Most major suppliers to the public sector are at risk of losing their share of the business if they do not improve pay their own suppliers more quickly, according to a new report.
Research company Tussell has published an analysis of the implications of a new Government policy, set to come into force in September, requiring strategic suppliers to pay 95% of their invoices within 60 days. This is aimed at strengthening the position of SMEs, which are often sub-contracted by larger firms but are prone to suffer from poor payment practices.
While it does not focus specifically on IT suppliers it is relevant to many which fall into the strategic supplier category.
The report quotes Martin Traynor, SME Crown representative, as saying: “We expect all companies to meet the 60-day target and, if they don’t, they may not be considered for public sector contracts.”
It says that only 10% of the in-scope contracts awarded by the public sector since 2015 went to suppliers with good payment practices, and that four-fifths of suppliers fell short of the targets. Meanwhile £90 billion of business has gone to suppliers with poor payment practices.
While not naming any companies, it says that if implemented immediately and to the letter the policy would have a “devastating impact” on the outsourcing sector, freezing out those four-fifths of suppliers.
“This would be counterproductive,” it says. “However, there are strategies the Government could pursue to ensure the policy has the greatest immediate impact.”
It recommends that the Government give suppliers time to reform, using all the data at its disposal to focus attention on areas where it would generate the highest return.
It is notable that, when announcing the policy in April, the Cabinet Office Minister for Implementation Oliver Dowden said contractors “could” be prevented from winning public contracts.
The move was accompanied by an announcement that the Government has an ambition to 90% of undisputed invoices from SMEs within five days, and that it will require strategic suppliers to advertise supply chain opportunities worth more than £5 million on the Contracts Finder website.