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

Report: 5
Date: 3 September 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 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 January 2009 the Finance and Resources Committee approved the report entitled “MPA Commitment to GLA Four Year Responsible Procurement Plan. The Committee approved a series of actions (in Appendix C) 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 actions supported the principal duties of the Authority.

Payment Performance Information

2. The performance data prior to April 2009 was restricted to the data available for extraction from the MPS financial SAP system using standard reports [1]

From April 2009 the MPS has used methodology outlined in The Department for Business, Enterprise & Regulatory Reform (BERR) document of the 12th November 2008.

The definition for 10-day payment to SMEs defined in the BERR document states that the payment date will be deemed as two days after the date the payment leaves our payment system to clear BACS.

The clock starts when the MPS receives a valid and correct invoice, if an invoice is incorrect the clock returns to zero until such time as a correct invoice is received. From April 2009 the MPS has used a sampling exercise to determine an average postage delay to calculate a received date. Prior to April 2009 calculations were based solely on the date stated on the invoice without consideration of postage delays.

A summary of data for payments made since November 2008 is set out below.

These months have been included 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 improvements under the new processes in place from February 2009.

Table 1 – November 2008 – January 2009 [Payment from invoice date]

Table 2 – February - March 2009 [Payment from invoice date]

Table 3– April 2009 [Payment from date of invoice receipt]

Table 4– May 2009 [Payment from date of invoice receipt]

Table 5– June 2009 [Payment from date of invoice receipt]

Table 6 – July 2009 [Payment from date of invoice receipt]

Purchase to Pay (P2P)

3. Plans to implement Compliant Routes to Purchase (RTPs) have now been completed for all but 2 categories of spend. Procurement Services and the relevant Business Group are reviewing expenditure in respect of Partnerships and Translators

4. Recent key developments are as follows:

• June
  • Rent & Rates (+1%), Interpreters (+8%) and VRES (+7%) have been fully evaluated against a set of criteria meeting MPS compliance standards. The Developing Resource Management Steering Group approved this work on 26 June.
• June to September
  • Catering (+11%)
    As at 24 July, Catering have brought three (3663, Fredericks, and Hawkes) of their top ten suppliers onto a limit order Route to Purchase system. Remaining suppliers will come on board in a phased manner. This will gradually bring an additional 11% onto a compliant route to purchase by September.
• October
  • Intelligence Services (+1%)
  • Legal (+2%)
    It is anticipated that Legal expenditure via “Metlaw” (+2%) will be integrated with the SAP Route to Purchase by October.

5. While purchase compliance reporting has been in place across the MPS since April 2009, contracts compliance reporting (i.e. the number of purchase orders made against approved contracts), is presently under development with the aim to provide Management Information at a Business group, B/OCU and transactional level.

6. In February 2009, the proportion of invoices paid in 10 working days or less by the MPS, was 35.8%. This was the first month of reporting for the MPS and was used as the baseline figure from which progress would be expected. This figure has risen to 69% in July

It should however be noted that there can be a lag of several months from a Purchase order being raised to the invoice being paid and the resulting information appearing on the compliance report. Current efforts within business areas, resulting from the new visibility provided by the compliance reports, may therefore not be fully evident from reports until September 2009.

7. A series of 25 road shows promoting the compliant routes to purchase have now been completed. Over 330 members of staff attended these road shows from different B/OCU sites.

C. 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.

D. 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

E. 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. 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.

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.

F. Background papers

• None

G. Contact details

Report author: Paul Daly, Director of Exchequer Services

For more information contact:

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

Send an e-mail linking to this page

Feedback