As the newest budget was unveiled by Alistair Darling in March, the bulk of the country was browsing at the impact it would have on our jobs, on our taxations, our schooling and health programs and our own personal spending habits. There was one step launched as part of the 2010 budget which most of us will not have seen though. This write-up aims to shed light on a few of the details of this fresh initiative.

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

It is worth noting that this 30 day clause doesn’t apply to payments by the governmental branches to 1st tier contractors, but to those first tier contractors making punctual payments to lower level contractors that they are hiring themselves. However, all central government units now must pay 80 percent of any undisputed invoices for goods or services inside of 5 days.

Why It’s Being Done

This step has been taken as part of an effort to improve the timeliness of payments arising from public sector work up and down the supply chain. Public segment work has a great reputation for the prompt payment of invoices at the top levels of sub-contracted work, however this gain has not at all times been experienced by sub-contractors that are two or three levels of separation away from that initial payment. The introduction of a 30 day payment clause ought to help to distribute this benefit between all sub-contractors working on public sector work.

When viewed as part of the larger picture, this particular payment move is being employed to try and help the thousands of small as well as medium sized businesses (SMEs) that trade in this country. As we experience the tailing off of the latest recession, many businesses both large and small have experienced the strain. Just making it through until now in the current financial circumstances has been an achievement for many.

To help these companies control their income flow more efficiently, suppliers to the public segment 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.

Any public sector company looking into any kind of commercial office fit out must now alter deals for any contractors they employ.

Who It Affects

The new ruling will affect any contractors and sub-contractors throughout the supply chain on projects for all government departments, government agencies along with NDPBs (non-departmental public bodies). It is designed to help the sub-contractors further down the chain rather than providing rewards simply to the primary contractors at the top levels. The 30 day payment condition is only relevant to new contracts for projects and does not have to be applied retrospectively.

Who It Doesn’t Affect

The 30 day payment system is only appropriate to personnel in the supply chain for public segment projects and is not part of general business regulation. It therefore doesn’t affect any companies within the private sector. Since the measure does not have to be applied to existing contracts, several of the works for the 2012 Olympic Games won’t be obligated to adopt the program.

What It Means For Business

What this step should signify for small companies that are engaged with public industry works is an improvement with the pace with which they will receive payment for their performance. Whilst some payment procedures have been known to contain scope for certain “bending” of the guidelines, this fresh scheme does seem to be far more rigid in terms of delivering on its possibilities. At least it seems that way so far.

It will naturally mean that public sector contracts can no more be received by primary contractors which don’t agree to the 30 day payment clause. Even more than this, the speed of payments all the way down the supply chain might turn out to be a factor when deciding which contractors will be chosen. The authorities are actively encouraging their main building contractors to pay 2nd and third tier businesses before the 30 day deadline is up, which may see contractors making use of speed of payments as one part of their own proposals.

The new payment steps do not have to be applied to any existing contracts that the governmental bodies in question currently have. This fact will help to lessen the amount of time put in on adjusting these contracts and keep the paperwork needed to a bare minimum, and it should enable the new system to come into practice much much more easily. Departments are being asked to really encourage their main contractors to adopt the 30 day payment program on a voluntary basis where ever feasible.

Many companies have already been taking on fit outs for years which must now slightly alter their business practices in connection to payments.

The fresh commitments to quicker payments throughout the supply string is a sister measure to some other policies and acts which are being implemented in order to promote a fairer working atmosphere up and down the supply chain.

Fair Payment Charter

The Fair Payment Charter is part of a larger instruction created by the Office for Government Commerce (OGC) created to promote the best “fair payment” procedures for companies working in the world 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 lawfully binding record, and it doesn’t supersede any of the conditions laid out in particular workers’ deals. It’s merely a document that lays out a range of responsibilities that are hoped to be followed all through the industry. A few of the main factors in the charter are the timeliness and correctness of payments to be made, that the payment procedure should 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. In many ways this charter set the footings for the new 30 day payment policy.

Prompt Payment Code

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

Once again, this code is not a lawfully binding document and doesn’t override any stipulations of operating agreements between companies and individuals. It’s a guide for companies that sets out a standard collection of fair payment procedures developed to assist all affiliates working within the public segment.

Companies that sign up to the code must undergo an application process which determines if they have appropriate procedures in place to conform with the guidelines laid out in the code. Once they have passed all these assessments they can then show the PPC logo on their own business brochures and web site as a sign of their commitment to operating within a fair payment environment. This gives a good opinion of the company, which can be crucial in the course of tough economic periods.

The 30 day settlement system will only apply to property refurbishments within enterprises working inside the public sector and will not stretch to private enterprises.

Implementation Of The Code

The specific wording that must be adopted by firms working within the public segment may be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. The specific clause that ought to be adopted within the market is :”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 would like firms to adopt the contract models that it has created as a program of best practice. This does not always mean that they must be followed word for word in each circumstance, given that every business is different and works under a distinctive set of conditions.

Political Impact

As with any program introduced by Government there is actually a certain amount of political maneuvering that takes place. Although all parts of the political spectrum can certainly agree that there is a vital requirement for fair payment within the public sector, there are still a number of further actions that can be undertaken that could be used by all parties to promote their own campaigns. This becomes even more apparent during an election year.

David Cameron and the Tory party have recently come forth with a pledge to deal with unfair pay in the public segment. The scheme will put into action a broad sweep of pay cuts across the senior workers within the public sector by associating the pay grades of the chief personnel to the lowest paid workers within their business.

While Cameron acknowledges that there is currently 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 issue of fair pay within the public segment is an illustration of just how his party has become the most progressive party in the Uk and ought to go some way to dismiss the traditional prejudices linked with the Conservative party. He also uses the measures to release an attack on the Labour party, proclaiming that they are a government beyond their sell-by date.