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FSB and MPs Push for Improved Payment Practices

reduce late payments

Both Stroud MP David Drew and the Federation of Small Businesses are urging the Government to bring in more stringent measures to reduce late payments.

Public Sector Supply Chains Bill

It was easy for a ten-minute rule bill presented in the House of Commons among the ‘meaningful vote’ furore to be overlooked, but there was cross-party support for The Public Sector Supply Chains (Project Bank Accounts) Bill presented by Labour MP for Oldham East and Saddleworth, Debbie Abrahams.

The bill calls for a ‘project bank account’ (PBA) system to be established and used for payment of all Government and public authority contracts, helping simplify payments to small businesses and ensuring they get paid on time. Under this system, all parties working on the contract would receive payment from the same pot of money, securely put aside specifically for that project.

Calls for payment practices to be improved have increased further since the collapse of Carillion, which left many small businesses unpaid.

Speaking in support of the bill, David Drew, MP for Stroud, said that it was only right that Government and public authorities should be setting payment standards.

“Late payment by large businesses is a massive issue across all business sectors leading to billions of pounds being owed to smaller companies for work that has been done,” he said.

Martin McTague, Federation of Small Businesses, policy and advocacy chairman, agreed that the Government should be setting an example and welcomed the use of project bank accounts for major public procurement contracts.

“At a stroke, this would prevent small suppliers going bust through no fault of their own, where a contractor goes bad – as happened with Carillion exactly one year ago.

“Projects that use taxpayers money should be spent to the standard taxpayers expect, not hoarded by prime contractors. MPs that support project bank accounts are standing up for small business.”

The bill will implement a recommendation in the report of the Public Accounts Committee on strategic suppliers (24 July 2018) that the Government must extend the use of PBAs.

FSB’s three point plan to improve payment practices

While welcoming the Bill, the FSB had already included greater use PBAs in their three point plan for eradicating poor payment practices, which they want the Government to adopt.

The three point plan suggests that:

  • The Small Business Commissioner should use his new powers to strengthen the Prompt Payment Code, including introducing tougher penalties for companies that break the rules and a ‘name and shame’ policy for culprits.
  • Non-Executive Directors responsible for payment practices and supplier relationships should be appointed to the boards of big companies.
  • Project Bank Accounts should be adopted in all major public sector contracts, with proper parliamentary accountability to ensure their use.

FSB national chairman Mike Cherry called the collapse of Carillion “a watershed moment that brutally exposed the shocking ways that some big businesses treat their suppliers.”

He said the company used its power to “squeeze smaller firms with late payments and unreasonable payment terms in an attempt to shore up its own precarious position,” and added that many of them had still received no payment for the work they had undertaken, or compensation of any sort afterwards.

“A year on, we have seen the Government be proactive in attempting to improve public procurement and stamp out poor payment practices.

“However, more must be done to ensure private, as well as public sector, supply chains pay on time.”

 Want to know more? You can watch the presentation of the bill and read  about the FSB’s three point plan.

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