Cabinet Office announces plan to tackle late payments with procurement rules tweak

The government is proposing to amend the Procurement Act to require contracting authorities to exclude late payers from bidding for major contracts.

Under plans set out in an open consultation published on Thursday by the Cabinet Office, suppliers would be required to demonstrate that they pay invoices within an average of 60 days in order to bid on public contracts worth more than £5m per year.

If they do not exclude suppliers who fail this test they will have to “provide an explanation”.

According to the document, SMEs are on average owed £22,000 a year, with late payment leading to 50,000 business closures per year.

Current government policy requires central government departments to ensure their suppliers demonstrate that they pay their supply chain on time as a condition of bidding for major contracts. 

The Procurement Act 2023 also implies 30-day payment terms into future contracts and subcontracts when they are part of the public sector supply chain. 

The new proposals would shift the burden of proof onto the supplier and, unlike the terms implied by the Act, would take account of every invoice a business has paid, whether or not it forms part of a public supply chain. 

The proposals set out in the consultation build on changes introduced in the Act and will support the implementation of the government’s National Procurement Policy Statement. 

The UK spends £385bn on goods, works and services annually and the government wants to use this leverage to improve outcomes for businesses.

“These reforms aim to go further to strengthen the UK’s economic resilience and support British businesses,” said Georgia Gould, parliamentary secretary for the Cabinet Office:

“By strategically leveraging our annual public procurement spend, we can protect our supply chains, open up new opportunities for local small businesses and social enterprises, create good local jobs, and deliver greater value for taxpayers.

“Through these reforms, public procurement will truly be in the service of the people — empowering British businesses, supporting social enterprise, safeguarding our national interests, and tackling today’s challenges while building a prosperous and fair future for all.”