The Prompt Payment Code
The Crown Commercial Service (CCS) has just released information on new measures they are introducing to improve the enforcement of the Prompt Payment Code (2008). The code states that Suppliers to CCS must pay their contractors and suppliers within 60-days of invoicing. This will only affect your business if you are currently, or are planning to be, supplying one of the central government contracts CCS Frameworks. We’ve read through all of the new information and put together the key points for you below.
What’s new?
In essence, the aim of the Prompt Payment Code remains exactly the same as it always has; Companies must pay their suppliers and contractors fairly, within 60-days of invoicing or within the bounds of the stated terms of the contract between them. However, as of September 2019, companies tendering to be part of a CCS Framework will be required to answer questions pertaining to such things as:
- Payment practices;
- Payment processes;
- Supply chain management;
- Payment tracking systems;
- Existing payment performance.
Companies will need to be able to provide evidence that they have effective systems in place to ensure a fair and responsible approach to the remuneration of their supply chain. If companies are unable to provide evidence that they meet these requirements, they will most likely be excluded from the bidding process.
What’s prompted this change?
Although the Prompt Payment Code has been around since 2008 and has seen several refinements and improvements, this most recent announcement has been prompted by a growing awareness of persistently poor supply chain management. In April 2019 5 major contractors were removed from the Code for failing to pay suppliers on time, with a further 12 companies suspended for the same issue, but whom have consequently submitted satisfactory proposed changes to their policies with commitments to meet the Code. Once they can evidence that they are meeting this commitment, they will be reinstated as a Supplier to CCS.
Who does this effect?
The official CCS announcement clarifies that this is aimed at business who currently are, or intending to be, Suppliers to CCS and will be bidding for central government opportunities greater than £5m per annum from 1st September onwards. However, any business (including SMEs) should be taking note that responsible supply chain management is a key concern for central government procurement and being able to evidence that you are compliant with this will stand you in good stead when tendering for CCS tenders of any size.
What actions should you take?
If your company will be affected by the tightening of the Prompt Payment Code regulations, there are several things you need to consider so that you are prepared for the changes in September 2019:
- Consider your current position. Do you meet the criteria set out in the Procurement Policy Note (PPN), published in November 2018?
- If you do meet the criteria as set out in PPN, then do you already submit your payment data to the Government in the form of a report? In most cases you should simply be able to submit a copy of this report alongside your tender submission, as all of the information contained therein will fulfill the requirements of the tender.
- If you meet the criteria as set out in the PPN but do not already submit a report of your payment data, then you will be required to fill out this new section when completing central government tenders. Take the time to review the questions outlined in this section carefully to ensure that you will be able to answer all of them fully (they are pass/fail questions) and that you can meet the evidence requirements outlined in Table 2, which include:
- A copy of your standard payment terms for all of your supply chain contracts.
- Details of the systems which are in place to ensure that suppliers are paid promptly.
- A copy of your procedures for resolving disputed invoices promptly and effectively.
- Details of any payments of interest for late payments you have paid in the past 12 months or which became due during the past 12 months and remain payable (contractually or under late payment legislation) and, if any such payment has been made (or arose), an explanation as to why this occurred and an outline of what remedial steps have been taken to ensure this does not occur again.
- Details of any code or standard on payment practices to which you are a signatory.
- If you are a signatory to a code or standard on prompt payment, details of what steps you have taken to ensure that you meet the requirements of the code or standard.
- A copy of your standard payment terms used with sub-contractors on public sector contracts subject to PCR 2015
- You will also need to provide the percentages of invoices paid by your company to those in your supply chain on all contracts within 60-days of receipt of the invoice in each of the two most recent 6-month periods. You will need to provide the percentage of invoices paid within each of the following categories (including the total volume of invoices paid in each category):
- within 30 days;
- in 31 to 60 days;
- in 61 days or more.
How will they assess this new information?
As stated above, the new questions are pass/fail and the evidence to be provided is compulsory. It is also imperative to note that if you cannot demonstrate that 95% of invoices payable to your supply chain have been paid within 60 days of receipt of invoice, then you will be required to provide an explanation for this. You will also be required to demonstrate that you have either taken or are planning to take, suitable remedial steps to rectify this. This whole section on prompt payment is entirely pass/fail, so you will need to be confident that you have the evidence to back up your answers, as without it you will most likely be excluded from the tendering process.
Still unsure?
If you are still not entirely sure if this affects your company, give our bid management consultants a call HERE for a free consultation to discuss any concerns or queries you have pertaining to these new measures.
Our team of tendering experts will be pleased to advise you on any actions you need to take in preparation for September 2019.
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