Procurement in a Nutshell – Procurement Policy Note: New rules on prompt payment
26th September, 2019
On 23 July 2019, the Cabinet Office published a Procurement Policy Note, as well as accompanying documentation, providing guidance on taking account of a supplier's approach to payment in the procurement of major contracts.
The note applies to all Central Government Departments, their Executive Agencies and Non-Departmental Public Bodies.
Click here to view the Procurement Policy Note.
Purpose
The tough new rules which came into force on 1 September 2019 are designed to make sure that government suppliers (“suppliers”) pay their bills on time. The rules now stipulate that suppliers must pay 95% of their invoices within 60 days, failure to do so will risk them losing out on major government contracts.
Who does it apply to?
The PPN applies to big businesses – a big business being one with a £36 million turnover, £18 million on its balance sheet and employing 250 or more employees.
The new rules also apply to framework agreements and dynamic purchasing systems which are subject to the Public Contracts Regulations 2015 (except in rare circumstances where it would not be proportionate to do so), only where it is anticipated that the individual value of any contract is greater than £5 million per annum (excluding VAT).
The Minister for Implementation, Simon Hart, has stated that:
“Developing a prompt payment culture is critical for all companies helping to deliver vital public services…
And it’s particularly important for small businesses who may not have the reserves of larger organisations. That’s why we’re making it clear to big businesses that they must get their payment records in order or face the very real risk of missing out on large government contracts in the future.”
CBI’s Deputy Director-General, Josh Hardie has responded to the new rules with:
“Businesses know that strong supply chain relationships are the bedrock of a successful UK. Paying on time is at the heart of this – which is why companies welcome the Government’s efforts to support a culture of prompt payment.
Companies are already raising their game. These new rules – applied fairly and consistently – will further enhance the UK’s responsible payment culture.”
Why is this important?
The Policy Note serves as a reminder to suppliers of the importance of making payment in a timely manner and the effect that a lack of payment has on the smaller businesses that are also involved in a supply chain. A prompt payment culture can do nothing but benefit all who are involved in a supply chain, including increasing the stability of each of the businesses who are a part of the chain.
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 0330 137 3451.
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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