Public sector contractors hit by 40-day wait to get paid

Payment terms for contractors in the public sector have been hiked from just five days to 33 days -- and potentially, in practice, even up to a cashflow-constraining 40 days.

Having already absorbed tax rises from IR35 reform, affected contractors told ContractorUK that the increase represents “another nail in the public sector contracting coffin.”

Lawyers are looking at whether the increase -- in force under the Alexander Mann Solutions (AMS) framework since June 18th, constitutes a breach of The Public Procurement Regulations (2015).

But almost regardless, affected contractors say the new payment terms undermine the intention of the government’s Prompt Payment Code, which recommends payment no later than 30 days.

Ironically, the body responsible for prompt payment policy -- the Crown Commercial Service, is the very party which awarded AMS the framework, under which it may take 40 days to get paid.

So even the enforcer of the government’s public sector prompt payment code (which AMS is not one of the voluntary signatories of), must pay AMS within five days.

But AMS is not one of the government’s Strategic Suppliers; they have not signed up to the Prompt Payment Code (PPC) -- and are under no obligation to adhere to its terms. Or its spirit.

'Request' compliance

The CCS must therefore comply with the code (so it must pay 80% of invoices from AMS by day six), yet CCS can only "request” AMS complies with it, indicates the code’s section three.

Free then, to set its own payment conditions to its suppliers, AMS has put in place a ‘self-billing’ process, and crucially this period runs for 10 days before the 30-day term applies.

This is how it could take 40 days (in practice) for contractors to get paid, and how, in effect, AMS can have the benefit of holding money it has been paid (promptly by CCS), for 40 days.  

It deals a particularly nasty blow to contractors because under the CL1 Framework, which AMS replaced on June 18th, strategic supplier Capita paid them within five days, “always.”

'Wholly against' the PPC's spirit

One affected contractor also said: “[Under CL1, I would] invoice on a Friday for that week, and [get] paid [by] the following Friday.

“I will continue to invoice on the Friday, but AMS won’t raise the self-billed invoice -- which would normally be issued by the agency when I bill them -- for approximately 10 days.

“And then [AMS will] take up to 30 days from then [to pay]. This [30-day period] might enable them to say they are… [a] prompt payment [agency], but it’s…wholly against the spirit of government policy.”

However, it is this additional 10-day wait at the front-end of the payment-related process that legal experts are assessing for compliance with the 2015 procurement rules.

At section 113, those rules state that except for contracts for health care, at a school or academy, undisputed invoices must be paid “within 30 days by contracting authorities, contractors and subcontractors.”

The rules also state that any sub-contract awarded by the contractor must contain provisions with the effect payment is made at the “end of a period of 30 days from the date on which the relevant invoices is regarded as valid”.

'No agreement, no work'

An affected project management contractor reflected: “AMS intend to go beyond the 30 days and they achieve this by enforcing ‘self-billing,’ enabling them to set the invoice date [at a later date].

“Self-billing is not something you can force on your suppliers; they must agree. But if they don’t agree they don’t get the work.”  

The Association of Independent Professionals and the Self-Employed said: “We can only hope the new Alexander Mann Solutions is a vastly improved contractual framework which addresses the many criticisms levied at CL1.”

“Government departments rely on contingent labour to get vital projects off the ground. The mechanism used for onboarding this flexible resource must allow roles to be filled efficiently, with minimal administrative barriers.”

'First contract' of its kind

A spokesman for AMS said: “Unfortunately we cannot disclose any confidential information regarding the specific contractual arrangements between AMS and the government or between AMS and participating staffing agencies.”

The spokesman, who admitted the framework was the agency’s first ever public sector contract added: “[We] have over twenty years’ experience in the private sector deploying programmes of this nature and an exemplary track record in meeting our contractual obligations.”