Prompt Payment Code: the story behind the headlines

An interview with ECA’s Rob Driscoll

In January 2021 the government announced major reforms to the Prompt Payment Code to support small businesses. Headline changes included slashing the payment window to small businesses by half and making CEOs and Finance Officers directly responsible for any breaches.

Behind the scenes, ECA’s Director of Legal & Business, Rob Driscoll was one of the architects of reforms to ensure small businesses get paid on time. As a member of the Cabinet Office advisory panel on small and medium-sized enterprises and chair of the Payment Group, Rob’s legal and commercial expertise was vital to shaping the new legislation.

Why did you decide to tackle the Prompt Payment Code?

The dramatic collapse of construction firm Carillion in 2018 jeopardised the livelihoods of thousands of people. The survival of a myriad of small businesses was placed in the balance. Sub-contractors depended on payments from Carillion for work already delivered to end clients. In the wake of the collapse late payments became a matter of national concern.

Ever since, there has been a political focus on the 6 million-plus small- to medium-sized businesses (SMEs) and the value they add to the UK economy. This represents 99% of the business community. With the economy facing many challenges, it was an obvious step for Government to increase its protection to SMEs from payment abuse. I believe the changes will help level up the commercial playing field and aid the liquidity of small businesses. SMEs have substantially less options when it comes to commercial survival.

The dramatic collapse of construction firm Carillion in 2018 jeopardised the livelihoods of thousands of people

How does this affect the construction sector?

You can’t ‘Build, Build, Build’ if the supply isn’t there to meet demand. SMEs make up 99% of all businesses delivering projects across the UK. If these businesses fail, it has a significant impact on the construction industry. We all know the industry serves the existing built environment, as well new-build, and is therefore the key to wider economic growth.

When did you start work to change policy on PPC?

Five years ago, I set out several objectives for prompt payment. I shared these with government through ECA responses to consultations and face to face meetings with Ministers. The Cabinet Office advisory panel responded to the Prompt Payment Code consultation mid-2020. The response included three objectives which echoed our aims for the success of prompt payment:

• A visible brand for ethical supply chain management and trading.
• A standard against which commercial behaviour can be judged.
• A benchmark/tolerance level, above which corporate behaviour is worthy of further investment.

How did you get involved?

I’ve been a solicitor and mediator for nearly two decades. I’ve dealt with payment issues for 4000 contractors in UK construction. I was invited to join the Cabinet Office SME Advisory Panel in 2016. My expertise in payment performance improvement led to me becoming chair of the Payment Group.

During 2020 the pivotal role of SMEs in the economy became very clear

Who do you work with?

I work with a diverse and phenomenal range of entrepreneurs on the Payment Group and wider SME Panel. They come from many sectors; IT, recruitment, talent retention, and defence. The common denominator is their success as SMEs serving the public sector. There is some tough debate and robust reality checks that occur before conclusions and recommendations can be reached which add private sector value to public sector thinking.

What were the obstacles – why did it take so long?

Given the large number of Ministerial changes in recent years, it wasn’t that long! It is important to validate new policy through a proper consultation process. Changes must be fully tested and checked for unintended consequences.

Moving responsibility for the Prompt Payment Code to the Small Business Commissioner and strengthening the compliance system was gradual. This shift has seen a transformational change in payment behaviour, most notably in the construction industry where some big brands have been suspended until they have improved their performance and proven they meet the standards expected under the Code.

What was the turning point?

That’s a very political question. In my opinion the dual storm of the pandemic and Brexit crystallised the need to protect SMEs and preserve their liquidity. Government learned their lesson from Carillion, single supplier outsourcing made the public sector vulnerable. During 2020 the pivotal role of SMEs in the economy became very clear.

We must close opportunities for cheating before they undermine what we’re trying to achieve

Why the wait until July?

Simple. It takes time for large businesses to prepare and implement changes to their ways of operating and they must be given that time. Nobody wants big businesses to fail either.

What difference will it make to SMEs?

Small businesses will get paid within 30 days. These businesses live ‘hand to mouth’ and have the weakest bargaining power. They often have no spare cash to chase debts, so there is little point in asking for stiffer deterrents for late payment.

What’s next on your agenda?

To maintain the ethical standards set by the new Prompt Payment Code we need good data. Next on the list is to evaluate reports submitted to the Department for Business, Energy and Industrial Strategy. This will prevent unscrupulous businesses ‘gaming the system’ and claiming credit for payment standards they fail to reach.

As the prompt payment landscape gradually toughens, I’ve been asked if you can cheat the system – the answer is ‘yes’. We must close opportunities for cheating before they undermine what we’re trying to achieve.

This article was originally published on the ECA Blog on January 29 2021.

--ECA

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