Prompt Payment Code: the impact on government tenders

This follows seven major contracting firms shamed over late payments earlier this year. All of which required immediate action plans to achieve compliance.

Prompt Payment Code

The Prompt Payment Code sets standards for payment practices as well as wider payment procedures. Code signatories undertake to:

• Pay suppliers on time
• Give clear guidance to suppliers
• Encourage good practice

Additionally, the expected standard is to pay 95% of supplier invoices within a maximum of 60 days (in line with late payment legislation requirements), and to work towards adopting 30 days as the norm, and to avoid any practices that adversely affect the supply chain.

Government tenders

From September, companies bidding for larger contract values (worth more than £5 million per annum) will have to prove that they adhere to the Prompt Payment Code and pay the majority of their sub-contractor suppliers within 60 days.

As noted, with the suspension of large construction firms, including Galliford Try and Screwfix, this could have a huge impact on government procurement, to ensure there is a fair and responsible approach to payments in the supply chain. Research from Tussell finds that under the new standard, four-fifths of the government’s Strategic Suppliers could be excluded from bidding on government contracts.

Not only will firms have to adhere to the Prompt Payment Code, they will need to outline all company procedures for paying their supply chain on time in their tender bids. Tender writing is a vital part of the government procurement process, as firms are bidding for contracts worth millions of pounds and securing contracts for multiple years, providing their organisations with certainty of business if they adhere to the government protocol. Large firms like Galiford Try rely on a huge proportion of their business coming from government contracts, so this could have a detrimental impact if processes and overall culture is not adapted very quickly.

Next steps

As stated by Paul Uppal, Small Business Commissioner, “The suspension of those who are failing to meet their obligations demonstrates Government is committed to ensure small businesses are treated fairly.” This is a step in the right direction for the government’s commitment to encouraging SMEs to bid for contracts – especially since their payment codes tend to be directed to the larger companies who do not always pay smaller subcontractors within the stated 60 days.

It is vital for all firms wishing to continue bidding for government tenders to revisit their payment procedures and ensure the targets are being met to continue supplying the public sector post-September.