2.14 Our January 2015 report on paying government suppliers on time found that almost all departments have publicly reported good performance against government's prompt payment commitments.13 However, we found little evidence that the commitments were having the intended effect of helping SMEs. This resulted in the risk that the main impact was to boost the working capital of prime contractors rather than benefiting other businesses in the rest of the supply chain. Delaying payments to subcontractors is an easy way for prime providers to manage their cash flow.
2.15 Departments and providers told us that prompt payment remains a significant issue for SMEs within supply chains. SME representatives we interviewed told us they understood larger providers sometimes delayed payments for over 60 days, severely affecting the sustainability of government work for SMEs. Highways England told us that subcontractors may charge a premium to manage their own financial risk, because they anticipate late payments. This cost is incurred by the prime contractor but reflected in the price it charges to government.
2.16 In most cases, departments rely on prime providers to manage their own supply chains. This includes appointing subcontractors and setting their terms and conditions. Prime providers usually expect to charge a fee for these services, which will either increase the charge to government or reduce payments to subcontractors. We heard anecdotal evidence that some prime providers require subcontractors to waive prompt payment targets as part of these terms and conditions. Government has limited information about its subcontractors and their terms and conditions. This means it is unable to ensure that changes to its own approach are benefiting all SMEs involved in government contracts. The experiences of SMEs within the supply chain are discussed further in Part Three.
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13 Comptroller and Auditor General, Paying government suppliers on time, Session 2014-15, HC 906, National Audit Office, January 2015.