21 December 2015

Public Sector Payment Terms under the Spotlight

A recent survey undertaken by the Electrical Contractors’ Association (ECA), a Build UK Trade Association Member, has revealed that many local authorities are not fulfilling their legal obligations to make sure their supply chain is paid promptly.

The Public Contract Regulations 2015, which came into force in February 2015, require all public bodies to contractually ensure that invoices are paid within 30 days and the 30-day payment term is passed down throughout their supply chain. However, the ECA survey, which asked questions of both local authorities and ECA members, found high levels of non-compliance with these payment requirements and only two in 10 contractors reported that all public sector clients paid them on time.

The key findings of the survey include:

• Almost six in ten local councils claim that they pay within 30 days with less than 1% admitting to payment terms over 30 days.
• However, around four in 10 say they 'don’t know' if they are meeting the legal requirement to pay within 30 days.
• More than six in 10 local councils do not monitor or were unable to confirm whether their main contractors pay sub-contractors promptly.
• Despite it being part of legislation, one fifth do not plan to contractually oblige suppliers to pay those below them in the supply chain within 30 days.

ECA Director of Business Services Paul Reeve said:

"Some of these ECA findings are remarkable because they show high levels of non-compliance with prompt payment law…However, we also recognise that half of public bodies are doing their best to follow the rules – showing it can be done. We urge these exemplar bodies to share how they do it, to help other authorities comply as soon as possible. The ECA will be sharing our data and next year we will be revisiting those public bodies who are falling fall short of the regulations, because anything less than 100% compliance is not good enough for hard-pressed smaller contractors."

Build UK has identified fair payment as a priority as current payment practices within the industry are holding back the businesses of both Main and Specialist Contractors. A dedicated Payment Group has been set up and a number of outcomes were unanimously supported by all Build UK members earlier this year. These include Build UK supporting the principles of the Construction Supply Chain Payment Charter which include payment terms of 30 days for the public sector.