Outsourcers who pay IT contractors late to lose state contracts

Large government IT contractors could be stripped of their lucrative contracts if they fail to pay their sub-contractors, such as self-employed technology consultants, on time.

Under new procurement proposals, outsourcing companies face being “excluded” from government contracts if small suppliers they engage aren’t paid in a “fair and effective way.”

The Federation of Small Businesses, which welcomed the package, confirmed to ContractorUK that single-person contractor companies were among the beneficiaries.

“The [proposed] reforms are essentially aimed at helping those suppliers, irrespective of size, lower down government supply chains,” said FSB spokesman David Moore-Crouch.

“So any business or self-employed [consultant] who may be part of one of these [stands to benefit]. This may include a…contract[or with] a services contract.”

Other government plans include allowing subcontractors to have greater access to buying authorities to report poor payment performance.

And outsourcers will be forced to provide the government with data showing how businesses in their supply chain, including small businesses, are benefiting from supplying to central government.

Announcing the proposals, Cabinet Office minister Oliver Dowden said: “We have set a challenging aspiration that 33% of procurement spend should be with small businesses by 2022 -- and are doing more than ever to break down barriers for smaller firms.”

Mike Cherry, FSB chairman, believes action from the government is overdue, following the revelation that Carillion was making suppliers wait 120 days to get their invoices paid.

“Episodes, like the Carillion collapse, bring into stark relief the need for stronger action that exclude businesses, which cannot demonstrate a fair and responsible approach to payments, from bidding for these contracts.”

He added: “This package of reforms should be followed by further measures including requiring all large companies to appoint a non-executive director on boards with a specific responsibility to report on behalf of suppliers including overseeing the firm’s statutory duty to report on payment practices.”

His comments follow the publication of figures for 2015/16 showing the government paid out £5.6billion directly to small businesses -- a figure that more than doubles to £12.2bn once sub-contracts with small firms are included.