Out-Law News 2 min. read
28 Nov 2023, 2:11 pm
The UK government has unveiled a new approach to payment terms for major public procurement contracts.
Unveiled in the chancellor’s autumn statement, the new Procurement Policy Note 10/23 (PPN) will require bidders to demonstrate that they are paying 95% of invoices within 60 days – and all their invoices within an average of 55 days – for relevant procurements advertised on or after 1 April 2024. The chancellor also outlined the intention for further tightening to an average of 45 days in April 2025, and to 30 days in the coming years.
The new PPN, which applies to all central government departments, their executive agencies, and non-departmental public bodies, concerns the procurement of goods, services, and works with an anticipated contract value above £5 million per annum that are subject to the 2015 Public Contract Regulations. It also applies to framework agreements and dynamic purchasing systems where the individual value of any contract to be awarded is greater than £5 million per annum.
Clare Francis, commercial law expert at Pinsent Masons, said the tightening of payment terms across the entire supply chain of those who are appointed major government contracts would be a “positive step”, helping to ensure that public money “flows down to small businesses without delay”.
“The Model Services Contract – a template contract for high value complex services created by Cabinet Office and the Government Legal Department – already places a contractual obligation on businesses contracting with central government to pay sub-contractors within 30 days and unconnected subcontractors within 60 days,” Francis said.
She added: “But the introduction of the new PPN will undoubtedly increase the burden for such businesses to ensure that they not only have the appropriate invoicing procedures in place to pay their supply chains within an average of 55 days, but that they are also able to provide evidence of compliance when it comes to submitting bids.”
Newly-published guidance on the PPN (14 pages / 196KB PDF) explains how government departments must assess a bidder’s payment systems – including when it would be appropriate to exclude bidders or seek an exemption from the Cabinet Office.
It provides a set of standard selection questions that bidders must answer, based on their self-declarations and payment data. Contracting authorities then have to verify the successful bidder’s responses and evidence before awarding a contract or appointing them to a framework agreement or dynamic purchasing system.
The guidance acknowledges that there may be exceptional circumstances where it is not relevant or proportionate to apply this PPN, such as when the market for the contract is distorted, narrowed, or struggling, or when there is a civil emergency.
Natalie Thompson of Pinsent Masons said: “Businesses looking to bid for large government contracts should therefore ensure they have evidence of their compliance now, and also be mindful that eventually they are likely to be required to demonstrate that the entirety of their supply chain is being paid within an average of 30 days – and not just subcontractors – if they are to continue to be awarded major government contracts in the future.”