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Paved With Good Intentions
The demise of Carillion has thrown the issue of late invoice payments into sharp focus. To be fair to both Labour and Conservative Parties, they have tried to address the problem and, under existing legislation, Local Authorities face tough penalties if they miss the 30 day deadline. Many Councils will be surprised to learn that they face interest charges and fines this year for non-compliance. Ironic that they get punished but contractors don't. Labour's Jon Trickett MP, Shadow Cabinet Office Minister, has included prompt payment as one requirement of future out-sourcing contracts (http://www.huffingtonpost.co.uk/entry/firms-pfi-labour-trickett_uk_5a65ea85e4b0e5630071a885).
What is infuriating is that whilst Councils and Government paid Carillion within the 30 day limit, the now-bust outsourcer held onto the cash for a further 90 days, contributing to a £1billion windfall - courtesy of the tax-payer. Readers may be interested to find out why. In October 2012 then Prime Minister David Cameron announced the Supply Chain Finance Initiative (https://www.gov.uk/government/news/prime-minister-announces-supply-chain-finance-scheme) which followed a Labour Government commissioned report by the Bank of England and the Association of Corporate Treasurers. This was a well intended idea allowing access to bank finance to help suppliers receive their due money in term.
So what did Carillion do? They welcomed the initiative and cited support from apparently delighted suppliers: https://www.carillionplc.com/suppliers/early-payment-facility-epf/. The problem was that due to the sheer size of Carillion and the payment terms extension, over three banks had to be involved. Banks which tended to only offer SCF to large suppliers due to the cost and complexity to on board KYC/AML etc. It is unclear if any SME supplier would have been brought into the Supply Chain Finance provision and, therefore, they now had to wait four months to be paid!
The SCF initiative was well intentioned, but at best the charge against the Government is naivety; at worst, compliance. The danger now is that we throw the baby out with the bath water. The public sector often needs the expertise of the private sector to the benefit of the public but the Carllion experience has muddied the water for the entire sector. The lesson, as ever, is that the road to hell...