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When the latest budget was unveiled by Alistair Darling in March, the vast majority of the country was looking at the effect it would take on our jobs, on our taxes, our education and health systems and our own individual spending patterns. There was one particular initiative launched as part of the 2010 budget which most of us will not have observed however.

The announcement is in respect to fair payment in the public sector industry, with specific focus on contractors and subsequent sub-contractors. The new judgment declares that from March 25th 2010, any contractor working for a department in the public segment will have a contractual obligation to pay their own sub-contractors within 30 days.

It is worth noting that this 30 day clause doesn’t apply to payments from the governmental departments to first tier contractors, but to those first tier contractors making prompt payments to lower tier contractors that they are appointing themselves. Nevertheless, all central government departments now must pay 80% of any undisputed invoices for goods or services within 5 days. This is a measure of their commitment to a more fair payment system.

Why It’s Being Done

This step has been made as one element of an effort to enhance the timeliness of payments coming from public sector work up and down the supply chain. Public segment work has a decent reputation for the speedy payment of invoices at the higher levels of sub-contracted work, however this benefit has not at all times been experienced by sub-contractors that are two or three levels of separation from the initial payment. The introduction of a 30 day payment clause should help to pass on this benefit to all sub-contractors doing work on public sector work.

When viewed as part of the bigger picture, this particular payment initiative is being employed to try and help the thousands of small as well as medium sized businesses (SMEs) that operate in this nation. As we experience the end of the latest recession, many companies both large and small have felt the strain. Simply making it through until now in the current financial circumstances has been an achievement for many.

To help these businesses manage their cash flow more efficiently, suppliers to the public sector are being paid more quickly than has previously been the case. 19 out of 20 bills to central government sections from primary contractors are being paid inside of 10 days.

Any public sector company planning any kind of factory refurbishments have to now adjust contracts for any contractors they will hire.

Who It Affects

The fresh 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 benefits simply to the primary contractors at the top levels. The 30 day payment condition is only relevant to any new contracts for projects and does not need to be used retrospectively.

Who It Doesn’t Affect

The 30 day payment system is only relevant to personnel in the supply chain for public segment works and isn’t part of common business law. It therefore does not impact any contractors within the non-public segment. Because the measure does not have to be applied to active contracts, several of the works for the 2012 Olympic Games will not be forced to adopt the system. The usage of the system by current construction contracts on a voluntary basis is currently being encouraged however.

What It Means For Business

What this step should mean for small businesses who are involved with public segment works is an increase in the speed with which they receive payment for their work. Whilst several repayment procedures have been known to contain scope with regard to certain “bending” of the rules, this fresh plan does seem to be far more rigorous in terms of delivering on its possibilities.

It does naturally mean that public sector agreements can no more be won by primary contractors who do not agree to the 30 day payment terms. Further than this, the swiftness of payments down the supply chain might become a variable while deciding which contractors will be chosen. The authorities are actively encouraging their main contractors to pay second and third tier firms before the 30 day deadline is up, which might see contractors making use of speed of payments as part of their plans. This could improve competition for work because smaller companies may be able to be competitive on something other than cost.

The new payment measures do not need to be applied to any existing contracts that the governmental bodies in question already have. This particular fact may help to lessen the amount of time spent on adjusting the contracts and hold the paperwork necessary to a bare minimum, and it ought to allow the new program to come into practice much much more easily.

There is a specific business which specialize at fit outs that are happily taking these payment steps aboard.

This new commitment to faster payments throughout the supply chain is a sister measure to other plans and acts that are being executed in order to promote a fairer working environment up and down the supply chain.

Fair Payment Charter

The Fair Payment Charter forms one part of a bigger guide created by the Office for Government Commerce (OGC) created to promote the very best “fair payment” practices for businesses operating in the realm of public segment works. The conditions set down by the charter came into force from the 1st January 2008 aimed at all agreements in the public segment.

This charter is by no means a legally binding document, and it does not supersede any conditions laid out by specific workers’ deals. It is merely a record which sets out a range of commitments that are hoped to be followed throughout the market. Some of the main points in the charter are the timeliness and correctness of payments to be made, that the payment process ought to be transparent up and down the supply string and also that all points within the supply chain need to work collectively to ensure appropriate cash flows at all levels.

Prompt Payment Code

The Prompt Payment Code is yet another initiative that is geared towards assisting small and medium size firms, particularly in terms of cash flow. It has been developed by the Government, with help from the Institute of Credit Management (ICM) and promotes the usage of best payment practices and transparency for any kind of agency that adopts it.

Once again, this code is not a legally binding document and does not override any stipulations of working agreements between businesses and individuals. It is a guideline for companies that sets out a standard set of fair payment policies designed to assist all affiliates operating inside the public segment.

Businesses that sign up to the code must undertake an application process which determines if they have suitable measures in place to comply with the guidelines set out in the code. After they have passed these checks they can then display the PPC logo on their very own business brochures and website as an indicator of their dedication to working within a fair payment environment. This provides a good impression of the business, that may be crucial during tough financial periods.

One possible side-effect of these payment conditions may be elevated refurbishments plans because rivalry may increase and prices may be pushed down.

Implementation Of The Code

 The specific wording that should be adopted by firms operating in the public sector may be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. “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 system of best practice. This doesn’t always mean that they have to be followed word for word in every circumstance, given that every company is unique and works under a unique collection of conditions. By making public segment firms adopt just the prompt payment clause set out over an industry wide scheme can be unveiled with out compromising the versatility to set out department specific terms and conditions.

Political Impact

As with any measure introduced by Government there is actually a certain amount of political maneuvering that takes place. Although all sides of the political spectrum can consent that there is a vital requirement for fair payment within the public segment, there are still a range of additional actions that can be undertaken that could be employed by all parties to boost their own campaigns. This becomes even more apparent during an election year.

David Cameron and the Tory party have recently come out with a pledge to tackle unfair pay within the public sector. Their plan will implement a wide sweep of pay cuts throughout the senior employees within the public sector by associating the pay levels of the senior staff to the lowest paid individuals within their business. A fair pay assessment would occur with the primary goal 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 recognises that there is currently a commitment to pay transparency, fairness and timeliness, he also states that “it is time to go further.” The party leader claims that by tackling the issue of fair pay in the public sector is an indication of how his party has become the most modern party in the Uk and should go some way to dispel the conventional prejudices linked with the Conservative party.