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Late payers to be kicked off Prompt Payment Code list

Companies paying suppliers later than 60 days after invoice without being able to prove exceptional circumstances are to be blackballed from the Prompt Payment Code it was announced last week. And the aim should be for payment to be 30 days as standard, Business Minister Matthew Hancock announced.

Jackie Whitelaw
02 March 2015
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The move follows legislation for the new Public Contracts Regulations which came into force last week requiring every business in the public sector supply chain to comply with 30-day payment terms, including suppliers and sub-contractors. According to latest figures Government spent £11.4bn or 26.1% with SMEs in 2013-14.

“Big companies should lead by example and pay small suppliers within 30 days. I have already written to the FTSE 350 urging them to sign up to the Prompt Payment Code" - Matthew Hancock

The 60 day limit mirrors terms of the Construction Supply Chain Payment Charter launched in April last year. That aims to get construction to a 30 day maximum by January 2018.

Organisations like Amey, Balfour Beatty, Capita, Carillion, Vinci  Construction, Network Rail and Department for Transport are all signed up to the voluntary Prompt Payment Code.

The changes will be “rigorously enforced”, Hancock explained, by a new Code Compliance Board, which will include people from business representative bodies who will investigate challenges made against signatories to the Code by their suppliers. The Compliance Board will be responsible for removing signatories found to be in breach of the Code’s principles and standards.

The Prompt Payment Code is a voluntary agreement which sets out fair and agreed practices for businesses to follow when dealing with, and paying, their suppliers. Close to 1800 businesses and public authorities have so far committed to these principles, which include paying suppliers within an agreed timeframe and communicating with them effectively.

“Making small businesses wait an unreasonable time for payment is entirely unacceptable. I know first-hand the great burden that late payment can place on firms – and how it can strain family finances – which is why I am committed to stopping it,” Hancock said.

“Big companies should lead by example and pay small suppliers within 30 days. I have already written to the FTSE 350 urging them to sign up to the Prompt Payment Code," he added.

Businesses will be actively encouraged to start complying with the strengthened Prompt Payment Code in the coming weeks. The changes complement the tougher reporting laws in the Small Business, Enterprise and Employment Bill. These new laws will force the UK’s largest companies to publish their payment terms, increasing transparency and empowering small businesses. The Code Compliance Board will be able to use this data to review the status of signatories to the Code and challenge those that either do not pay their suppliers promptly or insist on excessively long standard terms.

The Prompt Payment Code is administered on behalf of the Department for Business, Innovation and Skills by the Chartered Institute of Credit Management.

ACE Legal Director Dwight Patten said, “ACE very much supports a strengthening of the Code, including the proposed prescriptive payment periods and the imposition of membership sanctions against signatories.  The 30 day - 60 day payment period formula brings the Code closer into line with the aspirations in the Construction Leadership Council’s Payment Charter and I hope these measures and current developments mean we are moving to a more efficient payment culture, which is good for the economy as well as our members.”

 

If you would like to contact Jackie Whitelaw about this, or any other story, please email jackie.whitelaw@infrastructure-intelligence.com.

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Comments

I was the anlayst that crucnhed the numbers for the BIS 2013 study of contractor's financial positioning and industry wide use of trade credit (BIS Research paper 118). I welcome these efforts. It adds cost and risk to have the lower tiers bearing such a high proportion of the financing of supply chain ativity. However, the prompt payment code remains voluntary and discussion of this topic seems to lack consideration of the wider implications. Reducing this fundamental source of finance for main contractors will have to be compensated for somewhere else within their business model, likely a positive presuure on margins if overall profitability is to be maintained. Are clients aware of this and willing to incorporate this into their procurement / tendering practises?
Submitted by Alex Murray on 2 Mar 2015.
I can see the intentions of the code of compliance board been in principle a very good thing, but I fear unless main construction conditions of contract and terms of payment are changed radically it is going to be extremely difficult to implement without looking at every case where payment is in in contention. Having had a career of over 50 years in the industry primarily concerned with commercial matters I have not come across either an interim account or final account submitted by either the main contractor or sub contractor and on some occasions straight suppliers of materials where within a relatively short period of the works commencing certain items are in contention and although the main contractor, sub contractor or supplier may believe that quite a large proportion of the work they are carrying out on site may be an extra to the original contract, it may not be or that in actual fact they have completely over valued the extra when inserting the extra into there interim account. Quite quickly over a few months this additional sum can become a large amount. Which the main Contract possibly quite rightly disputes and similarly the main contractor has no re dress under the main terms and condition for extra payment under the main Contract. Hence on certifying interim monthly interim payments there may well be substantial differences to the sums of money been applied for and to what the main contractor can reasonably pay. It may be months possibly years or interim adjudication implemented needed to resolve these matters. In the mean time payment on considerable sums of money may be alleged to be outstanding. How will the compliance Board deal with these issues, which are rife. Most construction contracts are quite complex in the defining of extras the method of valuation of extras and in the provisions for contractual claims. There are I agree some contractors and indeed Government Authorities who frequently do not comply with the required terms of payment in the contract and do not pay anything within the periods stipulated in the contract. This is where the Compliance Board should really use there influence very quickly, However it is certainly not such a simple matter as the articles on this subject suggest as I read from time to time. There seems to be a general ignorance of how construction contracts are valued at the interim stages and the final accounts compiled within the contract provisions.
Submitted by Keith Lionel Ha... on 4 Mar 2015.

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