As the newest budget was released by Alistair Darling in March, the vast majority of the nation was browsing at the impact it would have on our jobs, on our taxes, our education and health systems and our own individual spending habits. There was one particular initiative launched as part of the 2010 budget which many of us will not have observed however.

The announcement was in regard to fair payment in the public sector industry, with particular focus on contractors and subsequent sub-contractors. The new ruling declares that from March 25th 2010, any contractor working for a department in the public sector will have a contractual responsibility to pay their sub-contractors inside of 30 days.

It is worth noting that this 30 day clause doesn’t apply to payments from the governmental branches to 1st tier contractors, but to the 1st tier contractors making punctual payments to lower level contractors that they are employing on their own. Nevertheless, all central government units now have to pay 80% of any unchallenged invoices for goods or services within 5 days.

Why It’s Being Done

This step has been taken as one element of an effort to improve the timeliness of payments coming from public segment jobs up and down the supply chain. Public segment work has a decent reputation for the speedy payment of invoices at the top levels of sub-contracted work, but this gain has not at all times been experienced by sub-contractors which are two or three levels of separation from the initial payment.

If viewed as part of the greater 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 feel the tailing off of the most recent recession, many companies both large and small have experienced the strain. Merely surviving until now in the current economic circumstances has been an achievement for many.

To help these businesses manage their income flow more effectively, suppliers to the public sector are being paid faster than has previously been the case. 19 out of 20 invoices to central government sections from main contractors are being settled within 10 days. The government is now seeking to distribute this benefit throughout the sub-contracting supply chain.

For building firms working on brand new office construction assignments, payment procedures may well become a deciding issue.

Who It Affects

This new ruling will impact 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 aid the sub-contractors deeper down the chain rather than providing rewards simply to the primary contractors at the higer levels. The 30 day payment condition is solely relevant to new agreements for projects and doesn’t need to be used retrospectively.

Who It Doesn’t Affect

The 30 day payment program is only appropriate to contractors in the supply sequence for public sector projects and is not part of general business law. It therefore does not affect any companies in the non-public sector. Since the measure doesn’t have to be placed on to active agreements, several of the projects for the 2012 Olympic Games won’t be forced to follow the system. The usage of the system by current construction contracts on a voluntary basis is actually being encouraged however.

What It Means For Business

What this ought to mean for small firms who are engaged with public sector works is an increase with the pace with which they will receive payment for their performance. Whilst several repayment policies have been known to include range with regard to certain “bending” of the guidelines, this fresh scheme does appear to be much more rigorous in terms of delivering on its possibilities. At least it appears that way so far.

It will of course mean that public segment contracts can no more be won by primary contractors that do not agree to the 30 day payment clause. Even more than this, the swiftness of payments all the way down the supply chain might become a variable while deciding which contractors will be selected. The government are actively encouraging their main contractors to pay second and 3rd tier firms before the 30 day deadline is up, which may see contractors using speed of payments as part of their own plans. This may improve competition for work since smaller sized companies may be able to compete on something other than price.

The new payment steps do not need to be applied to any existing contracts that the governmental departments in question already have. This fact will help to reduce the amount of time spent on adjusting the contracts and hold the paperwork required to a bare minimum, and it ought to allow the new program to come into practice much much more easily. Divisions are being asked to really encourage their primary contractors to adopt the 30 day payment program on a voluntary basis where ever feasible.

If your corporation is considering getting an office fit out and it works inside the public sector then this particular post might help you.

This fresh commitments to faster payments throughout the supply chain is a sister measure to some other policies and acts which are being executed in order to encourage a fairer working atmosphere up and down the supply sequence. Two of those other steps include:

Fair Payment Charter

The Fair Payment Charter forms part of a larger guide developed by the Office for Government Commerce (OGC) designed to encourage the best “fair payment” practices for companies operating within the realm of public segment works. The conditions set out by the charter came into force from the 1st January 2008 targeted at all contracts in the public sector. Whilst it is focused at the public sector, all these suggestions can be employed by companies in the private industry as well.

This charter is by no means a legally binding record, and it doesn’t supersede any conditions laid out in specific workers’ deals. It is merely a document which lays out a number of responsibilities that are hoped to be adopted throughout the industry. A few of the primary points in the charter are the timeliness and correctness of payments that are made, that the payment process ought to be clear up and down the supply string and that all parties in the supply chain need to work together to help appropriate cash flows at many levels. In several ways this charter laid the footings for the new 30 day payment plan.

Prompt Payment Code

The Prompt Payment Code is yet another move that is geared towards assisting small and medium size businesses, particularly in terms of their cash flow. It has been produced by the Government, with help 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 code is not a legally binding document and doesn’t outrank any stipulations of working contracts between companies and individuals. It is a guide for businesses that sets out a standard collection of fair payment policies developed to help all members working within the public segment.

Companies that sign up to the code must undertake an application process that establishes if they have appropriate procedures in place to comply with the guidelines set out in the code. Once they have passed all these assessments they can display the PPC logo on their very own business brochures and website as an indicator of their commitment to working within a fair payment environment.

Virtually any construction companies that are bidding on office refurbs must show sufficiently their capacity to make payments to sub-contractors by the due date.

Implementation Of The Code

 The specific wording that should be adopted by organisations working in the public segment 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 businesses to adopt the contract models that it has produced as a system of best practice. This does not always imply that they have to be adopted word for word in every circumstance, because every business is unique and works under a unique collection of conditions. By making public segment companies follow just the prompt payment clause set out above an industry-wide scheme can be introduced without compromising the versatility to set out section specific terms .

Political Impact

As with any kind of measure introduced by Government there is actually a certain amount of political maneuvering that goes on. Although all sides of the political spectrum can consent that there’s a vital requirement for fair payment in the public segment, there are still a number of additional actions that can be undertaken that could be used by all parties to promote their own campaigns.

David Cameron and the Tory party have recently created a promise to deal with unfair pay in the public sector. The scheme will implement a broad sweep of pay cuts across the senior workers in the public segment by associating the pay grades of the senior staff to the lowest paid individuals in their business. A fair pay review would occur with the primary goal of creating a 20-fold pay scale, so a senior worker could not make more than 20 times what the lowest paid employee does.

While Cameron recognises that there’s already a commitment to pay transparency, justness and timeliness, he also says that “it is time to go further.” The party head says that by tackling the issue of fair pay in the public segment is an illustration of how his party has grown to be the most modern party in the Uk and should go some way to dispel the conventional prejudices associated with the Conservative party.

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