As the latest budget was released by Alistair Darling in late March, the majority of the nation was browsing at its effect it would take on our work, on our taxations, our education and health systems and our own personal spending patterns. There was one particular step launched as part of the 2010 budget that most of us will not have observed though.

The announcement is in regard to fair payment within the public sector field, with particular focus on contractors and subsequent sub-contractors. The new judgment says that from March 25th 2010, any service provider working for a department in the public sector will have a contractual responsibility to pay their sub-contractors within 30 days.

It is certainly worth noting that this 30 day clause does not apply to payments from the governmental branches to 1st tier contractors, but to the first tier contractors making punctual payments to lower level contractors that they are appointing themselves. However, all central government departments now have to pay 80% of any unchallenged invoices for goods or services within 5 days. This is a gauge of their dedication to a more fair payment system.

Why It’s Being Done

This step has been taken as part of an effort to enhance the timeliness of payments arising from public sector work up and down the supply chain. Public segment work has a good reputation for the speedy payment of invoices at the top levels of sub-contracted work, but this gain has not always been experienced by sub-contractors which are two or three levels of separation away from the initial payment.

If viewed as part of the bigger picture, this particular payment initiative is being employed to try to help the thousands of small and medium sized businesses (SMEs) that trade in this country. As we feel the end of the latest recession, many companies both large and small have experienced the strain. Just making it through until now in the current financial circumstances has been an accomplishment for most. The government is now looking to make sure that it can support as many of these businesses as possible.

To help these companies 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 departments from main contractors are being paid inside of 10 days. The government is now seeking to distribute this benefit across the sub-contracting supply chain.

By introducing payment conditions covering all levels, companies within the office furniture trade will gain from more predictable cash flow.

Who It Affects

This new ruling will affect any contractors as well as sub-contractors throughout the supply chain on projects for all government departments, government agencies and NDPBs (non-departmental public bodies). It is designed to help the sub-contractors further down the chain rather than providing rewards simply to the main contractors at the top levels.

Who It Doesn’t Affect

The 30 day payment system is only relevant to contractors in the supply sequence for public segment projects and isn’t part of common business regulation. It therefore doesn’t impact any companies within the private sector. Since the measure doesn’t need to be placed on to active contracts, many of the projects for the 2012 Olympic Games will not be forced to follow the system.

What It Means For Business

What this step ought to mean for small firms that are engaged with public sector works is an increase with the speed with which they will receive payment for their work. While some repayment policies have been recognised to include scope with regard to certain “bending” of the rules, this fresh scheme does seem to be far more rigorous in terms of delivering on its potential.

It will naturally mean that public segment agreements can no more be won by main contractors that don’t agree to the 30 day payment clause. Even more than this, the swiftness of payments all the way down the supply chain could become a variable when deciding which contractors will be selected. The authorities are actively encouraging their main building contractors to pay second and third tier businesses before the 30 day deadline is up, which can see contractors making use of speed of payments as part of their plans.

The fresh payment measures do not have to be applied to any existing contracts which the governmental departments in question currently have. This fact may help to reduce the period of time spent on adjusting these contracts and keep the paperwork required to a minimum, and it should allow the new program to come into practice much more easily. Departments are being asked to really encourage their primary contractors to follow the 30 day payment system on a voluntary basis wherever possible.

If your business is thinking about getting any kinf of office fit out and it works within the public segment then this article might assist you.

This fresh commitment to quicker payments all through the supply string is a related measure to other policies and acts which are being implemented in order to encourage a fairer working atmosphere up and down the supply sequence. Two of those other measures include:

Fair Payment Charter

The Fair Payment Charter forms part of a bigger instruction created by the Office for Government Commerce (OGC) designed to encourage the very best “fair payment” practices for companies working within the world of public segment works. The conditions set down by the charter came into force from the 1st January 2008 targeted at all contracts in the public segment.

This charter is by no means a lawfully binding document, and it does not supersede any of the conditions laid out in specific workers’ agreements. It’s simply a document which lays out a number of commitments that are hoped to be followed 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 should be clear up and down the supply string and also that all points in the supply chain need to work collectively to help appropriate cash flows at all levels.

Prompt Payment Code

The Prompt Payment Code is one more move that is tailored towards helping small and medium size businesses, particularly in terms of cash flow. It has been developed by the Government, together with support from the Institute of Credit Management (ICM) and encourages the usage of best payment tactics and transparency for any agency that adopts it. It sits alongside existing fair payment schemes.

Again, this code is not a lawfully binding document and doesn’t override any stipulations of working contracts between businesses and individuals. It is a guideline for businesses that sets out a standard collection of fair payment procedures designed to help all affiliates working within the public segment. As well as timely and fair payments, it also sets out guidelines for the challenge of invoices and any issues raised by vendors.

Firms that sign up to the code have to undergo an application procedure which establishes if they have appropriate procedures in place to conform with the recommendations set out in the code. After they have passed these checks they can display the PPC logo on their very own business brochures and web site as an indicator of their dedication to working inside of a fair payment environment. This provides a great impression of the company, that can be crucial during tough economic periods.

The 30 day settlement plan will only apply to office refurbs within enterprises operating inside of the public sector and does not extend to private enterprises. For more information click here.

Implementation Of The Code

The specific wording that must be followed by firms operating within the public segment can be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. The particular clause that ought to be followed within the market is as follows:”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 firms to follow the contract models that it has developed as a system of best practice. This doesn’t always mean that they must be followed word for word in every circumstance, given that every business is different and operates under a unique set of circumstances. By making public segment businesses follow just the prompt payment condition set out above an industry wide scheme can be introduced with out compromising the flexibility to set out section specific terms .

Political Impact

As with any kind of measure introduced by Government there is a certain amount of political maneuvering that goes on. Although all sides of the political spectrum can consent that there is a vital need for fair payment within the public segment, there are still a number of further steps that may be undertaken that can be used by all parties to boost their own campaigns. This is even more apparent in an election year.

David Cameron and the Tory party have recently created a pledge to tackle unfair pay in the public sector. Their scheme will put into action a broad sweep of pay cuts across the senior workers in the public segment by associating the pay levels of the chief staff to the lowest paid workers in their company.

While Cameron acknowledges that there is already a commitment to pay transparency, justness and timeliness, he also states that “it is time to go further.” The party leader claims that by tackling the problem of fair pay in the public sector is an illustration of just how his party has become the most modern party in the British isles and ought to go some way to dispel the conventional prejudices linked with the Conservative party. He furthermore makes use of the steps to release an attack on the Labour party, proclaiming that they are a government beyond their sell-by date.