Procurement Byte on Supply Chain (2 of 3) – CCS Consultation on Prompt Payment by Government Suppliers

Procurement Byte

08/05/2018

Susie Smith

Susie Smith

Consultant

In our first Procurement Byte on Supply Chain we looked at the CCS Procurement Policy Note which requires in-scope organisations to include standard contract clauses covering advertising subcontracting opportunities on Contracts Finder and reporting. These measures are aimed at assisting suppliers in bidding for work in Government supply chain.

The Government is pursuing the supply chain agenda further in its current consultation on prompt payment by government suppliers. The consultation covers proposals to include the issue of whether a supplier has demonstrated a fair, effective and responsible approach towards payment of its supply chain as a selection criterion or as a ground for exclusion in major government contracts.

The consultation document was published by Crown Commercial Service (CCS) on 10 April 2018 and can be downloaded from the consultation website. The consultation period closes on 5 June 2018. Click here to view the document.

The measures proposed in the consultation will apply to all central government departments, their executive agencies and non-departmental public bodies. Responses to the consultation are, however, being sought from a wider audience including other public bodies, suppliers, their representatives and those otherwise involved in public procurement.

The Consultation Document

The consultation document contains an introduction and policy rationale which provide the context for the consultation. It then goes on to describe two options and raises three specific issues.

Introduction and Policy Rationale

The Government notes the importance of prompt, fair and effective payment for all businesses, particularly for small and start-up companies. It confirms that efficient mechanisms to ensure that suppliers comply with contractual obligations on payment of subcontractors are important for the overall delivery of major contracts.

The introduction sets out a list of measures already taken to improve payment practices in supply chains, including the requirement in the Public Contracts Regulations 2015 (PCR) Regulation 113 to pay undisputed invoices within 30 days the Prompt Payment Code and use of Project Bank Accounts. It also refers to the availability of reporting mechanisms through the Mystery Shopper Service and the Small Business Commissioner.

The introduction goes on to explain that the Government now wants to consider how it should take account of a supplier's record on prompt payment in the procurement of major government contracts and when it is appropriate to exclude suppliers which cannot demonstrate a fair, effective and responsible approach to payment in their supply chains. It proposes that

  • when suppliers are bidding for government contracts above £5 million per annum their approach to payment of subcontractors should be assessed as part of the selection process; and
  • an appropriate benchmark of payment performance is paying 95% of undisputed invoices within 60 days, over two consecutive six month periods

This section emphasises that the process of verification of supplier performance should, where relevant, use existing benchmarks and reporting mechanisms. These include reports which large businesses are under a statutory duty[1] to publish reports on payment practices, which is the subject of our next Procurement Byte on Supply Chain.

Proposed options

The consultation document identifies two proposed options where an assessment of a supplier's approach to supply chain payment might be appropriate under the PCR. It acknowledges that neither option is without additional burdens on both contracting authorities and suppliers.

Option 1: Supply chain payment as part of the selection criteria assessing technical and professional ability: The consultation document proposes that a contracting authority would ask suppliers to provide evidence of their payment systems and whether these are effective and then use this information as part of the assessment of the supplier's technical and professional ability.

The Government will provide guidance to contracting authorities setting out a framework the contracting authority could use to identify relevant criteria and categories of relevant evidence. The consultation document sets out some examples of the evidence which may be required. It would be for the contracting authority to decide on the appropriate evaluation methodology and outcome of the selection stage.

Question 1 asks "What evidence do you consider contracting authorities would need to request from a bidder to assess the effectiveness of supply chain management payment practices?"

Option 2: Supply chain payment as a ground for exclusion for grave professional misconduct: The consultation document proposes that certain behaviours around a supplier's payment systems, in particular systematic failure to pay suppliers in accordance with specific obligations to do so, could be sufficiently serious to amount to grave professional misconduct under PCR 57(8) (c).

The consultation document focuses on systematic failure and confirms that this would have to be assessed on a case by case basis and is subject to self-cleaning measures. As with Option 1, it is proposed that the Government would provide guidance to contracting authorities on appropriate evidence, in this case concerning the integrity of the bidder and grave professional misconduct.

Three year exclusion period: The consultation document also proposes that where a supplier is excluded from a procurement on the ground of grave professional misconduct there would be a three year period of exclusion from the contracting authority's procurement opportunities, unless  the supplier can later demonstrate adequate self-cleaning.

Question 2 asks "What evidence do you consider contracting authorities would need to request from a bidder to demonstrate Grave Professional Misconduct in payment practices?"

Appropriate evidence and benchmarks of a supplier's payment practice

This section of the consultation document seeks to better understand the nature of the evidence and benchmarks that should be considered by contracting authorities in assessing supply chain payment performance. It sets out information on current statutory reporting requirements on large businesses (mentioned above and to be covered in our next Procurement Byte on Supply Chain) as well as the Prompt Payment Code. It also refers to the proposed benchmark of paying 95% of undisputed invoices within 60 days, over two consecutive six month periods.

Question 3 asks "Do you agree that failure to pay 95% of payments within 60 days over two consecutive six month periods is an appropriate benchmark of payment performance? Are there any other benchmarks that should be considered?"

Financial threshold to apply to the measure

The proposal is for the measure to apply to contracts above £5 million per annum, rather than a total contract value.

Question 4 asks "Do you agree that applying this measure to contracts valued above £5 million per year is an appropriate threshold? If not, what threshold should apply and why?

Other measures - complaints about poor payment practices

The consultation document notes that subcontractors are often nervous about escalating complaints when they experience payment issues with a prime supplier and they often do not know how to contact the contracting authority. It suggests that it might be more powerful if subcontractors are able to raise concerns with a contracting authority and for the prime supplier to be required, through an appropriate contract condition, to provide contracting authority contact details.

Question 5 asks "Would there be benefit in giving subcontractors greater access to the contracting authority ….to make them aware of significant payment issues?

Responses to the consultation

Responses to the consultation can be submitted to CCS by e-mail or in writing to the addresses shown on the consultation page. The consultation closes at 11.45 am on 5 June 2018.

 

Find out the latest legislative and policy developments. Register to attend our Procurement Update Seminars, taking place across the country in June.

 

[1]              The Reporting on Payment Practices and Performance Regulations 2017 no. 395 made under section 3 of the Small Business, Enterprise and Employment Act 2015.

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