Suppliers will be excluded from major government contracts if they cannot demonstrate fair and effective payment practices with their sub-contractors, under a package of tough new measures announced by the U.K. government. The measures are designed to level the playing field for small businesses bidding on government contracts.

Other plans include allowing sub-contractors to have greater access to buying authorities to report poor payment performance, signalling the government’s commitment to improving payment practice in the United Kingdom. Further requirements mean suppliers will have to advertise sub-contracting opportunities through the Contracts Finder website, and to provide the government with data showing how businesses in their supply chain, including small businesses, are benefiting from supplying to central government.

On 10 April 2018, the Prime Minister wrote to members of her Cabinet to nominate a “small business champion” minister in each department to ensure that small- and medium-sized enterprises (SMEs) are given a fair opportunity. This package of measures is designed to ensure that more businesses, including smaller firms, will be able to supply goods and services to the public sector, while also making public procurement more transparent.

According to recent figures, the U.K. government spent £5.6 billion directly with small businesses. Taking into account sub-contracts to small businesses from large suppliers, total spend rose to £12.2 billion.

“This government is listening to the business community and is committed to levelling the playing field for smaller suppliers to win work in the public sector,” Cabinet Office Minister Oliver Dowden said in a statement. “We have set a challenging aspiration that 33 percent of procurement spend should be with small businesses by 2022—and are doing more than ever to break down barriers for smaller firms.”

Continued Dowden: “Small businesses are the backbone of the U.K. economy and play a key role in helping us to build a strong, viable private sector that delivers value for taxpayers and jobs for millions all over the United Kingdom.”

Industry response

Dowden discussed these plans during a roundtable event in March, attended by the Federation of Small Businesses (FSB), the Confederation of British Industry, and industry bodies representing social enterprises, entrepreneurs, and Chambers of Commerce. This group of organisations represents more than two million small businesses across the United Kingdom.

Each year, the U.K. public sector spends over £200 billion on goods and services from third parties. “As such a large and prominent customer in the economy, the government has a pivotal role to play in demonstrating what it is to be a good client,” Mike Cherry, national chairman of the FSB, said in a statement.

Cherry praised the government’s new package boosting SME procurement, which will clamp down on poor payment practice throughout public procurement supply chains. “Companies who pay late should not be rewarded with public-sector contracts,” he said. “We need a robust public procurement process that holds larger companies to account for their payment practices.”

Research conducted by Dun & Bradstreet—a firm that provides commercial data, analytics, and insights for business—found that SMEs in the United Kingdom are owed an average of £63,881 in late payments at any one time. This can lead to cash flow problems, stifle growth, and in extreme cases lead to business failure. “The government’s announcement is a positive step in addressing what is a tough and long-standing issue for the U.K.’s small businesses,” says Ed Thorne, U.K. managing director at Dun & Bradstreet.

“Government measures are an important part of the solution, but SMEs can also take steps to protect themselves and mitigate the impact of late payments on their business,” Thorne adds. “At present, one-third of small businesses don’t credit check any customers. Small businesses can use credit information to independently assess the financial and payment risk of customers prior to agreeing credit terms, to help identify the worst performers.”