Risk is why contractors are now rejecting the AMS Framework

Aside to much poorer payment terms, public sector contractors under the Alexander Mann Solutions (AMS) Framework are also now carrying a significant increase in commercial-business risk, writes an affected contractor with 20 years’ professional experience.  

These contractors have been fuming (and still are fuming) over the significantly reduced payment terms ‘negotiated’ by Crown Commercial Service (CCS), under which they may not now be paid for completed work for up to 85 days after the client confirms goods receipt:

To recap:

10 days: Contracted period AMS to raise self-billing

30 days: Maximum contracted period AMS to pay the recruitment agent the agreed amount

30 days: Maximum contracted period agent can pay the contractor

-----------

70 days

+

15 days: Late payment tendency (As previously outlined in an extract from an independent financial report, AMS has been tracking at paying between +12 and +15 days BEYOND their contracted payment terms).

-----------

TOTAL: 85 days

So how has AMS performed, in practice?

The CCS have informally advised previously that AMS are offering to reduce the payment term to all agencies from 40 days (10 days for self-billing + first 30-day segment, above) to 25 days (10 days for self-billing + half of the first 30-day segment, above) for a “short period.”

The 1st payment under this ‘interim proposal’ therefore was due for payment on Friday July 13th. But there are reports online by an agent that they received only the ‘payment advice’ on July 13th, yet the cleared funds they require to pay the contractors were only received in their bank account on July 16th. So three days later than proposed. Let’s just hope that Alexander Mann Solutions are NOT starting as they mean to go on.

Being paid V getting the money

Since a few of us contractors have spoken out about the AMS Framework, it has been helpfully pointed out on ContractorUK’s Forum and the likes of, that being paid and getting the money into your bank account is NOT one and the same thing if you’re a contractor.

From my two decades' experience of procurement, the public sector and contracting more generally, I can assert with confidence that contractors only ever consider themselves as truly paid once a new set of figures increases their bank account balance, so their children can be fed and the mortgage company can be kept from the door.

What does this mean for Contractor/PSC business risk?

Even if you’re a PSC paid under the supposedly best-case-scenario ‘interim proposal’ (so three days later than your agent should be paid), the implications for a one-person supplier, who almost always lacks a financial buffer, are almost always going to be serious. This was flagged up only the other day by an online accounting platform for single-person consultancies. And if anyone gets to see the effects of late payment, first-hand, it’s probably them!

Back to the AMS Framework. On the basis of what’s happened so far, your children will go hungry for longer and the mortgage company could be on your doorstep. There seems to be no acknowledgement of these very real, human consequences by the CCS and AMS, for the people governed by their framework, who work via them professionally.

When tendering and letting this new supply framework (won by AMS), the CCS does appear to have fundamentally misunderstood the mechanics of how this end-to-end supply chain works. Failing to ensure the Contractor/PSC at the end of the supply chain is paid in full within 30 days of confirmed goods receipt by the customer, and letting a framework agreement with the new supplier (AMS) who then does not pay to the contractual terms, has effectively sold this vital Contractor/PSC supply-base down the river.

Unhappy contractors now rejecting AMS

It’s been disappointing that not one, but two separate pieces on this topic on ContractorUK have not prompted the CCS or AMS to come out of the shadows. The responses from them which I’ve seen don’t seem to deal with the specific issue at hand -- their prohibitive payment terms and the detrimental impact these terms exert on both the cashflow and business/commercial risk if you’re a PSC.

Just consider this risk a bit more. Previously under Capita’s CL1 Framework, contractors were paid within just seven days of a confirmed goods receipt. This gave the contractor a seven-day commercial risk exposure should the vendor get into financial difficulties (as happened with Carillion).

With this new contract facilitating payment to the contractor to take between 40 and 85 days, this increase the commercial risk exposure to the contractor by between +600% and +1,200%. It’s little wonder, then, that a leading umbrella company has quietly let on to ContractorUK that affected contractors are looking for new assignments because “they are not happy to agree to the terms” of the AMS Framework.

What does this all mean for the contractor?

In a sector where costs such as travel essentials, business expenditure, insurance fees and tax rates are all rising, my contractor colleagues and I are all more than a little disappointed that the government has let a contract via the CCS to AMS, where still more business costs have been created (which didn’t exist under the previous CL1 contract with Capita), and then passed those down the supply chain.

Of those contractors which I’ve spoken with who say they will continue to provide services in the government sector, they suggest a need to take on short term loans or extend credit lines with their banks to fund the extended payment period. Furthermore, to bridge the commercial risk gap, they are taking advice from their accounting/financial/tax advisers and where appropriate, trade bodies, regarding taking out credit insurances against invoiced amounts.

The future?

Government departments rely heavily on a pool of independent, freelance consultants to provide skilled resource. Even before the AMS Framework came into force in June, contractors were already considering whether they will remain in the public sector due to the contentious, draconian and taxing IR35 reforms. For many who were standing at the cliff-edge, the AMS Framework will possibly come to represent the nudge that pushed them out of the sector all together.

The result? Potentially a skills and resources-gap inside taxpayer-funded organisations. Furthermore for these already cash-strapped organisations, funding further credit lines and buying credit insurance are all costs that will be passed onto them via the day rates us contractors will be more than just mentioning come renewal time.