Prompt payment code

1 Introduction to the Prompt Payment Code (PPC)
2 Replacing PPC with the new Fair Payment Code in 2024
3 Advisory Board of the original PPC
4 Background and key events
- 4.1 ISG
- 4.2 Carillion
5 Background
6 Related articles on Designing Buildings
7 External references

[edit] Introduction to the Prompt Payment Code (PPC)

The Prompt Payment Code (PPC) was created by the UK government in 2008 in response to a call from businesses for a change in payment culture. It established a set of principles for businesses when dealing with and paying their suppliers that commit them to paying on time and fairly. The Code is administered by the Institute of Credit Management (ICM) on behalf of the Department for Business Innovation & Skills (BIS).

Code signatories undertake to:

1: Pay suppliers on time:

Within the terms agreed at the outset of the contract.
Without attempting to change payment terms retrospectively.
Without changing practice on length of payment for smaller companies on unreasonable grounds.

2: Give clear guidance to suppliers:

Providing suppliers with clear and easily accessible guidance on payment procedures.
Ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers.
Advising them promptly if there is any reason why an invoice will not be paid to the agreed terms.

3: Encourage good practice:

By requesting that lead suppliers encourage adoption of the code throughout their own supply chains.

More than 1,700 businesses and public authorities have committed to the Code. Approved organisations can use the PPC logo on their documentation and website.

[edit] Replacing PPC with the new Fair Payment Code in 2024

In September 2024 the UK government announced it was to crack down on late payments with a package of newmeasures aimed at tackling scourge of late payments in support of small businesses. One element of this included replacement of the Prompt Payment Code, with a new Fair Payment Code, refreshing the rules on company reporting, launched in Autumn 2024, and a major consultation on tackling late payments.

The new Fair Payment Code is open to signatories from autumn 2024 and being launched by the Small Business Commissioner, with the support of the Department of Business and Trade. It seeks to "to address issues raised by stakeholders with the Prompt Payment Code and aims to be more ambitious, aspirational and robust".

The new Fair Payment Code will include a set of fair payment principles that companies are required to sign up to, as well as three award categories whihc will be as follows:

Gold – For companies paying 95% of their suppliers within 30 days
Silver – For companies paying 95% of their small business suppliers within 30 days and all other suppliers within 60 days.
Bronze – For companies paying 95% of suppliers within 60 days.

[edit] Advisory Board of the original PPC

Responses to a 2013 BIS discussion paper, Building a Responsible Payment Culture suggested a need to make the Code ‘more robust and active’, and so in in October 2014, BIS announced that a new Prompt Payment Advisory Board would be created tasked with strengthening the Code:

Improving monitoring and enforcement.
Promoting awareness.
Providing advice on whether there is a need to update the Code.

The Advisory Board members are:

Aviva.
Barclays.
Bury Council.
City of London Corporation.
Confederation of British Industries.
Forum of Private Business.
Fujitsu.
Greggs.
Institute of Directors.
Skanska.
Stort Chemicals Ltd.

The Board was tasked with implementing proposals in Spring 2015 (ref. Government and industry join together to tackle late payment 28 October 2014). On 25 March 2015, a timeline was published to implement changes to the code and a new prompt payment code website went live.

Philip King, CEO of the Institute of Credit Management and co-chair of the Prompt Payment Code Advisory Board said:

“Having hosted and administered the Prompt Payment Code for BIS since its launch, we have seen the Code grow in stature, prominence and membership. The timing is now right for the Code to be further strengthened and developed as a key tool in helping to tackle the scourge of late payment and driving a change in business culture from top to bottom.”

[edit] Background and key events

Late payment of invoices is a problem for most suppliers of goods and services. In the construction industry, a survey of 250 small construction companies in November 2012 found that 97% felt unfairly treated by main contractors, and just 5% of all work was paid for within 30 days. Other attempts to tackle this problem have included; the Housing Grants, Construction and Regeneration Act, the Construction Supply Chain Payment Charter, and the introduction of project bank accounts. It remains to be seen whether the involvement of Skanska in the Prompt Payment Advisory Board will make a difference to the industry.

[edit] ISG

In mid 2024 ISG was first report as being in significant trouble trading. By 8 October, 2024 the Construction Enquirer reported that 'In letters to trade creditors, administrator EY confirmed that no further work would be carried out during the administration on existing contracts, including projects for Construction, Fit Out and Engineering services businesses. It said: “The companies are being wound down under our supervision while we conduct an investigation of their financial affairs....At present, it is not anticipated that there will be any funds available for a distribution to creditors.”

During this time ECA, CIAT and others published support routes for employees, clients and contractors in relation to the collapose of the construction industry giant. The CLC also announced its endorsement of the Build UK Document to Support Organisations in the ISG Supply Chain. Its said "Following the collapse of ISG last month, Build UK, with the support of Wedlake Bell LLP, has published a series of Frequently Asked Questions (FAQs) to support organisations in the supply chain that may be affected. See article ISG administration, October support update.

Significantly in Novermebr if the prior year an ISG spokesperson said: “Some six to eight weeks ago, we were alerted to unsubstantiated, wholly inaccurate and false claims that were circulating about our business. As you would expect, we actively reached out to our stakeholders with facts and truth.” 10 months later the firm went from dismissing sepculation to the brink of administration, as reported by Buildnig Design in 'Timeline: How ISG went from ‘wholly inaccurate’ claims about its financial health to ‘ISG has filed for administration’

[edit] Carillion

With the collapse and liquidation of Carillion in January 2018, a renewed focus was placed on the payment terms that they had been operating with. Carillion had been a signatory of the Prompt Payment Code since 2013, stating that public sector payment terms cannot exceed 30 days on receipt of invoice.

Carillion caused controversy later in the same year when they introduced a reverse factoring Early Payment Facility while extending payment terms up to 120 days. This Facility allowed subcontractors to receive payment earlier than the 120 days in exchange for a fee.

At the time, there were calls from the industry for the government to exclude Carillion from any further PFI contracts. It is now thought that Carillion's 'aggressive' attitude towards supplier payments was one of the 'red flags' that encouraged hedge fund managers to start betting against the company's shares.

Subcontractors now believe that more than £350m owed to them via the Facility will never be paid.

The Federation of Small Business described the code as 'toothless' and called for the government to; '...step in immediately to strengthen the PPC by making it mandatory for all FTSE 350 businesses and introducing a tough penalty regime for those companies flaunting the rules.'

[edit] Background

In November 2018, the government announced a new prompt payment initiative to ensure all suppliers and subcontractors on public projects/services are paid on time. If companies fail to demonstrate prompt payment to suppliers, they could be prevented from being awarded government contracts.

The initiative will come into force in Autumn 2019, to ensure that the government's business is limited to companies who comply with prompt payment practices.

In addition, the government plans to update Mystery Shopper, the free and anonymous complaints service, now called the Public Procurement Review Service. This will help suppliers raise complaints and concerns about procurements or the conduct of contracting authorities.

(Ref. https://www.gov.uk/government/news/crack-down-on-suppliers-who-dont-pay-on-time)

In April 2019, six major contractors were suspended from the Code for failing to pay suppliers on time, and John Sisk & Son were removed altogether. Ref https://www.cicm.com/quarterly-update-17-businesses-removed-suspended-prompt-payment-code-failing-pay-suppliers-time/

In July 2019, CICM anounced that eighteen companies had been suspended from the Prompt Payment Code for failing to pay suppliers on time. Costain was reinstated when it agreed to move all its suppliers onto payment terms of 45 days or less, increase the frequency of payments and improve processes.

In November 2019, Kier, Seddon Construction and McNicholas Construction Services were suspended for failing to pay 95% of their supplier invoices within 60 days.

In October 2020, the Cabinet Office announced that Policy Procurement Note PPN 07/20 would come into force on 1 April 2021, requiring that contractors bidding for government contracts above £5m must show they pay 85% of invoices within 60 days and have a plan to reach 95% in the future. The 85% threshold will be “ratcheted up” over time until it reaches 95%. Ref https://www.constructionmanagermagazine.com/payment-standards-beefed-up-for-government-contracts/

On 19 January 2021, the government announced reforms to the Prompt Payment Code to encourage companies to stand by smaller suppliers. Companies that have signed up to the Prompt Payment Code will be obliged to pay small businesses within 30 days - half the time outlined in the current Code. Finance Directors or CEOs will be required to take personal responsibility by signing the Code, acknowledging that suppliers can charge interest on late invoices under the Code and that breaches will be investigated. Ref https://www.gov.uk/government/news/government-tackles-late-payments-to-small-firms-to-protect-jobs