On 1 September 2019, an update to central government procurement policy came into force meaning that departments must now consider how good a company is at paying other businesses. This assessment will decide whether businesses can bid for public sector contracts.
It’s the latest in a series of measures the government has introduced to tackle the issue of late payment. In 2017, it became a legal requirement for large firms to report their payment performance data every six months – primarily, this ‘Duty to Report’ shows how many invoices are paid to agreed terms, the average length of time taken to pay an invoice, and how many invoices are paid within 30 and 60 days.
The availability of this data means that public sector procurers now have the evidence with which to make a consistent assessment of payment practices. When the plan to introduce the assessments was announced in November 2018, government’s approach was that businesses which were not paying 95% of invoices within 60 days would be banned from bidding for public sector contracts.
The CBI was involved during the consultation process of the new policy and has been working closely with Cabinet Office and the Department of Business, Energy and Industrial Strategy since the proposals were announced last November. Our lobbying efforts focused on explaining why the different dynamics of UK sectors would impact how quickly commercial practices can be overhauled in a sustainable way, and the pace at which improvements would be seen in payment practice data.
Following engagement with the CBI and other stakeholders, the Cabinet Office revised its policy before launching it so that businesses had greater scope to demonstrate how they were improving their payment practices towards a 95% in 60 day target, if they were not already meeting it. This included lowering the initial threshold to 75% in 60 days, as long as a business had a clear and publicly available ‘action plan’ to get to 95%.
Since its introduction in September, both government and business have reported improvements in payment practices, with many companies making good progress towards this target, and some exceeding it.
This is good policy in action. Government has new tools and data at its disposal which weren’t previously in place that has enabled it to set out policy proposals. It has since used the data and engaged with businesses to modify its proposals in a way that reflects the dynamic business environment, while still challenging companies that aren’t hitting the mark to quickly improve their behaviour.
The CBI welcomes this progressive approach and supported a government announcement on Sunday 1 September.