What the Chancellor said:
As part of the autumn statement, the Chancellor said:
One of the key challenges facing small businesses is the cash-flow implications of late payments, which hold them back from investing and innovating.
He announced that:
Alongside publication of the Payment & Cash Flow Review Report and action taken through the Procurement Act, the Government will lead by example in introducing more stringent payment time requirements for firms bidding for large government contracts. From April 2024, firms bidding for Government contracts over £5 million will have to demonstrate they pay their own invoices within an average of 55 days, tightening to 45 days in April 2025, and to 30 days in the coming years.
What the Chancellor’s announcement means:
The Chancellor wants firms that bid for big Government contracts worth more than £5m to be excluded from bidding if they do not pay their invoices (all invoices whether public or private sector) in an average of 55 days from April 2024, dropping eventually to 30 days.
Currently firms delivering Government contracts are required to pay 95% of their invoices (all invoices) within 60 days. That was introduced in September 2019. But if part of their work in in the public sector they have to pay those supplier invoices in 30 days (30 days also applies through the public sector supply chain).
From April 2024 firms delivering Central Government Contracts will be required to pay all invoices within 55 days on average. If they fail to pay invoices within an average of 55 days, and aren’t paying 95% of all invoices within 60 days (or 90% with an action plan for improvement), they will be excluded from bidding for contracts. Bidding firms will have to show they have hit both the thresholds concurrently in one of the previous two six-month periods or be excluded. The 30 days for public sector work continues to apply.
The 55-day (on average for all invoices) requirement will be lowered to 45 days in April 2025 and to 30 days in following years.
The new measure initially automatically applies to newly advertised procurements in scope of the Public Contracts Regulations 2015 from 1 April 2024 and there are exceptions. From the implementation of the Procurement Act 2023 in October 2024, all new procurements will be in scope.
What is the Government doing about its own payments?
This is where The Procurement Act 2023 comes in. It will come into force in Oct 2023 and will imply 30-day payment terms into all public contracts, irrespective of whether they have been written into the contract, meaning the Government departments have to pay in 30 days. For more information on the Procurement Act, and its measures, see here. These same terms will then be implied into any subcontract in the supply chain (whatever tier) that wholly or substantially for the purpose of performing a public contract.
What happens to the Code that requires small suppliers to be paid in 30 days?
This new measure announced by the Chancellor doesn’t have any impact on the Prompt Payment Code. The Code will continue to operate as usual. The change only applies to firms bidding for large Government Contracts. Any signatory to the Prompt Payment Code is committing to paying at least 95% of all invoices within 60 days and at least 95% of invoices from small suppliers within 30 days.
The Chancellor also mentioned the Payment and Cashflow Review Report?
This was published on 21st of November after the Chancellor’s speech. It includes measures to improve payment practices in the private sector. These include changes to the Duty to Report scheme, a review of the Prompt Payment Code to see how it can be made more effective and changes to the way the Office of the Small Business Commissioner (OSBC) operates. Work will start on some of the recommendations straight away. Other changes will require legislation and so will take some time to put into practice. The OSBC will be working closely with the Department for Business and Trade on those recommendations.