In the Autumn Statement 2023 the Chancellor said that "the Government will lead by example in introducing more stringent payment time requirements for firms bidding for large government contracts".
from 1 April 2024 regarding taking into account a bidder's approach to payment in the procurement of major contracts. The PPN sets out steps for all in-scope Central Government contracts which are in excess of £5m per annum in value. The in-scope organisations include Central Government Departments, their Executive Agencies and Non Departmental Public Bodies.
The proposed method for assessing suppliers' approaches to payment of their supply chains has been tweaked and supplemented by a couple of additional FAQs around how to seek an exemption to the PPN in Central Government and that the PPN will be updated for the Procurement Act 2023 in due course.
As a reminder if contracting authorities are procuring an in-scope contract, they must include the Part 3 questions of the SQ (Technical and professional ability) these are contained within Annex B of the guidance of PPN 03/23. These questions broadly require:
- Disclosure of whether the supplier shall use a supply chain for this contract
- Self declaration that the supplier has systems:
(i) to enable prompt payment of supply chain;
(ii) for resolving disputed invoices promptly and effectively; and
(iii) to include 30 day payment terms in compliance with Regulation 113 of the PCR.
Question 5 is the most substantive which requires the supplier to disclose statistics related to its payment of invoices in the previous two six-month reporting periods and to set out the percentage of payments and invoices that have been made within 30 days, 31-60 days, >60 days and due but not paid pursuant to contractual terms. This should be supplemented by explanations of why payment has not been made within timescales (if applicable).
The previous assessment guidance required ≥95% of supply chain invoices to be paid within 60 days, this measure has been retained. We shall refer to this as the 60 Day Measure.
This is now supplemented so that the supplier must also show that the bidder's average payment days over the same reporting periods are ≤55 days, we shall refer to this as the Average Measure.
The assessment guidance provides examples of where a supplier will pass or fail the requirement.
The supplier will not pass the question if it fails the 60 Days Measure or the Average Measure in both of the last two six-month reporting periods. The supplier must also meet both of the 60 Day Measure and Average Measure simultaneously in at least one of the last two six-month reporting periods.
There has been an update so that the contracting authority will have the option to remove intercompany payments for the purpose of these measures, however the removal of intercompany payments is retained within some of the assessment guidance and we would encourage procurement practitioners to carefully refer back to the PPN when carrying out the scoring as it requires a different approach as regards different measures.
Overall this PPN implements an important government policy which is the prompt payment of supply chains. In the current challenging economic climate where insolvencies within supply chains are becoming more common, the Government is trying to nudge large tier-1 contractors to flow down good practice in a gradual way, which seems to be a sensible policy. The additional measure of having an average as opposed to an overall targets appear to target contractors who may be essentially working to a 60 day average.