UK government to develop framework to encourage fair payment practices

Gurjit Degun
30 May 2014

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31 May 2014 | Gurjit Degun

The UK government has committed to further reforms to “streamline procurement and improve public sector payment practices” through legislation.

In its response to the Building a Responsible Payment Culture consultation, the Department for Business Innovation and Skills (BIS) said it plans to introduce requirements for public authorities to accept e-invoices.

It also proposed requirements for public authorities to run “timely and efficient procurements”; and committed to "greater powers" for ministers to investigate complaints raised by the Cabinet Office ‘Mystery Shopper’ scheme.

BIS added it will work with industry to develop a new, robust reporting framework to encourage a fair and transparent payment practice. There are also plans to give it a “legislative underpinning”.

“We will also design this new framework with a focus on the needs of suppliers and potential consumers, both in terms of the information it is to cover and the way that information is to be published,” the consultation response said. “By the making the payment performance of both the private and public sectors more transparent, we will ensure that this information becomes open data, available to the wider public.”

The government has also committed to strengthening the Prompt Payment Code, which encourages good practice in supplier relationships. In terms of fines, BIS said it will not increase existing penalties or introduce new fines. It added there are no current plans to introduce a maximum payment term, so it will work with businesses and trade bodies to promote best practice codes.

However, the government has come under criticism from trade bodies for not being clear enough in its response. The Institute of Credit Management said BIS has “once again ducked the issue regarding the rights of business to challenge grossly unfair terms by failing to define what grossly unfair terms might be”.

The Forum of Private Business’s chief executive Phil Orford also pointed to this issue. “While overall the proposals are encouraging, we believe the government has ducked one crucial aspect of late payment; an ‘obligation’ under EU late payment legislation to put in place a mechanism that allows businesses to maintain their anonymity while challenging grossly unfair payment terms,” he said. “The definition of ‘grossly unfair’ is hard to pin down, but being able to challenge it would create legal precedents to help other companies.”

Matthew Fell, director for competitive markets at the CBI, added: “The government is rightly looking to build a prompt payment culture, and greater disclosure of payment practices can help with this. However, it must be implemented flexibly, on a ‘comply or explain’ basis. The most effective supply chains are collaborative, rather than confrontational, so heavy-handed regulatory interventions must be avoided at all costs.”

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