Prompt payment in the government supply chain

 

From September 2019, companies with poor payment practices risk being excluded from bidding on large government contracts. To prepare the market for this new policy, we've run a special analysis examining its potential impact. Enter your details below to download the full report, or read on for the highlights.

Late payment of invoices by large companies causes 50,000 businesses to close every year, according to estimates from the FSB. Successive governments have attempted to get to grips with this endemic problem for many years, to little avail. 

The government has thus turned to another of its levers of power – its role as the biggest customer in the UK.

From September 2019, suppliers with poor payment practices risk exclusion from bidding on public contracts worth £5m or more per annum ('in-scope contracts'). Companies will have to prove they pay at least 95% of their invoices within 60 days or less to comply.

The aims of this deep-dive are: to assess current levels of compliance with this new standard in order to provide a baseline against which future progress can be measured; to identify where the government could best focus its resources to ensure the greatest positive impact of the policy; and to identify what risks are opportunities this policy may bring for companies supplying to government.

Key Findings
  • In-scope contracts worth £90bn have been awarded to suppliers with poor payment practices since 2015
  • Under the new standard, four-fifths of the government's Strategic Suppliers would be excluded from bidding on government contracts
  • The MoD has awarded 59 contracts to suppliers with poor payment practices since 2015 - more than double the number of the next buyer

 

 

The UK public sector has awarded more than 1,100 in-scope contracts since 2015. Historically, only 10% of these have been awarded to suppliers that are paying their subcontractors on time. That means £90bn worth of in-scope contracts have been awarded to companies that are not yet compliant with the standard. 

Our full report delves deeper into this finding. While it does not paint a pretty picture - compliance is currently undeniably poor - there are strategies the government could pursue to ensure the policy fulfills its objective. This would involve concentrating efforts on the buyers awarding the largest contracts - most notably the MoD - and the poorest performing major suppliers, primarily those in the outsourcing and construction sectors. 

While our findings demonstrate that implementing this policy will be no easy task, they also show the scale of positive transformation that this policy could bring about. As a small business ourselves, we know the harm that late payments can cause. The government is rightly using all of the tools at its disposal – in this case, its purchasing power as the biggest customer in the UK – to ensure this damaging practice is finally eradicated, at least in its own supply chain.

Going forward we intend to update this report regularly, providing independent monitoring of the impact of this policy. While we have not named non-compliant firms in this first iteration, we will in future reports, once suppliers have had sufficient time to adapt to the new standard.

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