Direct payments to save government £40 million a year

30 November 2011

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30 November 2011 | Angeline Albert 

The UK government hopes to save £40 million a year by paying smaller (SME) construction suppliers directly. It also plans to make its future construction spend more transparent to all businesses.

The Cabinet Office has announced that SMEs working on government projects will be paid within five days or less from the due date, by making £4 billion – 20 per cent of spend in this category – available to be paid directly to them by 2014. Currently the government pays its prime construction contractors who are responsible for passing the money on, but some SMEs wait up to 100 days before being remunerated. Now a ‘project bank accounts’ system has been set up to pay them directly.

The government estimates that ensuring SMEs get paid more promptly will enable them to run their businesses more cost-effectively and pass those savings back to the government. It will also improve the cash flow of small businesses and their ability to plan for future deals.

Businesses are also being helped to plan for government procurements and engage with departments about future work as a result of a move to publish more detail about its ‘construction pipeline’. This includes information on more than £36 billion of construction projects up to 2014/15. The government believes the pipeline will give businesses more confidence about spending in the sector and help them make informed decisions about where to invest.

Cabinet Office minister Francis Maude, said: “We are leading the way with this innovative approach to paying suppliers, and where better to do so than in an industry where 99 per cent of businesses are SMEs?” He said the pipeline will enable businesses to plan for government procurements and “is part of a drive to dramatically cut the costs and increase the efficiency of government procurement”.

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