Tier one suppliers who do not pass on the payment terms they receive from public sector buyers are “morally bankrupt”.
Martin Reeves, national procurement champion for local government and chief executive at Coventry City Council, said it was “unacceptable” that the public sector might pay its own suppliers within 14 days, but these tier one firms might not pay their suppliers for 120 days.
Speaking at the Government Procurement Summit in London he said: “This idea that tier one don’t pass this on is unacceptable, morally bankrupt and it shouldn’t be allowed.”
Reeves said he had seen this practice lead to the “demise” of small firms. “We must pay on time or ahead of time to our small, local businesses,” he said.
Peter O’Connell, policy advisor for local government at the Federation of Small Businesses, said: “Small firms are very vulnerable to cash flow.
“Quite often the public sector will pay within 10 days, 14 days, 30 days. Tier one will say 30, 60, 120 days.”
He said every pound spent by local authorities with a small local business produced an extra 63 pence of economic benefit, compared to 40 pence if it was spent with a large local firm.
“Small firms are better able to adapt to clients needs,” said O’Connell. “They are often cheaper. Small firms help provide competition pressure for larger firms."
He called on buyers to support small companies. “Every time you look at a procurement please think ‘is this possible to break up into smaller lots?’" he said.
“Seek to minimise requirements where you can. If you can drive the capability to engage with small firms in your areas and built that capacity, please do.”