Ruth Connorton and Alison Walton consider the Government's latest announcements in relation to payment practices in the public sector.
The Government has published its findings in response to its December 2013 consultation on the payment culture in the public and private sector, in particular how it impacts on SMEs and what can further be done to encourage prompt payment of invoices.
The findings, published on 29 May 2014, recognise that, whilst we have come some way in making it easier for SMEs to supply to the public sector, more can be done to make the public sector a "beacon of best practice on prompt payment". Commitments from the Department for Business, Innovation & Skills (BIS) include developing a robust reporting framework to help suppliers and customers, and strengthening the Prompt Payment Code.
BIS has also committed to further reforms to streamline procurement and improve public sector payment practices, including new legislation to address:
- requirements for public authorities to accept e-invoices;
- requirements for public authorities to run "timely and efficient" procurements;
- greater powers for Ministers to investigate complaints raised by the Cabinet Office "Mystery Shopper" scheme.
We have yet to see how these reforms will be implemented and they will be subject to further consultation in due course. It will be interesting to see how they will sit alongside the wide ranging procurement reforms currently underway through the transposition of the new EU public procurement directives.
What is the current position?
Since 2010 Government Policy has been for central Government departments and their agencies to pay at least 80% of undisputed invoices within five days and report on their performance against this target. Suppliers to Central Government departments must also pay their sub-contractors within 30 days.
Signatories to the voluntary Prompt Payment Code undertake to pay suppliers on time, give clear guidance to suppliers on payment processes and encourage good practice throughout the supply chain.
Late payment legislation allows businesses to claim interest on late payments from their customers (whether in the public or private sector) at 8% above Bank of England base rate but the response document notes that this is not commonly used as a remedy for late payment against the public sector, principally due to a fear that it could damage existing commercial relationships.
Central Government departments and the wider public sector are subject to the Cabinet Office "Mystery Shopper" scheme which carries out procurement spot checks and investigates complaints from bidders about procurement practices. It can recommend actions to be taken by public authorities and its findings are published on a regular basis.