Companies could be excluded from government contracts if they don’t pay their own suppliers on time - a win for SMEs?

Profile picture for user ddpreez By Derek du Preez November 28, 2018
The Cabinet Office has announced a new prompt payment initiative today, to ensure all government suppliers and subcontractors are being paid on time.

Sme government contract
The government is threatening to stop doing business with companies that don’t pay their suppliers on time - in a bid to help encourage a “healthy and diverse marketplace” and to support SMEs working with larger companies as part of their supply chain.

A target has been in place for a number of years to get 33% of all Whitehall spend to SMEs by 2022. It is thought that one of the primary blockers for SMEs working with government - specifically via a larger contractor as part of their supply chain - is prompt payment, as cash flow is vital to their survival.

Whilst the Cabinet Office recently claimed that half of government digital spend now goes to SMEs, the overall central government spend figure fell for the first time in years this July.

For the year 2016/17 direct spend fell from 11% to 10.5% and indirect spend fell from 13% to 12%, compared to the previous year. Departments including the DWP, the Department of Health, the Cabinet Office and the Ministry of Defence all saw a drop in total spend with SMEs.

However, today’s announcement aims to make doing business with government easier for SMEs and marks the first time that the Cabinet Office has said that failure of companies to demonstrate prompt payment to their suppliers could result in them being prevented from winning contracts.

The new prompt payment initiative will come into force in Autumn 2019. Cabinet Office Minister, Oliver Dowden said:

“Companies providing crucial services to the public sector, like supporting prisons and delivering road infrastructure projects, must be paid on time.

“Paying invoices promptly is vital in providing healthy cash flow, particularly for smaller businesses who are the backbone of the UK economy, to help them survive and thrive.

“From next year, if government contractors are late with supplier payments, they could stop winning public contracts altogether - until they clean up their act.”

I have asked the Cabinet Office for details about how this will be enforced - for example, how the data will be collected, will it be made publicly available, and will current suppliers with existing contracts be forced to share their data? I had not received a response at time of publication.

Martin McTague, Policy and Advocacy Chairman for the Federation of Small Businesses (FSB), expressed his support and said:

“This measure will get the thumbs up from the small business community. This sends a clear message from Government that paying late is not okay.

“Cracking down on big businesses supplying to Government, and not paying on time, is a win for small businesses, tax payers, the wider economy and public services. Measures to open up public procurement give tax payers and our public services access to the innovation and value small firms bring, as well as helping our economy. This is a challenge, and there is, of course, more to do, but FSB recognises the policy progress that is being made.

“We have been pushing hard for this reform and it is good to know that the Government is listening. We will continue to work with the Government on this and further measures to drive out late payment from Government supply chains once and for all.”

In addition to the prompt payment initiative, the government is also updating its supplier complaints service. Formerly called Mystery Shopper, the free and anonymous complaints service will now to be called the Public Procurement Review Service. However, little detail has been provided on how or if the service will work differently compared to its predecessor…

Other recent SME announcements

Emma Jones, the government’s SME Crown Representative, recently announced a number of developments and actions that the government is taking to further increase the participation of SMEs in government buying.

One area that hasn’t been talked about much is that the government has recently created a group of SME champions, one person within each department, that is responsible for helping their department reach the SME target. Jones said that they meet every two months to compare notes on what each department is doing and collaborate on how further progress can be made.

Separately to this, the Prime Minister has also recently asked each central department to appoint an SME Minister, to further focus their mind’s on the SME spend target.

In addition to this, Jones highlighted tests taking place to help establish a ‘small business passport’, which could help reduce the bureaucracy in SMEs bidding for government work. She recently said:

“The very first thing I said when I came into the role was that when a small business responds to a tender it tends to be the founder that’s doing the applications on the weekend. It’s really crazy that every single time we bid for work, we have to complete the same mandatory information every single time. Couldn’t there just be something that you complete once, and then it’s just available?

“There has been a test done, called Complete Once, which has been a quiet test to see if this will work. Will business owners put in the correct information? Whose responsibility is it to update that information if it changes? I’m hoping the test results come back positive.

“At the same time government is also looking at something called a single business passport, which is something again where the business owner has one detail, it moves with them around different departments. There are different groups looking at how easily this can be done. That’s still something that can be simplified to save time.”