When a contractor on a public contract enters into a sub-contract, there must be a clause in the sub-contract saying payment of valid invoices will be made no later than 30 days from the invoice date.
That requirement was made clear in statutory guidance about the Public Contracts Regulations 2015. They came into effect on 1 September 2016.
The statutory guidance says public contracting authorities*, such as government departments and local authorities, must ensure all contracts contain a clause which requires contractors to apply the same payment rules to subcontractors. That is, settling bills within 30 days of receipt.
Did public contracts given to Carillion contain this clause?
The answer is, I don’t know. But Carillion’s Standard Order Terms and Conditions for the Supply of Materials and Services suggest the requirement wasn’t included in its public contracts or if it was then it was ignored. Carillion’s conditions, section 20.7, say:
‘…the due date for payment of an invoice shall be receipt of such invoice and the final date for payment thereof shall be one hundred and twenty (120) days from the month end in which such an invoice has been submitted.’
120 days is four times the 30 day rule. And the 120 days doesn’t take effect from the date of the invoice as required but the end of the month in which Carillion received the invoice.
According the businessadvice.co.uk yesterday, the Building Engineering Services Association and the electro-technical and engineering services trade body, the ECA, has urged the Government to ‘monitor and enforce the public sector 30-day payment supply chain model.’ They want small business contractors working on Carillion projects to be allowed to carry on working and be paid directly. In future, they said, ‘public sector suppliers like Carillion should be precluded from winning any contracts unless it can prove it pays it supply chain promptly.’
That’s what the Public Contracts Regulation 2015 was supposed to have done – ensured that contractors delivering public services pay their sub-contractors within 30 days. But the Government and possibly other public sector organisations have fallen down on their duties to draw up public sector contracts properly or, if they did, then they didn’t monitor them adequately.
The revised guidance ends with this:
‘The Cabinet Office runs a “Mystery Shopper” service that investigates issues of poor procurement practices, both from public bodies and in public procurement supply chains. Suppliers can use this service anonymously to escalate issues about problems in Government supply chains. Such problems may include the question of prompt payment. Mystery Shopper will name and shame any suppliers that are proved to be poor payers.’
Has Mystery Shopper ever named and shamed Carillion? Not according to the Crown Commercial Service.
*There are exceptions to the revised guidance. These apply if the contract procures health care services for the NHS and to contracts awarded by maintained schools, academies or sixth form colleges.