Plans to ban late payers from getting contracts… but SMEs want more

12/04/2018

Government plans to ban late payers for bidding on government contracts have been welcomed. But, whilst it’s a step in the right direction, the general response from industry groups is that further action needs to be taken.

The proposals, which come in the wake of the collapse of Carillion, are designed to level the playing field for smaller businesses bidding to win government contracts.

The package of new measures includes plans to:

• exclude suppliers from major government procurements if they cannot demonstrate fair and effective payment practices with their subcontractors
• allow subcontractors to have greater access to buying authorities to report poor payment performance
• require suppliers to advertise subcontracting opportunities via the Contracts Finder website, and to provide the government with data showing how businesses in their supply chain are benefiting from supplying to central government

The Prime Minister has also written to members of her Cabinet to nominate a Small Business Champion minister in each department to ensure that SMEs are given a fair opportunity.

Although the proposals have been welcomed by small business groups, many business leaders feel further action is required in order to curb the UK’s late payment culture.

Here we look at five industry responses to the plans and their suggestions for additional measures. Let us know what you think.

Project Bank Accounts should be default option for all contracts

Federation of Small Businesses National Chairman, Mike Cherry, said:

“This package of reforms should be followed by further measures including requiring all large companies to appoint a non-executive Director on Boards with a specific responsibility to report on behalf of suppliers, including overseeing the firm’s statutory duty to report on payment practices.

“Coupled with this, we need to see the use of Project Bank Accounts become the default option for all appropriate public sector contracts – and not just those in the construction sector.

“Project Bank Accounts would help stop the unfair and irresponsible payment practices deployed by too many big businesses and ensure that small suppliers are paid promptly once a job is done.

“This is not only good for small businesses but the whole of the UK economy.”

Link local authorities directly with SMEs

Ross Smith, director of policy at the North East England Chamber of Commerce, said:

“Payment delays are a big concern for many Chamber members and the government’s attempt to address this is to be applauded. But it’s a notoriously difficult issue to monitor and address, so this measure must be kept under review to check if it works, and revised if improvements can be made.

“In relation to advertising sub-contracting opportunities, the government is trying to do the right thing, but a national approach may not be the best way. Local public sector bodies should be encouraged and resourced to do this within the North East.

“But by far the best way to help SMEs win work and get paid promptly is for the public sector to contract with them directly more often, and there’s still more that should be done to create opportunities that smaller firms can genuinely compete for.”

Introduce a statutory regulator

The Specialist Engineering Contractors’ Group CEO, Rudi Klein, said:

“The Carillion debacle has revealed the appalling level of abuse heaped on construction supply chains.

“We should also be considering the introduction of a statutory regulator to challenge the behaviour of large firms and, if necessary, fine them in the worst cases of abuse.

“We have been urging the government to introduce a yellow/red card system for a long time. The yellow card is a warning to improve payment performance and the red card excludes a continuing poor performer from bidding for government contracts for a period of two to three years.

“If such a system had already been in place Carillion would have been excluded from government contracts.”

Businesses need to follow the government’s example

Alex Hilton-Baird, Managing Director of Hilton-Baird Collection Services, said:

“It’s great to see the government finally proposing to clamp down on poor payment practices running through its supply chains.

“But, for us to see a real culture change in late payment, all businesses need to follow the same example and take a harder line with those who consistently fail to adhere to fair payment practices.

“There are a number of tools and credit management practices available to help businesses avoid and tackle late payment, but many small businesses fail to use them.

“Things like credit reports and charging statutory late payment interest can make a huge difference, but whether it’s through lack of knowledge or fear of losing custom, a reluctance to use these tools is putting small businesses at risk.

“And, unless we all take a united stand against poor payers, they will continue to abuse their power and bully businesses into accepting unfair terms.”

Close collaboration is required

George McFarlane, CBI Sector Development Director, said:

“Businesses will welcome steps to improve payment practices in public procurement supply chains, and are eager to work with the government to ensure these proposals have a lasting impact.

“With around 200,000 organisations involved in delivering public contracts, effective procurement and vibrant supply chains can be powerful levers to help smaller firms succeed.

“For these proposals to tackle the often complex causes of late payment, close collaboration will be required between government and businesses of all sizes. The appointment of new Small Business Champions should create a new focal point for this shared effort.”

 So, what do you think? Will the government plans help to tackle late payment? Or does more need to be done? Let us know in the comments below.