Contractors that don’t pay their supply chain on time could be banned from bidding on major contracts across the public sector.
The Cabinet Office announced plans to amend the Procurement Act 2023 to “strengthen the UK’s economic resilience and support British businesses” on Thursday (26 June).
Reforms already introduced via the act mean firms can be barred from bidding on central government contracts if they do not pay 95 per cent of invoices to their supply chain within 60 days and within an average of 45 days overall.
New proposals would see similar measures applied to all public sector contracts.
A consultation document explains that, unlike the previous policy, the new proposal would take into account every invoice a business had paid, regardless of whether it was part of a public supply chain.
The average time allowed to pay would be 60 days initially rather than 45, which the document says would “allow for performance improvement without impacting delivery of essential services”.
It adds: “Linking performance to the average time taken to pay invoices will make it easier to change the threshold downwards in the future, and drive future performance improvement.”
Elsewhere, the document says: “Late payment of invoices is a significant problem for many businesses, including small businesses within public sector supply chains.
“Long payment terms and late payments can have a damaging knock-on effect on businesses’ ability to manage their cashflow and plan for growth. In the worst cases it can threaten their survival.”
It says that £23.4bn is currently owed to SMEs and highlights Federation of Small Businesses research showing late payment was responsible for the closure of 50,000 businesses per year.
Reacting to the announcement, Electrical Contractors Association director of legal and business Rob Driscoll told Construction News: “This is another step forward in closing the net on delayed and late payment.
“Using the whole of public sector demand to leverage better commercial behaviour across the industry can only improve the construction economy and insulate it from the historic behaviour of manipulating cashflow in an industry prone to high insolvency rates and project jeopardy.”
Driscoll, who has advised the Cabinet Office on SME policy, added: “Government should be congratulated for closing some of the loopholes and going further to help construction help itself.”
Other proposals out for consultation include introducing KPIs in public contracts relating to jobs, opportunities and skills, and reports on delivery performance on the KPI in the contract performance notice.
The paper also announced proposals for contracting authorities to carry out a public interest test before outsourcing service contracts worth more than £5m.
The consultation closes on 5 September.
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Ian Weinfass