New procurement rules demand faster payment on major contracts
A new stricter procurement regime is being introduced to support the Government’s 2019 Manifesto commitment to ‘..support start-ups and small businesses via government procurement, and commit to paying them on time…. <and> clamp down on late payment more broadly…’.
The Public Procurement Notice PPN 10/23 comes into force on the 1st April and demands historic payment performance is taken into account when awarding new Central Government contracts with a value in excess of £5 million per annum.
Contracting authorities must verify that the successful bidder meets the selection criterion prior to award of the contract or appointment to a framework agreement or dynamic purchasing system. The criterion is based on:
- Whether the bidder has paid its suppliers in accordance with the contractual terms that it applies to its supply chain; and
- Whether, overall, the bidder has paid its suppliers promptly by:
- paying at least 95% (at least 90% if an action plan is provided) of invoices within 60 days, which is considered an appropriate measure of overall payment promptness, and;
- meeting the average payment days threshold of at least 55 days for all invoices.
Reporting on this requirement will take into account a twelve month period and the bidder must demonstrate that they meet the required standard in at least one of the two previous six month periods – intercompany payments should not be included.
Where the bidder has reported payment data every six months in accordance with the Reporting on Payment Practices and Performance Regulations 2017, the two most recent reports can be submitted. If the bidder has recent data for the previous three or more months which has not yet been reported under the regulations, then this can also be submitted as a reporting period.
Where bidders are not required to publish their data in accordance with the regulations, they should still submit the previous twelve months’ worth of available data in two (six month) periods in line with the Department for Business and Trade Guidance to Reporting Payment Practices and Performance.
The criteria for applying the rules is summarised as:
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Bidder pays ≥95% of all supply chain invoices in 60 days and the bidders average payment days are also ≤55. Both metrics are hit concurrently in at least one of the previous two six month reporting periods. |
Bidder meets the required standard. | Pass |
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Bidder pays ≥90% < 95% of all supply chain invoices in 60 days and the bidder’s average payment days are also ≤55. Both metrics are hit concurrently in at least one of the previous two six month reporting periods. |
Bidder demonstrates action plan that includes (as a minimum) the following: 1. Identification of the primary causes of failure to pay: (a.) 95% of all supply chain invoices within 60 days; and (b) (if relevant) all supply chain invoices within agreed terms. 2. Actions to address each of these causes. 3. Regular reporting on progress to the bidder’s audit committee (or equivalent). 4. Plan signed off by a director. 5. Plan published on its website. (This can be a shorter, summary plan) |
Pass |
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Bidder pays ≥90% < 95% of all supply chain invoices in 60 days and the bidder’s average payment days are also ≤55. Both metrics are hit concurrently in at least one of the previous two six month reporting periods. |
No action plan or action plan does not include all of the above features. | Fail |
| Bidder pays <90% of all supply chain invoices in 60 days in both of the previous six month reporting periods after removing intercompany payments (if relevant). | Bidder’s payment performance falls substantially below the required standard. | Fail |
| Bidder’s average payment days are >55 in both of the previous six month reporting periods after removing intercompany payments (if relevant). |
Exemptions should only be considered:
- where the market for a contract of this type is distorted/narrowed/struggling to such a significant extent that delivery of public services is likely put at risk, or value for money is likely to be severely compromised;
- where there is a civil emergency.
FIS CEO Iain McIlwee commented:
“Whilst this another positive step, we are still talking about lengthy payment periods in an industry where up-front costs have increased substantially in recent years. It is also narrow in application, the requirement to comply with this notice only binds Central Government Departments, their Executive Agencies and Non Departmental Public Bodies where the contract value exceeds £5 million. It does not apply to NHS trusts, local or devolved authorities and there is also a fair bit of wiggle room provided in the exemptions. All this means in real terms the impact will limited for the vast majority of those working in the finishes and interiors sector. That said it is further recognition of the importance of an issue which remains a cancer at the core of construction and our hope is that as procuring authorities look to the new Regulatory Requirements and concerns about the resilience of the supply chain that they look to exceed the expectation set down in this PPN.
With increased Government support it is more important than ever that we call-out poor practice. If you have payment concerns FIS is able to take these foward anonymously both directly and working with the Small Business Commission (who has sanctions via the Prompt Payment Code). Through FIS you also have access to QS, Legal and specialist credit checking services that can help to expedite payment – nothing changes if we do or say nothing and we will always look to act in your best interests”.
