Supply chain · 9 December 2016

Majority of local councils fail to ensure prompt supply chain payment

local councils
Local councils are legally required to ensure suppliers are paid within 30 days

The UK’s late payment crisis has taken another twist, as an investigation has revealed that almost six in ten local authorities are failing to ensure suppliers are paid within the legally required time frame.

A Freedom of Information (FOI) request submitted by the Electrical Contractors’ Association (ECA), a members organisation representing the interests of electrical companies, found that a majority of local councils were in breach of the Public Contracts Regulations 2015 – the directive that sets out the payment standards by which public bodies are expected to abide by.

The legal obligations dictate that supply chain payments must be made within 30 days, with all contracts awarded by a council required to contain “suitable provisions to impose” this time frame.

Some 59 per cent of all local councils said that no monitoring would be undertaken to ensure this limit was being met.

Another concerning statistic was uncovered in the FOI request. Over a quarter of all local authorities “have not and will not” be building in contractual requirements to supply chain processes to ensure prompt payment to businesses.

Late payments continue to damage survival rates of small companies in Britain, and a new report from the Federation of Small Businesses (FSB) revealed that payment disputes cost small firms in England and Wales £11.6bn every year.

Commenting on the ECA’s findings, Paul Reeve, director of business and external affairs at the organisation, spoke of his disappointment at the failure of the public sector to set a positive example to private companies, and suggested that the government “impose penalties” on local councils failing to comply with legal duties.

“Our survey shows that many local authorities continue to ignore the legal requirements for prompt public sector payment along the supply chain. It’s particularly disappointing when one considers that doing so would support small businesses in local areas.

“We have seen next to no improvement among many local councils since the ECA conducted a similar investigation last year. The government has issued regulations to help smaller businesses, but they are being viewed as optional by far too many councils, and too many are opting out,” Reeve said in a statement.

The investigation depicts a negative picture of the way public bodies consider small businesses within supply chains, and undermines the efforts of the UK government to build a stronger relationship with small enterprise and the public sector.

For example, the government has taken measures to boost public procurement opportunities for small firms, with a target to spend £1 in every £3 with small businesses by 2020.

And in November, an “SME Panel” was created within the Crown Commercial Service – the public procurement arm of the Cabinet Office – comprised of small business representatives, aiming to give ambitious UK entrepreneurs greater opportunities to win government contracts.

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Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.