PPN 08/21 Prompt Payment: what does it mean for suppliers?

In October 2021 the government published the latest PPN: Procurement Policy Note 08/21 – Taking account of a bidder's approach to payment in the procurement of major government contracts.

Over the past few years there has been a strong focus from the government to ensure larger suppliers are paying their supply chain on time, supporting SMEs within the market. This has meant the introduction of penalties for those firms not paying their invoices promptly (within 60 days). PPN 08/21 builds upon this, providing the latest guidance for both buyers and suppliers in 2022.

What does PPN 08/21 include?

From April 2022, firms must adhere to PPN 08/21, replacing the previous thresholds for the time in which supplier invoices must be paid. This is in a bid to support the government’s mission that ‘being paid promptly for work done ensures businesses have a healthy cash flow’.

The main difference is the increase to the thresholds that companies must meet to demonstrate prompt payments: when bidding for contracts worth over £5million per year you must be paying 95% of all your invoices in 60 days. Ultimately, if you do not meet the government thresholds, a contracting authority must exclude your organisation from the bidding process, and you will not be awarded a public sector contract.

The 2022 update also states new thresholds for the ‘leeway’. If you have not met the standard requirement of paying 95% of all invoices within 60 days, you can still pass the assessment if you have paid ‘between 90% and 95% of all [your] invoices within 60 days in at least one of the previous two reporting periods’ and you provide an action plan for improvement. This is an increase again from the 85%–95% leeway in the previous years’ PPNs.

The update does not apply to NHS trusts or to contracting authorities whose functions are devolved or mainly devolved functions of Scotland, Wales or Northern Ireland.

The PPN does apply to frameworks and dynamic purchasing systems, only where it is anticipated that the individual value of any contract to be awarded is greater than £5 million per annum.

What should suppliers be aware of?

The key update from PPN 07/20 is the increase to the threshold that bidders must meet to demonstrate they have effective payment systems in place to ensure the reliability of their supply chains. If you regularly bid for contracts over £5 million in value per annum, you must ensure that you are paying 95% of your supplier invoices within the stated 60 days – or meet the allowed ‘leeway’ mentioned above. As this has increased from the last PPN, it may mean that some suppliers need to improve and currently might not meet the thresholds.

This is in place as of April 2022, so it does provide organisations time to reflect on existing practices and make improvements to payment systems if necessary.

The Cabinet Office provides very detailed guidance on how contracting authorities are to measure a bidder’s approach to payments, which will no doubt be a focus in tender submissions and selection criteria. The guidance lists what is considered a ‘pass’ and what will be a ‘fail’ under the new 2022 criteria, so you can double-check where your company stands.

Even if you are a smaller provider, it is good practice to be aware of the prompt payment requirements and adhere to the same guidelines. This is also a positive aspect for other companies that you might be doing business with, and to adhere to the government’s aim of ensuring businesses have a healthy cash flow is a positive step for all.

For subcontractors working with larger firms or as part of a framework agreement, it should be beneficial as they can be the ones in the supply chain that end up waiting lengthy periods for invoices to be paid – and the new PPN will rectify this for the full supply chain.

Tender writing support

The latest PPN is just one of the vital thresholds and requirements organisations must consider when bidding for contracts and working with the public sector. For tender writing support, contact our team for a free consultation call today.

 

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