Most councils flout prompt payment law

Six out of 10 local authorities are ignoring a legal requirement to ensure prompt payment in their supply chains.

An investigation by the Electrical Contractors’ Association (ECA) has discovered that 59% of English local authorities were breaching the Public Contracts Regulations 2015, to the detriment of many small businesses struggling with cashflow issues.

The ECA issued a Freedom of Information request in September to 320 local councils in England about their payment practices to establish the extent of illegal purchasing behaviour. Of the 137 that responded, 52% of councils have not yet built in a contractual requirement for payment to flow thorough the supply chain within 30 days, as required by law. A further 7% were unable to say whether or not they did this.

28% said that they ‘have not and will not’ be building in a contractual requirement to ensure the supply chain is paid on time.

Only 9% monitor and report on whether their supply chain is being paid within 30 days, in line with the law and the spirit of the law.

59% said that they have no intention of monitoring supply chain payment.

The ECA undertook a similar exercise in 2015. One year on, the number of councils building in supply chain contractual requirements for 30 day payment has risen from 28% to 40% and a further 25% said they intend to insert contractual requirements eventually.

However, there was a year-on-year increase from 21% to 28% in the number of councils stating that they will never build in contractual requirements for prompt payment – in direct contravention of the law. Statutory guidance on the Public Contracts Regulations 2015 states that “any subcontract awarded” by a local authority “contains suitable provisions to impose” the payment of invoices within 30 days.

ECA director of business and external affairs Paul Reeve said: “Our survey shows that many local authorities continue to ignore the legal requirements for prompt public sector payment along the supply chain. It’s particularly disappointing when one considers that doing so would support SMEs in their local areas.

“We have seen next to no improvement among many local councils since the ECA conducted a similar investigation last year. The government has issued regulations to help smaller businesses, but they are being viewed as optional by far too many councils, and too many are opting out.

“What we need is for government to approach those who flout the law and to make it harder for them not to comply, than to comply. The government could impose penalties to achieve this.”