Procurement Bill [HL]

Lord Aberdare Excerpts

Committee stage
Wednesday 26th October 2022 Grand Committee

Finally, I commend the very sensible Amendment 361A, in the name of the noble Lord, Lord Aberdare. It deals with the fact that when a supplier acts against the interests of a subcontractor, the contracting authority should have a responsibility to make sure that the right thing is done. We have made a terrible error in that we have allowed ourselves to have regulations, but we have not made sure that we enforce them and create responsibilities. No responsibility means no accountability, and across all these things, it would be much better if we were much clearer about that from the very beginning. That is why these amendments are so important.

[Lord Aberdare (CB)]

My Lords, after that introduction I am not sure that I need to say much at all, but I will speak to Amendment 361A, in my name, and briefly in support of the amendments in the name of the noble Lord, Lord Mendelsohn, to which I have added my name, and to his Amendment 356A.

Amendment 361A is another of my probing amendments seeking to reinforce SME involvement in public procurement. It would give the public sector contracting authority the specific right to make a payment directly to a subcontractor when payment from a tier 1 contractor to that subcontractor for an undisputed invoice takes more than 30 days. The contracting authority would also have the right to offset any such payment it has made from moneys owed to, or already paid to, the tier 1 supplier. The aim is to provide the contracting authority with the flexibility to support the financial viability of the supply chain while avoiding unnecessary delays. The amendment creates a right, not an obligation, so the subcontractor cannot insist on such a direct payment. A previously existing and regularly used right would be restored.

During the 1970s and 1980s, when the UK economy last experienced high levels of inflation, public sector clients would often name a specific subcontractor to be used when tier 1 contractors were choosing subcontractors. They also had the right, when the subcontractor was not paid, to step in and pay the subcontractor directly to ensure that the delivery of the contract was not compromised and value for money was preserved. This was accompanied by a corresponding right to reclaim any such payment from the tier 1 main contractor. It was widely used in construction, where the public sector accounted for some 40% of demand in both construction and maintenance of public assets. Of course, this option is particularly important to encourage more SMEs to participate in public procurements. The fact that they can be paid directly by the client if there are problems or delays in payment by the main contractor can significantly boost their confidence in engaging in the procurement process.

There was a similar right introduced by the European Union through article 71.7 of EU directive 2014/24 on public procurement. I do not know why this directive was not transposed into UK law, nor why this direct payment practice, which the UK Government had, after all, pioneered and used themselves for decades, has not been readopted. Now, more than ever, with a volatile economic environment and high rates of insolvency among construction subcontractors, such a right could play an important part in building trust and liquidity in the SME supply chain. There is nothing stopping a client, whether public sector or commercial, from using direct payment, if this is allowed by the contract, but nor is there anything encouraging or motivating them to do so. This amendment would make clear the ability for direct payment to be used where necessary and would drive a fairer payment culture and greater transparency across the supply chain. I hope that the Minister will consider accepting the amendment, or at least undertaking some work to assess the impact of spelling out the possibility of direct payment as an option.

I have also added my name to Amendments 353B, 370A and 430A, tabled by the noble Lord, Lord Mendelsohn, which would represent another valuable step towards improving payment terms and practices for public contracts. I have very little to add to what he has so powerfully said. I understand that the role of the Small Business Commissioner as currently set out in legislation might make it difficult for her to be given the additional responsibilities implied by these amendments. However, I understand that the public procurement review service within the Cabinet Office operates a similar function in relation to public bodies, so perhaps an alternative approach for the Minister to consider would be to require unresolved payment disputes to be referred to them. If the Minister can come up with a better approach to resolving payment disputes in a timely way and ensuring that smaller suppliers receive the funds due to them, I would welcome that with enthusiasm equal to that which I have for the noble Lord’s amendments.

The noble Lord, Lord Mendelsohn, has also tabled Amendment 356A, relating to the BEIS payment performance reporting scheme, which I had not spotted to add my name to. It seems extraordinary that, whereas several thousand of the largest private contractors report every six months to their suppliers on a public database, public sector contracting authorities also report but only on their own individual website. There is no single place where individual small suppliers can understand the rather unimpressive payment behaviour that the noble Lord described of public sector clients, without going through an unbelievable search of numerous databases. I hope that the Minister will support the idea of bringing all this information together in one location and looking at some sort of enforcement mechanism for this reporting, along the lines of the “what get measured gets managed” quote that we have heard a number of times.

Most of the amendments that I have tabled or spoken to in Committee have related to achieving the Bill’s aim of increasing the number of small businesses participating in the public procurement process, particularly in the construction sector. During earlier sessions in Committee, Ministers told us several times that there will be meetings before Report to discuss what more the Government can do to promote the involvement of SMEs and of the voluntary and community sector. Indeed, the offer of such meetings was welcomed by the noble Baroness who is now herself the Minister. Can she confirm that such meetings are still planned and when they are expected to take place? We have heard a great deal in Committee about the need to increase the involvement of SMEs in public procurement. It would be good to review the overall approach that the Bill takes and how it will seek and indeed achieve this worthy result.