Small companies have always found it hard to get paid on time from the larger businesses which is why the Finishes and Interiors Sector (FIS) is greatly encouraged by the interventions of the Office of the Small Business Commissioner (OSBC) in tackling the late payment epidemic.
The OSBC works with signatories to the Prompt Payment Code (PPC) to help businesses get paid . The PPC was created by the UK government in 2008 in response to a call from businesses for a change in payment culture. It sets out requirements for paying supplier invoices. Whilst the Code is not mandatory, it can be included as a requirement for tendering.
When a signatory’s payment practice is challenged (the complaint can be instigated via a simple webform here), the PPC administrators, the OSBC, will investigate. They cannot mediate a resolution. Their role is to decide on whether or not the signatory is complying with the code and if not, what action should be taken. The PPC Compliance Board can determine that the payment practice is non-compliant, and the signatory may be removed from the Code, which in turn may impact future tenders. However, in many cases the fact that the OSBC has been complained to, prompts the customer to resolve the dispute with their supplier.
This process was tested by FIS Member, Tapper Interiors, who started three contracts for a main contractor between July and September of 2020, with a total contract value of around £500k. The contracts were finalised between Feburary and April 2021. At no point did the company receive complaints about the quality of its work or progress on site, and no disputes were registered. Most payments were late by a few weeks or so, according to the issued payment schedule and required much chasing.
Commenting, Helen Tapper Business Operations Director at Tapper Interiors said: “It was incredibly hard to get any contact with any of the Quantity Surveyors involved and therefore almost impossible to chase, as their accounts department don’t accept calls. In October 2020, having submitted three applications in September for the three contracts, we were informed that the directors had decided not to release any money that month. We were at the end of a very difficult trading year and were owed approx £80k across the three contracts. This would have caused us problems, but luckily I still had some CBILLS money that covered the shortfall.”
The company eventually received the money at the end of November. The payments continued to be erratic until March, when they stopped altogether. They were issued agreed payment sheets on all three contracts between February and April but no money was released as ‘cashflow was tight’.
Continuing she said: “This was a clear breach of The Construction Act but we got nowhere until I contacted FIS who confirmed that the contractor was a signatory of the PPC and recommended us to the Office of the Small Business Commissioner (OSBC). This was in September. After the intervention by the OSBC we received all agreed payments at the end of October. I was honestly a bit sceptical and was starting to think this was a forlorn hope, but the OSBC team was great and once I had provided the initial information, it was all resolved relatively quickly. We do still have retention outstanding, payable shortly, which will be an interesting battle.”
Jacqueline Moore, Casework Manager at the Office of the Small Business Commissioner responded: “A big proportion of the disputes we see are sadly in construction, partly due to culture, but also related to the complexity of contracts and payment processes. We are here to investigate whether signatories are complying with the PPC rules to which they have committed. While we can’t intervene to resolve the payment dispute our investigation of compliance often prompts payment. We have to be mindful that the late, delayed or non-payment of one or two, or perhaps even several invoices, may not mean the firm is non-compliant because the commitment signatories make is to pay at least 95% of invoices within the set time frame. However, we find that firms that have voluntarily signed up to the PPC and made the necessary commitments on payments are very anxious to ensure they remain compliant and aren’t suspended form the Code. We work closely with FIS, which has been a vocal supporter of the PPC. We were glad to act on Helen’s complaint and are very pleased that her payment situation has subsequently been resolved. We’d encourage others to come and talk to us.”
FIS CEO Iain McIlwee stated: “I have been really impressed with the team at the Office of the Small Business Commissioner and the new Commissioner Liz Barclay who comes with a real desire to make a difference. The Prompt Payment Code is a useful tool for small suppliers wishing to work with ethical customers and we can see from the recent experience of our member that the OSBC can offer tangible support. If you aren’t getting paid and your customer is a signatory to the PPC, ask the OSBC to investigate.
The PPC is being ratcheted in again this April, however, I would like to see the Code underpinned further with a set of principles and behaviours that would help signatories avoid payment disputes with their suppliers in the first place. I would like to see government backing-up the PPC by ensuring all public sector procurement requires code compliance and companies removed from contracts and frameworks if they repeatedly fall short of the requirements. Late payment is only part of the problem. The scope of the Code should be extended to embrace principles from the Conflict Avoidance Pledge and I would like to see a more detailed role for the OSBC that goes beyond just enforcing the Code, and working with the businesses in the supply chain to improve culture.
For further information or for any questions please contact the FIS at email@example.com or call 0121 707 0077
FIS offers members contractual advice and support via our Contractual and Legal Toolkit and helpline. We are encouraging all in the industry to addopt the Conflict Abvoidance Process and sign the Conflict Avoidance Pledge to help reduce the unnacceptable level of disputes and poor contractual managment that is evident in the construction sector – see the section Avoiding Disputes – the Conflicts Avoidance Process here.