Late Payments A Government Hallmark In The UK — And US, Too

As the government shutdown dragged on into the weekend, the impact of late payments on contractors got the spotlight in outlets such as Bloomberg.

As noted by the newswire, federal workers would eventually be able to get back pay, but not contractors, who add up to 1.2 million and span job functions such as cooks or employees of consulting firms like Deloitte. Bloomberg estimated that federal contractors would be hit by as much as $200 million a day “in lost or delayed revenue” tied to the shutdown.

Consider one example, that of Science Applications International Corporation (SAIC), where the company said earlier in the month that it is losing as much as $10 million weekly as a result of the shutdown, and that the government is behind in paying the firm by as much as $40 million to $50 million.

In another example, Grant Thornton said about 20 percent of the 1,000 employees in the public sector of its business have gotten “stop work” orders from the government. Robert Shea, a Grant Thornton principal, said there have yet to be layoffs, “but many of our peer organizations don’t have the ability to absorb this kind of thing and, at some point, we won’t either.”

Government agencies are, of course, closed, and this means invoices are not being processed. Smaller contractors may eventually be forced out of business, as they cannot pay their own bills. In the event of late payments, the Prompt Payment Code, as defined by the U.S. Treasury, states that when agencies pay late, in most cases, interest accrues (currently at 3.6 percent).

Across The Pond

The government-as-late-payor trend continues across the pond. News came this past week that the number of businesses in the U.K. receiving late payments from the Cabinet Office has tripled in the past two years. The office, of course, has put late payment rules in force, penalizing contractors that do not pay their suppliers in a timely manner.

The Cabinet Office said that late payments — those tendered beyond 30 days — have hit 198 percent more firms from the period between April to June 2016 and April to June 2018, rising from 76 to 227 companies, as reported in City A.M. The newspaper said that, per officials, the late payments arrive in the wake of the Cabinet Office’s change to a new computer platform, stemming from May 2017. That news also comes, roughly, on the one-year anniversary of the Carillion failure, where the outsourcing company collapsed while owing £2 billion ($2.57 billion USD) to 30,000 suppliers.

In recent weeks, the Federation of Small Businesses (FSB) said that, in the U.K., the government should boost the efforts of the Prompt Payment Code, which would penalize late payors. In addition, a report that was released last month by the Business, Energy and Industrial Strategy Committee said that a statutory requirement should be adopted that demands for supplier invoices to be paid within 30 days. Data showed that larger companies are taking between 75 and 120 days to pay smaller firms.

Current penalties state interest rates of 8 percent above the Bank of England’s base interest rates, which was and is dictated by the Late Payment of Commercial Debts (Interest) Act 1998. Suppliers can claim compensation of as much as £100 on each qualifying debt, and can charge “reasonable costs” that come in tandem with recovering that debt.