17/05/2018

In this, our third Procurement Byte on Supply Chain, we consider the requirements of a recent piece of legislation aimed at ensuring the transparency of large companies in their payment practices and performance. This legislation has not been particularly well publicised but has the potential to impact on public procurement in light of the general developments in supply chain transparency discussed in our first two Bytes and in the context of the recent news around Carillion.

The Reporting on Payment Practices and Performance Regulations 2017 ("the RPPPR") came into effect on 6 April 2017. The Regulations have kicked in over the course of the last 12 months given that they only require companies to report on the first financial year starting after that date (e.g. if the financial year commenced on 1 January 2018, the first six-month report would need to be published by 30 June 2018).

The RPPPR apply to large companies registered in the UK that meet two of the three following thresholds:

  • Annual turnover of at least £36 million
  • A balance sheet total of at least £18 million
  • At least 250 employees

Every six months, all companies falling within the above definition must report from two different perspectives: (a) where they act as a supplier, in terms of their standard payment terms; and (b) where they act as a customer, in terms of their payment practices. 

In respect of the former category, qualifying companies have to provide narrative descriptions of:

  1. their standard payment terms, which must include – the standard contractual length of time for payment of invoices, maximum contractual payment period and any changes to the standard payment terms in the reporting period, and how suppliers have been notified or consulted on these changes; and
  2. their process for resolving disputes related to payment.

In respect of the second category, they have to provide statistics on:

  1. the average number of days taken to make payments in the reporting period, from the date of receipt of invoice or other notice;
  2. the percentage of payments made within the reporting period which were paid in 30 days or fewer, between 31 and 60 days, and in 61 days or longer; and
  3. the percentage of payments due within the reporting period which were not paid within agreed terms.

Companies' reports are available at this link.

In our second Procurement Byte on Supply Chain, we discussed the current consultation being run by the CCS into the possible inclusion in the Selection Questionnaire of questions relating to the performance of bidders in the payment of their supply chains.  The consultation document is clear that the process of verification of supplier performance should, where relevant, use existing benchmarks and reporting mechanisms, including those in place under the RPPPR.

Clearly, the requirements of the RPPPR will only apply to larger companies, and so it is not necessarily the case that all bidders in a procurement will be subject to these rules. However, the importance of these Regulations to a contracting authority in terms of its ability to verify information provided during a procurement as to supply chain payment practices is clear.  Larger companies bidding for public contracts would be well advised to ensure that they are carefully managing their processes for paying suppliers given the potential for unfavourable statistics to impact on their ability to win bids.

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