Prompt payment of suppliers and supply chain members
The success of any framework cost model depends on prompt payment of suppliers under project call-off contracts and prompt payment of supply chain members under project sub-contracts. Prompt payment enables suppliers and supply chain members to concentrate their efforts on the best interests of the project or programme of work and reduces unproductive time spent in devising tactics for claims. Framework providers and managers have a responsibility to monitor adherence to the Construction Playbook requirement that 'Contracting authorities and suppliers should always pay their supply chain promptly' (p.50).
Some of the frameworks reviewed support payment of supply chain members through the use of 'project bank accounts', and many include the prompt payment of supply chain members in their success measures. Some frameworks exclude retentions on the basis that frameworks provide a more effective motivator for defects rectification through the prospect of additional work. Early payment of supply chain members can also be a factor in calculating the efficiency savings that can accrue through Supply Chain Collaboration (Annex 3 case study 9).
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Recommendation 19: Create transparent pricing mechanisms for frameworks and call-offs that maximise cost certainty and ensure prompt payment In order to drive improved value and fair treatment, this review recommends that framework providers, clients and managers create payment and pricing mechanisms for framework projects and programmes of work that maximise cost certainty, that identify agreed fees, profit and overheads separately from other costs, that incentivise desired outcomes and that require clients and suppliers always to pay their supply chain promptly. |
Specific actions include:
Framework strategy
■ Consider and scrutinise proposals for payment and pricing to ensure that they incentivise the desired behaviours and outcomes, including commitment by clients and suppliers always to pay their supply chain promptly.
■ Consider and establish how the framework contract and project contracts will create fair returns and payment expectations that attract interest from suppliers and support a sustainable market.
■ Consider and establish pricing mechanisms and incentives that will achieve best value for money when procuring the framework and when calling-off framework projects.
Framework procurement
■ Evaluate supplier proposals in response to the clients' commitments to:
■ payment and pricing mechanisms designed to incentivise the desired behaviours and outcomes, including commitment by clients and suppliers always to pay their supply chain promptly
■ framework contract and project contracts designed to create fair returns and payment expectations
■ pricing mechanisms and incentives designed to achieve best value for money through the framework and when calling-off framework projects.
Framework contract
■ Include payment and pricing mechanisms and incentives designed to:
■ motivate the desired behaviours and outcomes, including commitment by clients and suppliers always to pay their supply chain promptly
■ create fair returns and payment expectations
■ achieve best value for money through the framework and when calling-off framework projects.