Foreword

FSB research suggests that 77 per cent of smaller businesses within the UK are part of supply chains. Healthy supply chains, and good supply chain practice in general, can yield significant benefits to smaller suppliers, customers (often larger businesses), the wider economy, and society as a whole. In a nutshell, good supply chain practice makes business sense, bringing a genuine competitive advantage to both larger business customers and smaller suppliers.

FSB welcomed the publication of the Industrial Strategy as a first step to setting out an economic blue print for the UK economy, post-Brexit. In particular, we were pleased to see the Government’s commitment to a further review on how to improve SME competitiveness across all sectors of the UK economy. The recently published Call for Evidence on this subject is very welcome, particularly the explicit recognition that effective relationships in the supply chain are one of the characteristics of high productivity businesses.

However, recent events have shone a light on the pervasive culture of poor payment practice across UK supply chains, in particular the collapse of Carillion. Prompt payment is an essential prerequisite for healthy and resilient supply chains. This is critical for smaller suppliers, where cash flow is often managed on tight margins.

This report looks at the advantages to all actors of good supply chain practice, but also the consequences of poor practice. It makes a number of proposals to Government, including: how to hardwire good supply chain practice into the Industrial Strategy and the Sector Deals; how to improve payment practice; and how to strengthen the UK’s standards regime. Critically, it also shows how supply chains can act as a lever to boost skills and innovation amongst smaller suppliers, enhancing the productivity of the wider business ecosystem.

FSB Policy and Advocacy Chair

Martin McTague
Chairman, FSB Policy and Advocacy

Healthy supply chains, and good supply chain practice in general, can yield significant benefits to smaller suppliers, customers, the wider economy, and society as a whole.

Just as importantly, this report seeks to make the case to the Chairs and CEOs of the UK’s largest businesses – to embrace good supply chain practice, to learn from each other and to lead from the front, with clear accountability at board level. Government should require larger companies (as defined by the Companies Act) to have a named non-executive board director with clear accountability for all supply chain issues.

This report also examines the critical role that Government and the wider public sector can play in promoting best-practice throughout their own substantial supply chains, a win-win for businesses and tax payers alike.

Supply chains can be a powerful lever for wider business and societal reform, from supporting smaller suppliers to export and innovate, to making it easier for smaller firms to take on apprentices. It’s time to take full advantage and give our economy a much needed boost.

Support

Only 12% of smaller suppliers received skills and workforce support

Positive impact

Help with supply chain innovation has a positive impact.

Who helps?

Some customers support innovation

Standards

Verified standards are high

Payment

Payment is often more than 60 days after invoice

Payment terms

Payment terms have increased for many

Risks

Supply chain risks for smaller businesses

Certification

Average cost of certification

Late payment

Many small suppliers are paid late

 

Executive summary

Healthy supply chains are critical for boosting the productivity, resilience, financial strength and efficiency of smaller and larger businesses alike, and economic growth across the UK. However, there is a lack of data and understanding about the factors that influence supplier experiences in business-to-business (B2B) and business-to-government (B2G) markets.

This report shows that in order for policy to be designed to maximise the benefits of healthy supply chains, policy makers must consider the following factors that affect the experience of small UK suppliers:

  • Supplier size (sole trader, microbusiness, or larger)[1]
    For example, suppliers with 11-20 employees are more likely to report higher levels of skills and innovation support from customers, compared to other size groups. And this size group is most likely to say their innovation support relates to ‘collaboration in design’, compared to other size groups which tend to cite ‘sharing of workforce expertise and time’. As suppliers grow beyond the size of a microbusiness, their payment terms tend to get worse, they are more likely to hold at least one certified standard, and tend to hold more of them (and pay more for them).
  • Sector in which the supplier operates
    For example, smaller suppliers in the manufacturing sector tend to receive more support for innovation from their customers, compared to some other sectors. Those in manufacturing are also most likely to cite ‘collaboration in design’ as the most common type of innovation support offered, with a very strong focus on product innovation. Those in manufacturing are much more likely to experience payment terms of more than 30 days, compared to other sectors, but are more likely to be paid on time. They are also less likely to hold at least one certified standard, and tend to hold fewer of them, compared to some other sectors. However, the standards they do hold tend to come at a high cost.
  • Geographic market(s) covered by the supplier
    Across all geographic markets, the most commonly cited benefit resulting from innovation support from customers is ‘improved reputation, credibility and profile’. However, the benefits of such innovation support get more diverse and numerous as the size of geographic market increases.
  • Relative size and type of customer
    For example, smaller suppliers to a single large business customer are much more likely to receive skills and innovation support, mainly focussed on ‘sharing workforce expertise and time’. This group is also most likely to report ‘increased turnover’ as the most common benefit of their subsequent innovation (other size groups reported ‘improved reputation, credibility and profile’). Those supplying to same size or smaller customers are much more likely to agree to payment terms in advance or on delivery, and more likely to be paid on time, compared to those supplying to larger customers, the latter of which, are also more likely to hold at least one certified standard, tend to hold more of them, and pay much more for the privilege.
  • Length of time of business operation (e.g. whether a recent start-up)
    Unsurprisingly, start-ups are more likely to receive skills and innovation support from customers, compared to more established businesses. Start-ups are also more likely to receive innovation support related to processes, as well as products. Across the spectrum of business life-cycles, the most widely reported innovation benefit is ‘improved reputation, credibility and profile’. However, for start-ups, ‘opportunities for other collaboration’ is also seen as a particularly important benefit as they seek to grow. Compared to more established businesses, start-ups are more likely to negotiate payment in advance or on delivery, and less likely to agree payment terms of later than 60 days. They are also more likely to be paid on time. They tend to hold fewer standards and pay less for them, compared to more established suppliers.

    Around three quarters (77%) of FSB small businesses say they supply to business customers across a range of different sizes, and across both the private and public sectors. FSB research has highlighted some key areas where supply chain policies of Government and, in particular, larger business customers could have a major impact, either positive or negative depending on how they are implemented.

This report examines what more can be done to boost productivity through supply chains, by increasing practices that support innovation and skills development in smaller suppliers. It also explores what more can be done to improve supply chain resilience (by tackling poor payment practice) and efficiency (particularly by improving the UK’s standards regime).

Boosting productivity by increasing innovation and skills

It is widely acknowledged that innovation and skills are drivers of productivity. FSB’s research shows that when help to innovate and develop skills is cascaded down the supply chain, smaller suppliers benefit significantly. This benefits the UK economy as a whole.

FSB research suggests that almost a third (30%) of smaller suppliers receive help to innovate from their business or public sector customers. Of these, the most commonly reported types of support include the sharing of workforce expertise and time (33%), collaboration in design (23%), mentoring and advice (20%), and market research (15%). Of those that have received help to innovate from customers, the vast majority (83%) say it had a positive impact on their business.

Support for skills is less widely reported by smaller suppliers, compared to support for innovation. Only one in ten (12%) small suppliers say their business or public sector customers have provided any skills or workforce development support in the previous two years. Of those that have, the most commonly reported types of support relate to training and skills development (42%), discounted training courses (32%) and access to free resources (27%).

Of those small suppliers that have been offered, and accepted, skills and workforce development support from customers, more than half (55%) say it has improved the skills, knowledge and expertise in their business. This clearly indicates an area on which policy makers can build in the future.

Many larger business customers are well-placed to understand and work with their supply chains to identify and address any skills or operational shortfalls that might threaten to disrupt the service they receive. Larger companies should recognise the mutual benefits of supporting their smaller suppliers, sharing their knowledge and expertise to address skills shortages and boost innovation. This is a win-win scenario, with benefits inevitably flowing back up the supply chain and to the economy as a whole.

Increasing financial strength and resilience

Despite some recent improvements, many smaller suppliers continue to face challenges related to late payments, lengthy payment periods of more than 60 days, and other inequitable contract terms forced upon them by their larger business customers. At a time of rising costs associated with operating a business in the UK[2], these additional pressures further increase the risk of running a small firm.

FSB research suggests that a significant minority of smaller businesses (17%) are paid more than 60 days after providing an invoice. This data is remarkably similar to the 16 per cent figure obtained by Government from firms that are required to report their payment practices.3

FSB research has also revealed that payment terms are worsening for smaller suppliers. More than a third (37%) of FSB smaller suppliers say that their payment terms have increased over the last two years, while less than one in twenty (4%) have experienced an improvement in their payment terms. Previous FSB research showed that almost one in five (17%) FSB small businesses said they had experienced supply chain bullying[3] in the previous two years, including retrospective discounting.[4]

In some cases, there is a clear power imbalance between smaller suppliers and the larger business and public sector customers they serve. Nearly a quarter (24%) of FSB smaller suppliers say they are unable to influence the terms of their contracts with customers. Furthermore, a sixth (17%) say they are unable to challenge their customers.

In this context, it must be noted that ‘customers failing to pay’ is the top risk for FSB smaller suppliers (see below). Small firms must be empowered to understand and mitigate a broad range of risks, particularly those that threaten the quality of service they provide to their customers. However, a lack of resilience planning by many smaller businesses means that their supply chains remain vulnerable to potentially substantial disruption. This increases the risk of lower productivity growth, higher costs, customer complaints, lost revenue, and reputational damage. The most commonly reported risks to supply chains by FSB smaller suppliers are:

  • Customers failing to pay for services / goods provided (51%)
  • Losing key members of staff (37%)
  • Suppliers unable to supply (30%)
  • IT problems (29%)

Increasing efficiency and reducing costs

Increasing competition within supply chains, and reducing unnecessary costs, will increase the competitiveness of UK firms and supply chains more generally. Improving the UK’s complex standards regime would provide one of the greatest opportunity areas in this regard. Standards are too often designed ineffectively in ways that damage small businesses and fail to meet stated objectives.

FSB research suggest that two thirds (66%) of smaller suppliers hold at least one kind of verified standard, e.g. a quality management standard like ISO9001 (see ANNEX 2). On average, smaller businesses hold four separate certified standards, with that number increasing with the size of business. There is also a sectoral variation, with businesses in the construction sector holding more standards on average than those in others sectors like manufacturing and wholesale/retail. Across all sectors, the average cost of these standards for smaller suppliers is more than £2,800 a year.

Most (75%) smaller suppliers hold standards simply because they are required to by their customers or insurance companies. However, certified standards can bring benefits to some smaller businesses. Of those that do hold standards, around two fifths believe they help to differentiate themselves from competitors (43%) or help to improve the quality of their service or products (39%). Previous FSB research showed that the majority (70%) of small businesses recognise areas where some regulation, including certified standards and products standards, can have a positive impact.[5]

However, it is also clear that standards currently do not fulfil their potential and can create net costs to smaller businesses. This is usually due to their complexity, the time and costs required (often involving consultants), or their lack of interoperability, despite many standards covering the same areas.

Government and the standards industry must take action to reduce unnecessary costs to UK businesses and help ensure that smaller suppliers have a standards regime that enables them to play their full role in increasing productivity, employment and consumer benefit. This includes the removal of duplication within many standards requirements.

Public procurement

Government has an opportunity to lead by example on supply chain best practice, in relation to both the proportion of smaller suppliers with which it directly and indirectly contracts, and in the way it treats these businesses. However, the public sector is yet to set itself apart in this regard, and must do more to widen its use of smaller suppliers if it is to achieve its target of 33 per cent of public procurement with smaller businesses by 2022.

One of the areas where the public sector appears to do relatively well, compared to the private sector, is in collaborating with their suppliers on the design of products and services (28% compared to 23% population average) and also providing their suppliers with mentoring and advice (25% compared to 20% population average).

The public sector should also be recognised for its attempt to drive down payment terms. Those supplying to national or local government projects are more likely to agree payment in advance or on delivery (30% compared to 26% population average), or within 8-30 days (54% compared to 45% population average).

However, FSB data on late payments suggests that the public sector subsequently struggles to honour these terms. Almost one in five (17%) smaller suppliers to the public sector say they are paid late more than half the time (compared to 14% population average).

In terms of the innovation support provided to smaller suppliers by their customers, and the success this brings, the public sector appears to be relatively effective in particular areas. For example, of the smaller suppliers that are provided with innovation support by their customers, those supplying to the public sector were more likely to say this support improved their reputation, credibility and profile (43% compared to 39% population average), provided opportunities for collaboration (32% compared to 26% population average), and provided access to more customers (32% compared to 25% population average).

There is a noticeable difference in the prevalence of verified standards among those businesses that supply to the public sector (including public sector infrastructure projects) compared to the wider supplier population. Three-quarters (75%) of smaller firms that supply to the public sector hold at least one verified standard. This is nine per cent higher than the proportion across all businesses in supply-chains (66%).

[1] This research looked at business size groups of 0 employees (sole traders), 1-10 employees (microbusinesses), 11-20 employees, and 21+ employees

[2] FSB, Voice of Small Business Index, Q1 2018,  3  Gov UK data, available at https://check-payment-practices service gov uk/export

[3] For example, large firms using the disparity of power in business relationships to squeeze their suppliers, delaying payments to improve their own cash flow

[4]  FSB, Time to Act: The economic impact of poor payment practice, 2016.

[5]  FSB, Regulation Returned: What small firms want from Brexit, 2017

Recommendations

Tackling the UK’s poor payment culture

There are many existing initiatives in place to tackle poor payment practice, ranging from the newly appointed Small Business Commissioner (SBC), the Duty to Report, the Prompt Payment Code, public contract regulations, the Crown Commercial Services Mystery Shopper scheme, the Groceries Codes Adjudicator, and the Pubs Code Adjudicator. However, more needs to be done.

A more joined up approach The UK Government should:

  • Immediately support a more coherent, joined up relationship between the Prompt Payment Code, Small Business Commissioner, and Duty to Report. For example, in due course, data from the Duty to Report will provide an opportunity to scrutinise payment practice and, for those that are signatories, adherence to the Prompt Payment Code.
  • Carry out an annual, anonymous survey of smaller businesses to provide an annual stateof play on payment practice, including late payments. This could be based on the similar survey carried out by the Groceries Code Adjudicator. This measure would reduce reliance on direct reporting of poor practice from smaller suppliers, something many are unwilling to do.
  • Set up a Cabinet Committee Implementation Taskforce, led by the Chancellor of the Exchequer, with a clear remit to ensure the strategic, coherent delivery of multiple interventions to eliminate poor payment practice. This would transform the UK economy into a world leader for good supply chain practice, including prompt payment.

Strengthening existing initiatives The UK Government should:

  • Strengthen the Prompt Payment Code by introducing a new penalties regime, overseen by the Code’s Compliance Board. Government should put in place a formal, transparent process to ensure that companies with systemic poor payment practice are removed from the Prompt Payment Code. Data from the Duty to Report will play a critical role in enabling this verification to occur. For those signatories that wish to re-join the Code, they should be required to demonstrate that tangible steps have been taken to improve payment practices, with a final decision taken by the Code’s Compliance Board.
  • Explore how it could play a key role in preventing disputes, or ensuring problems and disagreements are resolved before they become disputes. Smaller businesses suffer from a lack of resources, cash-flow and working capital that inhibit their ability to invest in and develop helpful specialist business ancillary skills, such as negotiating and contracting.
  • Explore where it could design and provide basic tool kits and advice on relationship management, negotiating and contracting for smaller businesses.
  • Review the performance of the Small Business Commissioner  after they have been operational for a year. Carry out an audit of best practice models for tackling late payments around the world, learning from other countries as appropriate.

The Small Business Commissioner (SBC) should:

Remain focused on tackling poor payment practice and supply chain bullying. The Commissioner should use their ‘name and shame’ powers to maximum effect, focusing on the most serious instances of supply chain bullying, as well as highlighting areas of good practice. FSB successfully lobbied for the creation of a Small Business Commissioner in 2015, and supported the appointment in October 2017.

 •  The Small Business Commissioner (SBC) could develop a hub for small businesses through which they can access training in key aspects of commercial relationship management, negotiation and contracting.

New legislative remedies

The UK Government should:

Actively explore opportunities for potential new legislation to ensure larger companies pay their smaller suppliers on time. Any new legislation would need to be enforceable and workable, and would need to be phased in to apply to larger businesses first.

Corporate governance

FSB welcomes the UK Government’s recent commitments to improve transparency around company director obligations towards stakeholders, as set out under section 172 of the Companies Act (2006). We support the work carried out by the Financial Reporting Council (FRC) in this regard.

However, FSB does not believe current proposals go far enough.

The UK Government should:

  • Require company boards to appoint a responsible non-executive director with a specific duty to report on behalf of the company suppliers. This director should present to the executive board and, subsequently, their findings should be included in the Annual Report. The responsibilities of this non-executive director would also include the investigation of any poor payment practices affecting suppliers, reporting publically on how the problem has been tackled.
  • Require forthcoming FRC changes to the Corporate Governance Code (on the representation of employees) to also include treatment of suppliers. FRC should encourage large firms to focus on specifically highlighting supply chain practices in their annual reports, explaining where they have achieved (or failed to achieve) best practice.

Industrial Strategy

The Industrial Strategy must address the full spectrum of supplier experiences. These suppliers include the self-employed, microbusinesses, small and mid-sized businesses; those that sell to different geographic markets; those in different sectors; and those at different stages of their lifecycle, including both start-ups and long-established businesses.

Using supply chains to support innovation

The UK Government should:

  • Encourage larger companies, in particular those that have already claimed R&D tax credits, to support their own innovative smaller suppliers, where in scope, to make their own claims. R&D tax credits are available for advances in science and technology that are considered new-tothe-field, meaning that the project must aim to create an advance in the overall subject area, not just within a particular business.

    FSB is keen to see larger companies work with their supply chains to promote and improve understanding of the SME R&D tax credit, the Research and Development Expenditure Credit, and HMRC’s Advance Assurance Scheme. The Research and Development Expenditure credit is particularly relevant to supply chains as it can be claimed by smaller businesses that have been sub-contracted to do R&D work by a larger company. The Advance Assurance scheme is welcome as it removes the need to rely on intermediaries, but there is lack of awareness among smaller suppliers of this scheme.
  • Ensure that any applications for UKRI Challenge Funds include a credible plan for developing supply chains. Applications must not be allowed to proceed if they do not meet this criteria.

Using supply chains to support skills development

The UK Government should:

  • Government should urge levy-paying businesses to prioritise transferring some or all of their digital vouchers to small businesses in their supply chain. To encourage levy paying businesses to support apprenticeships in their wider supply chain the 10% restriction on Levy transfers could be increased. Currently there is a perception that the administrative burden is higher than the value of the Levy that can be transferred. The restriction on the ability to only transfer funds to one employer should be removed, helping levy paying businesses to think more strategically about supporting apprenticeships and training in their supply chain.
  • Address the failure of supply chains to transfer skills development activity, particularly from larger customers to smaller suppliers. This requirement should be hardwired into Sector Deals that are developed and delivered with devolved governments, procurement with primary contractors, and wider public provision.
  • Build on the clear requirements set out in the Stevenson / Farmer review of mental health and employers (Thriving at work7), ensuring that adherence to the review’s proposed enhanced standards are extended to cover those in the supply chain, as well as those in direct employment.

Sector Deals and cross Government support

The UK Government should:

  • Ensure that all long-term Sector Deals include measures to address co-ordination failures that frequently affect smaller suppliers. The strength of sectoral supply chain practices should be a key criterion on which sector deals are assessed. There should be clear guidance from central Government on how Sector Deals are designed. Sector deals should set out clear strategies for helping the diverse community of smaller suppliers, with specific measures to:
    • Increase their levels of product, process, organisational and procedural innovation, with focus on the adoption and diffusion of existing technologies.
    • Encourage them to start or enhance their levels of exporting and wider internationalisation activity.
    • Help them plan and prepare for internal and external supply chain risks.
    • Reduce their current and future skills gaps through a variety of different interventions, including support in taking on apprentices.
    • Support their development of leadership and management skills.
    • Support mental health provision, as set out under the core and enhanced standards in the Stevenson / Farmer review. The supply chain can play an important role in wellbeing support, from encouraging open conversations about mental health, to identifying support available for employees, to directly providing mental health support and signposting to clinical help.
  • Require the Implementation Board for each Sector Deal to report on delivery of their supply chain obligations in a transparent and robust way.
  • Use the Business Productivity Review (of long tail performance) to look at supply chains as one lever through which to support the adoption and diffusion of new-to-firm innovation. However, support through supply chains will not remove the need for dedicated and targeted business support for both new-to-market and new-to-firm innovation.

Local Enterprise Partnerships (LEPs) and Growth Hubs (in England)

The UK Government should:

  • Continue to fund Growth Hubs in England and take action to strengthen those that are weaker and less well-funded. Local Government should assess where it can support the capacity of LEPs and Growth Hubs in England, including through the secondment of staff. LEPs, Local Industrial Strategies and Growth Hubs must all focus further attention on addressing gaps in support for smaller suppliers.

LEPs should:

  • Develop local industrial strategies that bring forward specific measures to deal with market failures that affect the full spectrum of smaller suppliers. Government guidance on development of local industrial strategies should reflect this, and Government should not approve any local industrial strategy that does not contain such proposals.
  • Develop metrics to measure how effectively larger companies competing for funding will support their supply chain, with a particular focus on smaller suppliers. Government should assess any bids for funding on the quality of these metrics.

Growth Hubs should:

  • Aim to increase the proportion of the smaller firms in England which make business continuity planning a routine business practice, particularly those that are least able to plan and prepare for these risks.
  • Provide more access to better quality leadership and management training, especially for long-standing businesses that are, otherwise, unlikely to receive support through their supply chain. This measure should include the introduction of Leadership and Management Champions. These face-to-face business advisers would play a key role in supporting business owners in understanding areas for improvement, particularly their managerial and leadership capabilities.
  • Provide support for innovation, specifically addressing gaps in supply chain support. For example, good supply chain practice must be hardwired into any sector deals associated with strategic economic plans or local industrial strategies

Reforming the UK’s standards regime

Government must commit to a thorough review of the UK’s standards regime in order to drive efficiency in UK based supply chain activity.

The UK Government should:

  • Require each department and all regulators to review those standards that operate across their respective sectors.
  • Investigate where a support offering to smaller businesses could help reduce the complexity of the standards landscape and help smaller firms to navigate it more effectively.
  • Examine the development of market signalling tools which will help smaller businesses to assess the relative benefits of different standards offered by private providers.
  • Encourage standards bodies, both nationally and internationally, to review how well they integrate the small business perspective into the development of their own standards, and how these standards are aligned across different bodies.

The Competitions and Markets Authority should:

  • Look into sectors where there are large numbers and duplications of standards, analysing their impact on competition in business-to-business markets.

Public procurement

In regard to its own supply chains, Government has a responsibility to ensure it is taking an efficient and best-practice approach, particularly with regard to the treatment of smaller businesses in its own supply chain. FSB recognises that public procurement is devolved to the Scottish Government, Welsh Government and Northern Ireland Executive, respectively. Therefore, the mechanisms for implementing these recommendations should reflect the unique structures and processes of those devolved administrations.

Boosting smaller suppliers

The New Small Business Champion Ministers should:

  • Review the practices in their respective departments with the aim of delivering increased value for money through opening up public procurement to more small businesses. Small Business Champion Ministers in each department should regularly brief the respective Secretary of State and the Cabinet Office, and submit an annual report for publication to the Cabinet Office concerning their department’s progress compared to the following key steps:
  • Identify opportunities to disaggregate contracts, which are more accessible to smaller businesses, increase competition and reduce public exposure to ‘too big to fail’ companies.
  • Improve the use of Dynamic Purchasing Systems (DPS), by examining all Framework Agreements within their departments to identify those framework agreements where moving to DPS will lead to improved value for money to Government and prevent the public sector being denied access to small businesses, especially new start-up businesses and those unused to accessing public procurement contracts and the framework process.
  • Ensure the effective enforcement through the supply chain of the public procurement regulations (2015) that require payment within 30 days, reporting on steps taken to increase effectiveness in respective departments.
  • Ensure non-departmental agencies under the purview of their department are following central government best practice in advertising and awarding procurement contracts.

The UK Government should:

  • Review the cumulative burden of verified standards – particularly where there is unnecessary duplication in standards – in increasing barriers to small business public procurement.
  • Require public bodies and local authorities to follow the advice of the Mystery Shopper Service (MSS).
  • Take comprehensive action to improve wider aspects of Local Authority practice, including more widespread use of Contracts Finder and increased use of DPS.

Boosting productivity, innovation and skills

The UK Government should:

  • Build on initial good work that does exist is a number of public sector project to encourage innovation in the public sector, promoting best practice throughout its departments, agencies and primary contractors.
  • Offer public sector training opportunities to smaller businesses within its supply chain, including the offer of surplus places on existing training courses, and inclusive of tools and training developed for use in the public sector in response to the Stephenson/Farmer review’s recommendations.

Ensuring better payment practice

The UK Government should:

  • Press ahead with its own recent proposals to ensure better payment practice. These proposals include measures to exclude large suppliers from major central government procurement opportunities if they cannot demonstrate fair and effective payment practices in relation to their subcontractors. They also include measures to provide subcontractors with greater access to buying authorities in order to report poor payment performance.
  • Act to improve the default use of Project Bank Accounts, or equivalent schemes that achieve at least an equally positive outcome, in public sector construction projects through requiring a ministerial statement to Parliament if project bank accounts are not used. Project bank accounts will ensure that the money that is due to suppliers is correctly ring fenced and buyers will not be incentivised to hold on to their suppliers payments, and are frequently used in Scotland, Wales and bodies such as Highways England.
  • Introduce a trust account for retentions, similar to the Tenancy Deposit Scheme, whereby funds would be held in a separate bank account. Such a scheme would ensure that, upon completion, an independent representative is responsible for surveying the work and releasing the funds.
  • Learn the lessons following the collapse of Carillion as to how the Crown Representative Network can improve how it operates with strategic suppliers including to reduce risk to the taxpayer.
  • Consult on controls and incentives to encourage departments, agencies and public bodies to pay invoices on time. These public sector organisations should be required to automatically pay interest on any payments made later than agreed terms. Government should also urgently review the extent and nature of disputed invoices in the public sector.

 

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FSB Policy Report | Chain Reaction (June 2018) 1.50MB
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