Rules tightened on payment terms in public contracts

Will Green is news editor of Supply Management
30 October 2020

Public buyers must make a stricter assessment of bidders’ payment systems under new guidance issued by the UK government.

For contracts worth more than £5m, a series of pass/fail questions must be asked of bidders covering payment policies with their supply chain.

In a Procurement Policy Note (PPN) the Cabinet Office said: “In its 2017 manifesto, the government stated that it would ‘use our buying power to ensure that big contractors comply with the Prompt Payment Code both on government contracts and in their work with others’. This PPN reflects that commitment in the context of the UK’s procurement rules.”

Guidance accompanying the PPN said: “The key issue to be assessed is whether a bidder that intends to use a supply chain to deliver the contract has effective payment systems in place to ensure the reliability of that supply chain.”

The PPN – which covers all central government departments, their executive agencies and non departmental public bodies – updates previous guidance on this issue by increasing the threshold bidders must meet to demonstrate effective payment systems.

Bidders are judged on whether they meet a target of paying 95% of invoices within 60 days, based on a series of questions supported by evidence including copies of standard payment terms and details of paid invoices in recent reporting periods.

Organisations must apply the new rules from 1 April 2021.

“If bidders provide false/misleading information in their responses, they may face sanctions, including exclusion from the procurement and bidding for other contracts for between three and five years (depending on the circumstances), rescission of any contract that had been entered into, damages and in some cases criminal prosecution,” said the guidance.

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