The government has announced plans to ban late payers for bidding on government contracts.
The proposals, which come in the wake of the collapse of Carillion, would exclude suppliers that fail to show “fair and effective” payment of subcontractors, and make it easier for subcontractors to report poor payment to authorities.
They are part of a package of proposals announced by the Cabinet Office that seek to “level the playing field” for small businesses bidding on government contracts.
Other changes include requirements for government suppliers to advertise subcontracting opportunities on the government’s contract finder’s database and provide data on their supply chains to show how small businesses are benefiting from central government spend.
The proposals have been welcomed by small business groups including the Federation of Small Businesses.
FSB chair Mike Cherry said: “Episodes like the Carillion collapse bring into stark relief the need for stronger action that exclude businesses which cannot demonstrate a fair and responsible approach to payments from bidding for these contracts.”
Carillion, a major government contractor, collapsed early this year leaving subcontractors and other creditors owed up to £100m by some estimates.
The proposals were also welcomed by market analyst Dun & Bradstreet (D&B), which estimates the average UK SME is owed £63,881 at any one time. UK managing director Ed Thorne said the proposals were a “positive step in addressing what is a tough and long-standing issue”.
He added: “[Late payments] can lead to cash flow problems, stifle growth, and in extreme cases lead to business failure. Critically, 15% of SME owners have used their own personal savings to cover the shortfall.”
Oliver Dowden, minister for implementation at the Cabinet Office, said the government was “committed to levelling the playing field” for smaller suppliers in the public sector.
“We have set a challenging aspiration that 33% of procurement spend should be with small businesses by 2022 and are doing more than ever to break down barriers for smaller firms,” he said.
Separately, the Association of Independent Professionals and the Self Employed (IPSE), which represents consultants, contractors and other freelancers, has called on the government to simplify the bidding process for smaller firms and create a single gateway for small firms to flag payment concerns.
The calls are part of a wider manifesto published by IPSE in partnership with a number of other trade bodies.
Emma Jones, founder of small business support group Enterprise Nation, said: “We’re setting out our demands now because it feels like the government is ready to listen. Small businesses and the self-employed have been patient but it’s time to raise these legitimate concerns.”
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