to go further.” The party leader says that by dealing with the issue of fair pay within the public segment is an illustration of just how his party has become the most modern party in the Uk and should go some way to dispel the traditional prejudices linked with the Conservative party. He also makes use of the measures to release an attack on the Labour party, claiming that they are a government beyond their sell-by date.