The measure is among a package of proposed measures to help smaller businesses win public sector and government contracts.
Under the proposals, tier one contractors on government contracts, including construction projects, will be forced to demonstrate “fair and effective payment practices with their subcontractors”, otherwise they will not be allowed to bid for work.
Other plans include allowing subcontractors to have greater access to buying authorities to report poor payment performance.
Further requirements mean suppliers will have to advertise subcontracting opportunities via the government’s Contracts Finder procurement website. They will also have to provide the government with data showing how businesses in their supply chain, including small businesses, are benefiting from supplying to central government.
In addition, each government department has been directed to nominate a minister as small business champion.
No timetable has been given for implementation of the proposals.
Cabinet Office minister Oliver Dowden said: “This government is listening to the business community and is committed to levelling the playing field for smaller suppliers to win work in the public sector.
“We have set a challenging aspiration that 33% of procurement spend should be with small businesses by 2022 – and are doing more than ever to break down barriers for smaller firms. Small businesses are the backbone of the UK economy, and play a key role in helping us to build a strong, viable private sector that delivers value for taxpayers and jobs for millions all over the UK.”
Federation of Small Businesses national chairman Mike Cherry said: “Each year, the UK public sector spends over £200bn on goods and services from third parties. As such a large and prominent customer in the economy, the government has a pivotal role to play in demonstrating what it is to be a good client.
“It is right then that the government today announces, as part of a new package to boost SME procurement, that it will clamp down on poor payment practice throughout public procurement supply chains. Companies who pay late should not be rewarded with public sector contracts. We need a robust public procurement process that holds larger companies to account for their payment practices.”
The Specialist Engineering Contractors’ (SEC) Group also welcomed the proposals. SEC Group chief executive Rudi Klein said that he was particularly pleased by the government’s promise to exclude poor payers from government procurement.
“We have been urging the government to introduce a yellow/red card system for a long time. The yellow card is a warning to improve payment performance and the red card excludes a continuing poor performer from bidding for government contracts for a period of 2 to 3 years.”
Rudi Klein added that if such a system had already been in place Carillion would have been excluded from government contracts.
However SEC Group believes that on payment security the government needs to go further and legislate to require that project bank accounts are put in place for all public sector projects. It also wants the government to back the Private Member’s Bill (now in the House of Commons) that will protect cash retentions.
“The Carillion debacle has revealed the appalling level of abuse heaped on construction supply chains,” Rudi Klein said. “We should also be considering the introduction of a statutory regulator (similar to the Groceries Code Adjudicator) to challenge the behaviour of large firms and, if necessary, fine them in the worst cases of abuse.”