The most recent Procurement Policy Note (PPN) issued by the Cabinet Office addresses the ‘prompt, fair and effective payment in all businesses’, aiming to increase cash flow and simplify supply chain payment processes.
PPN 10/23 is set to update and replace guidance and regulations from PPN 08/21, coming into force from 1 April 2024. Changes will be applied to all tender exercises where the buyer is a central government department, approved executive agency (e.g. Crown Commercial Services for the Cabinet Office) or a non-departmental government body – for instance, NHS England.
What is changing in public sector procurement
PPN 10/23 will ultimately bring changes to the Standard Selection Questionnaire (SQ), with previous updates earlier this year introducing new mandatory responses around health and safety arrangements, modern slavery practices, carbon reduction and data protection/GDPR. As with typical SQ responses, these are evaluated on a pass/fail basis, and comprise confirmation of the following:
- Intention to use a supply chain or deliver any call-offs under a framework agreement. If the bidder answers ‘no’, the rest of the section does not require completion.
- Prompt and effective systems in place to pay supply chain partners in a prompt and effective manner, e.g. within agreed contractual terms.
- Procedures for resolving disputed invoices promptly and effectively – for instance, disputes over the scope of a works order.
- Processes to include (as a minimum) 30-day payment terms across all supply chain contracts, in accordance with Public Contracts Regulations 2015, Regulation 113.
The most critical element is the fifth section which requires you to outline the percentage of invoices paid to immediate supply chain partners within 30 days, 31–60 days, 61 days or more, or not paid by the last payment date under agreed contract terms. Furthermore, there is a requirement to provide the average number of days taken to pay an invoice to all in your immediate supply chain. To receive a passing mark, the threshold for average number of days must be no more than 55 days.
Reasons behind PPN 10/23 – guaranteeing effective cash flow
The changes initiated by PPN 10/23 are part of wider governmental efforts to ensure effective cash flow for SMEs looking to do business with public sector buyers. In 2022, small- and medium-sized businesses were awaiting an average of £22,000 in late payments from their supply chain, restricting already limited resources.
The introduction of the Prompt Payment Code (PPC) further strengthened measures to improve payment culture in the UK. Introduced by the Small Business Commissioner, all public sector contracting authorities must adhere to PPC terms, which include paying 95% of invoices within 60 days and paying 95% of invoices to SMEs within 30 days. Any private sector signatories, including small- and medium-sized businesses, must report annually on their performance to retain official PPC status. The changes contained within PPN 10/23 will further support an improved payment culture across the entire public sector supply chain, ensuring public sector buyers have done their due diligence regarding payment during the tender process.
PPN 10/23 will also prepare bidders for relevant clauses in the Procurement Act 2023, due to come into force in October 2024. This includes Section 68 of the Act, requiring all contracting authorities to pay undisputed invoices within 30 days. Furthermore, Section 69 requires all authorities to publish a Payments Compliance Notice on a central, easily-accessible platform, providing documentation that obligations from Section 68 have been fulfilled.
Why is this important for bidder organisations?
From the agreed 1 April 2024 ‘go-live’ date, the changes outlined in PPN 10/23 will apply to all procurement exercises with an anticipated contract value above £5 million per annum, in addition to framework agreements or dynamic purchasing systems where successful bidders will be awarded the same amount per annum.
As such, it is critical for prospective tenderers to ensure a fully auditable process that allows them to demonstrate compliance with the minimum thresholds. If you are bidding for an eligible contract with a value exceeding £5 million, the buyer will expect you to demonstrate compliance for the past two six-monthly reporting periods. Failure to align with the stipulated thresholds will mean automatic disqualification at the selection questionnaire stage – leading to a reduction in potential clients.
Finally, the government’s Autumn Statement has indicated the minimum 55-day average for settling all undisputed invoices is likely to be shortened in the future – tightening to 45 days in April 2025 and 30 days at an unspecified time in the future. This underscores the importance of ensuring your organisational processes for managing invoices are robust, transparent and well organised.
Helping your organisation adapt to changes to the tender process
Since our formation in 2009, Executive Compass have provided clients with guidance and consultative advice on regulatory and statutory changes to the public procurement process. This forms part of our wider bid management support, included as part of our bid writing, bid review and training services.
If you would like to find out more about the range of bid and tender writing services we provide, our sales and marketing team are available for a free, no-obligation chat or bespoke quotation via 0800 612 5563 or email firstname.lastname@example.org.
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Posted on 09-02-2024