Consultation on prompt payment of the supply chain


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As part of the Government's ongoing attempt to promote prompt payment practices in the construction industry, the Crown Commercial Service has recently run a public consultation exercise on prompt payment by government suppliers.

The CCS's consultation document proposes that government suppliers will be required to provide evidence of compliance with prompt payment rules as part of any public procurement exercise. The CCS proposes that contracting authorities will be required to exclude suppliers who cannot prove they have followed appropriate payment processes.

The scope of the consultation covers central government, their executive agencies and non-departmental public bodies for contracts over £5m per annum. It is unclear whether the policy will be extended to local authorities, housing associations, ALMOs and other contracting authorities covered by the Public Contracts Regulations.

The Consultation document considers two options for how prompt payment practices can be assessed in practice.

Option 1 is a qualitative approach, in which contracting authorities would enquire about the bidders' payment systems and whether they were "effective". Contracting authorities may ask bidders to provide details of its standard payment terms and evaluate:

  • the robustness of suppliers' payment systems and whether payment disputes are resolved quickly and effectively;
  • whether poor payment practices have impacted on the resilience and reliability of its supply chain;
  • whether bidders have made any compensation payments or paid any interest on late payments pursuant to the Late Payment of Commercial Debts (Interest) Act 1998;
  • what proportion of its total payments to suppliers have been made within its standard terms or within 60 days of receipt of an undisputed invoice.

The requirements, if implemented, will raise interesting challenges for contracting authorities in terms of assessing bidders' claims. Contracting authorities will need to consider whether to allow bidders to self-certify these questions at selection stage and only provide evidence at tender evaluation stage, or ask for evidence of prompt payment practices up front. Contracting authorities will also need to consider how any evidence provided will be assessed and verified (for example, by asking for confirmation or references from key suppliers). Depending on the complexity of the evidence required, contracting authorities will need to ensure that their evaluation teams are suitably qualified to review and assess the information provided.

The setting of 60 days as the timeframe for prompt payment (taken from the Prompt Payment Code) seems at odds with the Late Payment Act and the Public Contracts Regulations, which require prompt payment of main contractors and supply chains within 30 days. With this in mind, contracting authorities may want to impose a stricter requirement and require evidence of 30 day payment cycles.

Option 2 proposes a Pass/Fail assessment, under which contracting authorities would be able exclude bidders who have not met prompt payment requirements under Regulation 57 for "grave professional misconduct". Contracting authorities will need to decide how best to assess this. The Recitals to the Public Procurement Directive state that examples of "grave professional misconduct" are breaches of legislative requirements which render the bidder's integrity questionable. CCS suggests failure to adhere to the Prompt Payment Code would be a "Fail", but contracting authorities may be unwilling to reject bidders on the sole basis of failure to meet a discretionary requirement. Bidders will also be allowed to "self-clean" their bids and demonstrate attempts to comply with the law, which may make it difficult to automatically exclude bidders. A wrong call would leave a contracting authority open to a challenge for unlawfully rejecting a bidder, so in the absence of further direction from government, it is likely that contracting authorities will use a Pass/Fail assessment cautiously.

The CCS is expected to issue guidance in September as to the new requirements, and how contracting authorities will be expected to assess prompt payment practices in procurement exercises.

This article is taken from Building Interest - Summer 2018.

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