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Whitehall fails its own test, rewarding outsourcers who pay SMEs late

Outsourcers who fail to pay small business on time could be barred from Government contracts. But Whitehall has form when it comes to ignoring its own test, according to research

 E-Procurement - Wording on Watch. 3D Illustration.

Ticking over: the Government is the UK's biggest single customer in a sector worth £50bn a year

Whitehall has repeatedly flunked its own test for dropping large government outsourcers who fail to pay small business subcontractors on time.

Under plans coming into force in September, outsourcers which fail to pay 95pc of subcontractors within 60 days risk being frozen out of public-sector procurement, which is worth £60bn a year. The rules will apply to all Government contracts worth more than £5m. As of now, four-fifths of Government outsources would be excluded from bidding on contracts.

However, according to research by Tussell, a data provider on UK government expenditure, Whitehall has rewarded large outsourcers over 200 contracts, despite them have already failed the 95pc threshold. The combined contracts were worth £90bn.

The Ministry of Defence has been the worst culprit; out of 154 contracts worth more than £5m awarded since 2015, 60 have gone to suppliers which did not meet the 95pc threshold.

The Department for Transport also had a poor record: it gave big contracts to 36 suppliers which did not meet the threshold, from a total of 75.

The Department for Work and Pensions has awarded 25 contracts to late-paying large outsourcers since 2015.

Late payments force 50,000 small businesses to shut every year.

Mental health problems

Worrying about when cash will come through is one of the leading causes of mental health problems among entrepreneurs. A report last year by the Prompt Payment Directory found that 48pc of construction company owners had experienced panic attacks, anxiety or depression as a result of late payments.

Government outsourcers are seen as the biggest culprits because they hang on to public funds earmarked for paying subcontractors to improve their own cash flow.

Mike Cherry, national chairman of the small business lobbyist the FSB, told The Sunday Times: “Late payment is bad for business, the economy, public services and the taxpayer. This behaviour has to stop.”

However, one cause for optimism is that Oliver Dowden, the Cabinet Office minister driving this procurement late-payment reform, was appointed Paymaster General in last week’s Government reshuffle.

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