UK government continues to develop progressive policies that successfully influence culture change and SME-fair procurement practices. In scrutinising payment behaviours, government assessed that over the past few years, late payments owed to smaller businesses by large supply chain partners has halved. However, government also acknowledges that more can be done to promote transparency and ethical business behaviours within supply chains.
by Elizabeth Vega, Group CEO Informed Solutions, Cabinet Office Small & Medium Business Panel Member & Chair of the Meet the Buyer Working Group, 2018 Digital Leader Founder Award Winner, 2018 Queens Award for Enterprise: Innovation Winner, DIT Northern Powerhouse Export Champion, ScaleUp Institute ‘Access to Markets’ Committee Member.
As a member of Cabinet Office’s SME Panel and Chair of the Meet the Buyer Working Group, I and the other Panel members have worked with the Cabinet Office and Crown Commercial Service (CCS) to help encourage a culture of transparency, fairness and ethical business standards within the public sector supply chain.
UK government continues to invest significant resources in developing progressive policies that are successfully influencing culture change and procurement practices, which enable SME-Fair behaviours. Government clearly understands that procuring innovative solutions requires a different government buyer mind-set, particularly as regards selecting and working collaboratively with suppliers and ensuring that supplier partners are acting responsibly, respectfully and ethically throughout the entire supply chain.
Small businesses are the backbone of the UK economy and are increasingly being given access to government contract opportunities. The government’s Industrial Strategy is helping build a Britain where innovative, ambitious businesses with great products and services can win public sector contracts that enable them to thrive, grow and add value to society and the economy. Key to sustainability for any business, and especially growing businesses, is cash flow.
In scrutinising payment behaviours, government has assessed that over the past few years the late payments owed to smaller businesses by larger supply chain partners has halved. In recognising that, however, government also acknowledges that much more can be done to promote transparency and ethical business behaviours within supply chains. With this in mind, in 2008 BEIS launched the Prompt Payment Code, which sets out an agreed benchmark for acceptable standards of business conduct, particularly as regards payment terms and payment practices within both private sector and public sector supply chains.
The Government has now taken further steps to require bidders on large contracts to respond to a series of questions about their supply chain management and monitoring processes. This includes reporting and detailing their payment practices, processes and performance metrics, such as the percentage of sub-contractor invoices paid within 60 days. This measure was implemented from 1 September 2019. If suppliers can’t point to a record of good performance, they may be excluded from the procurement.
There are significant consequences for suppliers who are unable to demonstrate that they have systems in place that ensure a fair and responsible approach to payment of sub-contractors within their supply chain. The Chartered Institute for Credit Management publishes a list of companies suspended from bidding and Government issues payment practices reporting. This enables government buyers, other suppliers who are considering partnerships and sub-contractor across the public sector marketplace to consider a prime contractor’s payment practices reputation. A further consequence is that prime contractors who continue to fail to meet the Prompt Payment Code will fail to win contracts if they cannot prove improved performance.
With government increasingly implementing policy, systems and processes that optimise the effectiveness and performance of supply chains on government contracts, reporting on prime contractor payment and business practices can be better scrutinised by both government buyers and SMEs that supply to or bid for work within supply chains. This ensures that prime contractors who are committed to collaborative partnering behaviours, transparency, responsible payment practices and ethical conduct will have a clear advantage when bidding for government contracts.
It is reassuring to see that the partners, sub-contractors and other suppliers working with large businesses on government contracts can use the Payment Practices Reporting Website to look up the payment behaviours and payment track record of prime contractors, before they commit to entering into a commercial agreement. Smaller suppliers can also benefit from advice and guidance on resolving any payment and contractual issues they are experiencing within supply chains through the Small Business Commissioner website or to the Public Procurement Review Service if the contract or supply chain is a public sector one.
Although the Prompt Payment Code is intended to positively influence the business practices of larger companies providing goods and services on government contracts, other industries have started embracing the move towards improving supply chain transparency and prime contractor ethics, fairness and willingness to be good corporate citizens.
Julian David, CEO at techUK supports the current focus on payments commenting: “Cash flow is of course the life blood that sustains small and growing businesses, so the issue of prompt payment of suppliers is of critical importance to the economy. techUK is supportive of Cabinet Office efforts to ensure that suppliers to Government pay their supply chain on time. Liz and her colleagues on the SME Panel are to be applauded for their work in driving this agenda. The Government have been consultative in developing the new policy, introducing a phased approach to meeting the target, and giving scope for companies remaining short of the target to demonstrate their plan to achieve compliance.
“However, achieving better prompt payment standards should not just depend on the threat of penalties. Small and large members alike have reported that often it is recurring issues around understanding and on-boarding into a company’s commercial functions and procurement systems that lead to delayed payments. So techUK is planning to initiate a series of activities focussing on how smaller and larger companies can work better together and understand each other’s procurement systems, and ultimately we are aiming to produce an SME playbook on working with larger companies. It is also important that the Government leads by example in this field and holds itself to the same exacting standards when it comes to paying suppliers, large and small, promptly.
“I look forward to continuing our work with the Cabinet Office SME Panel, the SME Crown Rep, and techUK members so we can drive home the importance of this measure and lead a step-change in payment terms and so improve liquidity across the UK economy.”