Businesses bidding for covered major UK central-government contracts and intending to use a supply chain will face checks on how they pay suppliers under guidance issued on July 23, 2019. Bidders not intending to use a supply chain answer the initial question but need not complete the remaining payment questions. But paying fewer than 95% of invoices within 60 days will not automatically shut a bidder out. The Cabinet Office’s selection guidance allows a compliant improvement plan for businesses paying at least 75% but fewer than 95% within that time, subject to its reporting-period rules. The policy applies to relevant procurements advertised from September 1, 2019. [S1][S2]

Procurement Policy Note 04/19 covers central government departments, their executive agencies and non-departmental public bodies buying goods, services or works under the Public Contracts Regulations 2015. Its threshold is an anticipated contract value above £5 million a year, excluding VAT, averaged over the contract’s life. It allows exceptional cases where applying the policy would not be relevant or proportionate. This is a test for specified public purchasing, not a new payment rule for every UK business. [S1]

For bidding companies, the information request reaches beyond their government work. The questionnaire asks for payment figures for their immediate supply chain across public and private contracts, split into two previous six-month periods. The main standard is met in at least one reporting period, rather than necessarily throughout the whole year; the guidance also permits eligible businesses to submit newer, not-yet-reported data covering at least three months. The questions distinguish paying suppliers within agreed terms from paying 95% of invoices within 60 days. A business that has not paid every invoice within agreed terms must explain why to pass that part of the assessment. [S2]

The improvement route has specific requirements. For the 75%-to-below-95% band, the plan must identify the causes of late payment, set out corrective action, provide for regular progress reporting to the audit committee or equivalent, carry a director’s sign-off and be published on the bidder’s website. A shorter published summary is allowed. Intercompany payments can be removed from the calculation where relevant. New businesses trading for less than 12 months receive separate treatment: they pass the payment-performance question but still have to satisfy the applicable systems questions. Passing this question is not the same as winning the contract. [S2]

For a smaller supplier waiting for cash, the 60-day benchmark is not a replacement for a shorter payment promise. A separate question asks bidders on covered public-sector contracts to confirm systems for including 30-day payment terms in their supply-chain contracts and passing those terms down the chain. The selection process therefore examines both a business’s payment record and the terms its systems are meant to support. An acceptable overall percentage does not establish that a particular invoice was paid on time. [S2]

For successful bidders intending to use a supply chain, contracting authorities must verify the required payment evidence before award. The required material includes standard payment terms, procedures for resolving invoice disputes and details of late-payment interest paid in the past twelve months or becoming due during that period and still payable. Where such interest has arisen, the bidder must explain why and outline the remedial steps taken to prevent a repeat. [S2]

Source documents

  1. Procurement Policy Note 04/19: Taking account of a supplier’s approach to payment in the procurement of major contractshttps://assets.publishing.service.gov.uk/media/5d36bc25e5274a400ce4c1b4/PPN_0419_FOR_PUBLICATION.pdf
  2. Guidance on how to take account of a supplier’s approach to payment in the procurement of major contractshttps://assets.publishing.service.gov.uk/media/5d36bc3d40f0b604db9e7cba/Payment_Selection_Question_and_Guidance_-_FOR_PUBLICATION.pdf