Applying the pressure to change – by Philip King FCICM
12 April 2018
I attended a Round Table at Downing Street just before Easter hosted by Oliver Dowden, Cabinet Office Minister and chaired by Emma Jones, the Government’s Crown Representative for Small Business. Attendees were asked not to share what was announced at the meeting but the Cabinet Office has now launched the package of measures so the details are in the public domain. See here: https://www.gov.uk/government/news/new-changes-to-encourage-small-businesses-to-apply-for-government-contracts
One of the measures announced is a public consultation on the proposal to exclude suppliers from major government procurements if they cannot demonstrate fair and effective payment practices with their subcontractors. It will be interesting to see the detail of how this will be implemented in the consultation. I have long argued that it is ludicrous to award public sector contracts to organisations that fail to treat their suppliers responsibly. Until now, I’m led to believe there have been legal obstacles preventing the introduction of such a measure. If they can now be overcome then I’m delighted.
The impact of late payment on working capital and cashflow affects not just the supplier but impacts the supply chain top to bottom, and stifles the economy in many ways. Businesses are unable, or at least reluctant, to invest in research, people or resources and the knock-on effect of this is huge. Conversely, healthy cashflow and profitability boost investment and cause the economy to grow. If the reported £14bn tied up in late payments to SMEs was released, it could really make a difference.
The failure of Carillion, and the domino effect of sub-contractor insolvencies that we’re now seeing, are acting as a catalyst to intensify the drive to change our business culture and that is to be welcomed. The CICM is currently actively involved in discussions with government about what else can be done, the Call for Evidence announced by the Chancellor in his Spring statement will seek wider views, and the consultation announced by the Cabinet Office this week and referred to above are all positive steps.
There is no silver bullet to the late payment problem but the cumulative effect of a number of measure already in existence, such as the Prompt Payment Code, the Payment Practices Reporting Regulations, the Small Business Commissioner, the Cabinet Office Mystery Shopper service together with the initiatives outlined above can only move us further in the right direction.
We’re seeing increasing public awareness about gender pay inequality, modern slavery, corporate governance, plastic waste and many other things. Paying suppliers promptly and treating them responsibly is just as important. Those who are exemplars should stand up and be counted, and those who abuse and exploit their suppliers should feel the pressure to change.