Update on the implementation of early payment initiatives to small and medium enterprises (SMEs)

Report: 06
Date: 23 April 2009
By: Director of Resources on behalf of the Commissioner

Summary

The following update informs members of the status of the previously approved actions in support of the Mayor’s Early Payment to Small and Medium Enterprises (SMEs) Initiative and the current payment profile for such suppliers.

A. Recommendations

That

1. members note the actions taken to date to improve the time to make payment on undisputed invoices to SMEs with the ultimate aim being payment within 10 working days of the receipt of a valid invoice and the current payment profile for SMEs.

B. Supporting information

1. In appendix C of the paper entitled “MPA Commitment to GLA
Four Year Responsible Procurement Plan in January 2009, the Committee approved a series of actions with the aim to pay SMEs earlier than the current nett 30 day payment terms and ultimately for all SMEs to be paid within a 10 working day payment term. In approving these actions, as part of a wider programme of improvement to procurement processes, the Committee was satisfied that these supported the principal duties of the Authority.

Planned actions completed in February 2009

2. Identification of existing suppliers as an SME

The MPS has completed the audit of its suppliers through the Spikes Cavell Observatory following the loading of the 2007/8 purchasing data. The MPS is liaising with GLA colleagues on timescales for the loading of 2008/09 purchasing data onto the Spikes Cavell system. This work will identify SMEs who have been used by the MPS between April 2008 to January 2009. In addition all translators and forensic medical examiners have also been classified as SMEs. To date 3,895 out of 14500 vendors have been identified and highlighted as SMEs on the MPS suppliers database. This represents 27% of the database.

Identification of new suppliers as an SME

4. Exchequer Services when creating a new supplier have implemented additional checks to their established security procedures. The following questions are now asked of all new vendors:

• Is the vendor a part of a conglomerate of companies or a division of another company?
• Does the vendor have more than 250 employees?
• Does the vendor have a turnover of more than £45m (50m Euros)

5. For clarity the MPS will classify a vendor as a SME if the answer is no to all of the above questions.

Invoice inputting

6. Invoices when received at the MPS, are scanned into the MPS APEX system. This process given the number of invoices the MPS receives (over 24,000 per month) can take up to 5 working days.

7. Once identified, as an SME, the MPS now scans invoices from these vendors as a priority. To further assist the speedy identification of invoices from SMEs a separate PO Box address has been established for SMEs to send their invoices.

Communication to Business Groups

8. Information has been sent to all Business Groups in the MPS outlining their responsibilities in terms of goods receipting of purchase orders and the timely processing of all invoices received from suppliers. Compliance reports are produced on a monthly basis.

Payment Performance Information

9. This data will be restricted to the data available for extraction from SAP using standard reports [1].

A summary of data for payments made for the periods November 08 – January 09, table 1 and March 2009, table 2.
These months have been chosen to show a comparison between the three month period immediately preceding, the introduction of actions taken to date to improve the time to make payment on valid invoices to SMEs, and the first month of the new processes.

Table 1 – November 2008 – January 2009

Table 2 – February - March 2009

In real terms some 88% of invoices (equating to £11.2m in value) have been paid to SMEs within the contracted 30-day payment during February and March 2009.

Purchase to Pay (P2P)

10. The following categories of spend went live on the P2P system at the end of February; Temporary Labour, Consultancy, Watercoolers, Intelligence Services, Cycle to Work, Office Machine Repairs, Photocopiers, Training and Miscellaneous; enabling these categories on the system will increase the number of orders placed via a compliant route to purchase from 57% to 72%.

11. The timetable of activities underway to enable the remaining categories of spend and the incremental route to purchase compliance they will bring is as follows:

April

• Forensic Medical Examiners, (+1%)
  The new Forensic Medical Examiners contracts are currently being loaded onto SAP and Purchase Orders issued to each FME bringing an anticipated 1% onto a compliant route to purchase in April.

June

• Catering (+11%)
  Discussions are underway with Catering and we anticipate that we will have an agreed way forward by the end of April. Provided there are no significant system changes required we will bring an additional 11% onto a compliant route to purchase in June.

October

• Legal (+2%)/Property (+4%)
  Both Legal expenditure via “Metlaw” (+2%) and payment of Rent and Rates via Raindrop Manhattan (+4%) are handled via non SAP systems. Papers will be presented to the DRM steering group in May requesting either approval of these non SAP systems as compliant routes to purchase, in which case the spend will be seen as compliant from June, or to recommend changes to the systems and/or processes to make them compliant. In the case that additional systems work is required then the time frame to bring these areas onto a compliant route to purchase will be dependent on the amount of change required.

The following two areas require further technical investigation by the ERP Centre and it is not yet possible to provide an estimate as to when they will be brought onto a compliant route to purchase.

• VRES (+6%)
• Interpreters (+4%)

12. Compliance reporting (invoices paid with a matching purchase order) went live for DOI, 3 TP boroughs and TPHQ in March. It is planned that the remaining business areas will go live in April and monthly performance reports will be provided to business groups.

13. To drive the take up by the business areas of the compliant route to purchase the P2P workstream has secured a team of change managers. Change activities are planned to start mid March and will continue through to mid June.

C. Legal implications

1. It is not the intention of the MPS to amend any contract, tender document or purchase order to reflect a 10 working day payment period. As per B10 above, the payment terms will only be amended on the MPS system, i.e. the express terms of the MPS will continue to be net 30 days and will outweigh any custom and practice claims of a supplier if, at some point, we revert back to net 30 day payment./p>

2. External legal advice was submitted to this Committee and the MPA Officers in December 08 and January 09 as part of previous papers on this topic. In summary the legal advice was that under S.111 of the Local Government Act ("LGA") 1972 the MPA was entitled to "do anything (whether or not involving the expenditure, borrowing or lending of money or the acquisition or disposal of any property or right) which is calculated to facilitate, or is conducive or incidental to, the discharge of any of its functions". To fulfil its fiduciary duty under S.111 of the LGA 1972 the MPA has to justify differentiated payment as a course of action which supports its principal obligations, which are to secure the maintenance of an efficient and effective police force (S.6(1) Police Act 1996) and to achieve best value in terms of economy, efficiency and effectiveness (S.3(1) LGA 1999).

3. The actions approved by this committee in January 2009 were taken following a review of the above external legal advice. The Committee were of the view that the Authority were acting within the acceptable boundaries of the advice.

D. Race and equality impact

1. The implementation of the SME payments initiative can be described as “affirmative” action for a distinct group of suppliers who, it is viewed, can be disadvantaged in the procurement process due to lack of equality. Supporting diversity of ownership in the MPS supply base could provide benefits to Social Enterprises, Black and Minority Ethnic Enterprises, women and disabled owned business.

E. Financial implications

1. This report sets out the work completed to date to improve the Service’s payment processes within a compliant environment. The actions completed to date will make a significant contribution to the Mayor’s objective of making payments to SMEs within 10 working days.

2. The work implemented to date has been completed within existing resources and as part of a larger programme of work to improve the Service’s procurement processes. There will, however, be a potential loss in interest charges on early payments. It is still difficult at this stage to determine this potential loss as it depends on the level of early payments and prevailing interest rates but a best estimate is still considered to be between £50k and £100k in terms of opportunity costs

F. Background papers

None

G. Contact details

Report author(s): Paul Daly, Director of Exchequer Services, MPS

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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