Procurement in a nutshell – payment of invoices
24th July, 2015
In this Procurement in a Nutshell, we will be looking at the rules about the prompt payment of invoices under the Public Contracts Regulations 2015.
The regulations are available in full here.
Regulation 113 requires all Contracting Authorities (CA) to ensure that every public contract that they award contains suitable provisions requiring:
- That any payment due from the CA to the contractor under the contract is to be paid within 30 days of the date on which the invoice is regarded as valid and undisputed;
- That invoices submitted by the contractor are considered and verified by the CA in a timely fashion and that any undue delay in doing so is not sufficient justification for failing to regard it as valid and undisputed;
- That any subcontract awarded by the contractor contains:
- Suitable provisions to impose similar obligations as between the contractor and the subcontractor;
- A requirement for the subcontractor to include in any subcontract which it awards suitable provisions to impose the same obligations as between those parties.
If these terms are not expressly included in the contract, regulation 113(6) means that they will be implied.
In addition to the contract requirements, regulation 113(7) requires CAs to publish statistics showing how far they have complied with their obligations, in particular the percentage of invoices that were paid within 30 days and the amount of interest due and/or paid to suppliers as a result of late payment.
In complying with this regulation, CAs must have regard to the statutory guidance issued by the Cabinet Office and available here. This includes a model term for use by CAs (its use is recommended but not mandatory) and a template for how to present the required statistics.
Please note, regulation 113 does not apply to contracts awarded for certain healthcare services or where the CA is a maintained school or an academy.
Why is it important?
Regulation 113 is contained within Part 4 of the regulations and is therefore amongst those measures introduced by the UK government to improve SME access to public contracts. Prompt payment of invoices is designed to assist SMEs by requiring CAs to set an example in making prompt payment and by providing a mechanism to assist with SME’s cash flow.
As a result, CAs must now expressly include the obligation to pay undisputed invoices within 30 days as part of their contract and if they fail to do so, the term will be implied.
Publication of the statistics regarding prompt payment ties into government’s efforts to improve transparency and provides an incentive for CAs to comply with the regulation.
How can I find out more?
If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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