Fair Pay In The Public Sector

When the latest budget was unveiled by Alistair Darling in late March, the bulk of the nation was browsing at its impact it would have on our jobs, on our taxes, our education and health systems and our own individual spending patterns. There was one particular initiative launched as part of the 2010 budget that many of us will not have observed however. This post seeks to uncover some of the details of this fresh initiative.

The announcement is in regard to fair payment in the public sector industry, with particular focus on contractors and their subsequent sub-contractors. The new judgment says that from March 25th 2010, any service provider working for a department in the public sector will have a contractual obligation to pay their sub-contractors within 30 days.

It is worth noting that this 30 day clause does not apply to payments by the governmental departments to 1st tier contractors, but to those 1st tier contractors making punctual payments to lower level contractors that they are hiring themselves. However, all central government departments now must pay 80 percent of any undisputed invoices for goods or services within 5 days.

Why It’s Being Done

This step has been made as one element of an effort to enhance the timeliness of payments arising from public segment jobs up and down the supply chain. Public sector work has a good reputation for the speedy payment of accounts at the higher levels of sub-contracted work, however this benefit has not at all times been experienced by sub-contractors that are two or three levels of separation from the initial payment. The addition of a 30 day payment clause ought to help pass on this benefit to all sub-contractors doing work on public sector jobs.

If viewed as part of the bigger picture, this particular payment move is being used to try and help the numbers of small as well as medium sized businesses (SMEs) that trade in this country. As we feel the end of the latest recession, many businesses both large and small have experienced the strain. Merely surviving until now in the current financial circumstances has been an accomplishment for many. The government is now looking to ensure that it can support as many of these companies as possible.

To help these businesses control their income flow more effectively, suppliers to the public sector are being paid faster than has ever before been the case. 19 out of 20 bills to central government departments from main contractors are being settled within 10 days. The government is now seeking to spread this benefit throughout the sub-contracting supply chain.

With so many unique businesses working jointly on nearly every office fit out money flow frequently will become a tricky process.

Who It Affects

The fresh ruling will impact any contractors as well as sub-contractors all through the supply chain on works for any government departments, government agencies and NDPBs (non-departmental public bodies). It is designed to aid the sub-contractors further down the chain rather than providing rewards simply to the main contractors at the higer levels. The 30 day payment condition is only relevant to any new agreements for work and does not need to be applied retrospectively.

Who It Doesn’t Affect

The 30 day payment system is only applicable to personnel in the supply chain for public sector works and isn’t part of standard business law. It therefore doesn’t affect any companies in the private segment. Because the measure does not need to be placed on to existing contracts, many of the projects for the 2012 Olympic Games won’t be forced to follow the program.

What It Means For Business

What this step should mean with regard to small businesses that are involved with public industry works is an improvement in the speed with which they will receive payment for their work. Whilst several payment policies have been recognised to contain range for certain “bending” of the rules, this new plan does seem to be much more rigid in terms of delivering on its potential.

It does of course mean that public sector contracts can no more be received by primary contractors who do not agree to the 30 day payment clause. Even more than this, the speed of payments down the supply chain might turn out to be a variable while deciding which contractors will be chosen. The authorities are actively encouraging their main contractors to pay 2nd and 3rd tier firms before the 30 day deadline is up, which can see contractors using speed of payments as one part of their own proposals. This may increase competition for work since smaller sized companies may be able to compete on something other than cost.

The new payment steps do not need to be put on to any existing contracts that the governmental bodies in question currently have. This fact may help to reduce the amount of time spent on adjusting the contracts and keep the paperwork required to a bare minimum, and it should enable the new program to come into practice much much more easily. Divisions are being asked to encourage their main contractors to adopt the 30 day payment program on a voluntary basis where ever possible.

The 30 day payment structure does not apply on currentoffice refurbishment contracts although voluntary adoption of the plan is urged. For more information click here.

The new commitments to quicker payments throughout the supply chain is a sister measure to other plans and acts that are being implemented in order to promote a fairer working environment up and down the supply chain.

Fair Payment Charter

The Fair Payment Charter forms one part of a bigger instruction created by the Office for Government Commerce (OGC) designed to encourage the very best “fair payment” practices for companies operating within the world of public sector works. The conditions set down by the charter came into force from the 1st January 2008 directed at all agreements in the public sector.

This charter is by no means a lawfully binding record, and it doesn’t supersede any of the terms laid out in particular workers’ contracts. It’s merely a document that sets out a number of commitments that are hoped to be followed all through the market. Some of the major points in the charter are the timeliness and correctness of payments that are made, that the payment process ought to be clear up and down the supply chain and that all parties in the supply chain need to work collectively to help appropriate cash flows at many levels.

Prompt Payment Code

The Prompt Payment Code is another move that is geared toward assisting small and medium size firms, particularly in terms of cash flow. It has been created by the Government, together with support from the Institute of Credit Management (ICM) and promotes the adoption of best payment tactics and openness for any agency which adopts it. It sits together with existing fair payment schemes.

Again, this particular code is not a legally binding document and doesn’t outrank any stipulations of operating agreements between businesses and individuals. It is a guide for businesses which sets out a standard set of fair payment policies designed to help all affiliates working within the public sector. As well as timely and reasonable payments, it also sets out recommendations for the challenge of invoices and any issues raised by suppliers.

Companies that sign up to the code have to go through an application procedure which establishes if they have appropriate measures in place to conform with the guidelines set out in the code. After they have passed all these tests they can show the PPC logo on their own company brochures and web site as a sign of their commitment to working inside of a fair payment environment.

Government departments and branches do not frequently undergo office refurbs but decent office organisation can certainly provide enhancements in production.

Implementation Of The Code

The specific wording that must be adopted by organisations operating in the public segment may be taken from the Model Terms and Conditions of Contract for Goods and Services, as released by the OGC. The specific section that ought to be followed within the market is the following:”Where the Contractor enters into a sub-contract with a supplier or contractor for the purpose of performing its obligations under the Contract, it shall ensure that a provision is included in such a sub-contract which requires payment to be made of all sums due by the Contractor to the sub-contractor within a specified period not exceeding 30 days from the receipt of a valid invoice.”

The OGC wants companies to follow the contract models that it has created as a system of best practice. This doesn’t always mean that they have to be followed word for word in every circumstance, given that each company is different and works under a distinctive set of conditions.

Political Impact

As with any program introduced by Government there is a certain amount of political maneuvering that goes on. Although all sides of the political spectrum can agree that there is a critical need for fair payment in the public segment, there are still a number of further actions that may be undertaken that could be used by all parties to promote their own campaigns. This is even more apparent in an election year.

David Cameron and the Tory party have recently come forth with a promise to deal with unfair pay in the public sector. Their scheme will put into action a wide sweep of pay cuts across the senior employees within the public sector by associating the particular pay grades of the senior personnel to the lowest paid individuals within their company. A fair pay assessment would happen with the primary objective of creating a 20-fold pay scale, so a senior worker couldn’t earn more than 20 times what the lowest paid staff member does.

Although Cameron acknowledges that there is currently a commitment to pay transparency, fairness and timeliness, he also states that “it is time to go further.” The party head claims that by dealing with the issue of fair pay within the public sector is an indication of just how his party has become the most progressive party in the British isles and ought to go some way to dispel the conventional prejudices linked with the Conservative party. He furthermore uses the steps to launch an attack on the Labour party, proclaiming that they are a government beyond their sell-by date.

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