Payment standards beefed up for government contracts

The Cabinet Office has confirmed that it will tighten the rules on its prompt payment standards to ensure that contractors pay their suppliers on time.

Under a new Policy Procurement Note set to come into force on 1 April 2021, contractors bidding for government contracts above £5m will need to show they pay 85% of invoices within 60 days and have a plan to reach 95% in the future. The 85% threshold will be “ratcheted up” over time until it reaches 95%, according to the Cabinet Office.

At present, companies can still pass the standard if they
have paid 75% of invoices within 60 days and have an action plan in place.

The Cabinet Office said new entrants to the market or
special purpose vehicles or joint ventures who do not have a payment history
record should not be disadvantaged in the procurement and will still be able to
explain their circumstances, although they will still be expected to show that
they can meet the requirements.

The new rules also apply to framework agreements and dynamic
purchasing systems but only where it is anticipated that the value of contracts
awarded under the framework are in excess of £5m per year, excluding VAT.

The Cabinet Office said it would also accept interim payment
data for the most recent three months or more from bidders who have moved up to
the 95% in 60 days standard but whose most recent six-monthly payment report is
due to be submitted after the tender deadline.

Bidders listed as suspended or removed from the Prompt Payment Code will not be excluded from bids. The Cabinet Office said the new rules should not be used as a “simple pass/fail” and that all bids must be assessed against the selection questions. This includes where the bidder does not meet the 95% threshold but does meet the 75% threshold taking into account an explanation as to why they are not meeting the required standard and their proposed action plan.

Guidance on the new Policy Procurement note can be found here along with frequently asked questions here.