Couple of talking points keep coming up about Carillion.
Firstly that contracts should not be awarded to the lowest bidder - they usually are not in the Public Sector, but are awarded on the basis of Most Economically Advantageous Tender, i.e. Value for Money. Obviously price is a factor.
Secondly, sub-contractors accuse companies like Carillion of not paying promptly (Carillion seem to have used factoring of invoices, so that should not be a problem). Public Contracts require contractors to pay sub-contractors within 30 days. If they do not then a) the sub-contractor can charge interest at 8% above base rate (i.e. 8.5% at the moment) b) the public sector client can arrange to pay sub-contractors directly and c) late payment may be held against them as a reason for not allowing them to bid for future contracts (in extremis).
I'm not saying these are not problems - they are - but there are existing provisions that could deal with them if applied and enforced.
Showing posts with label late payment. Show all posts
Showing posts with label late payment. Show all posts
Tuesday, 16 January 2018
Tuesday, 26 January 2016
Tesco - late payment scandal
So Tesco have been rapped on the knuckles for late payment - see BBC here.
Almost a year ago I was writing about this here.
Let's be clear - this was a deliberate breaking of agreed contracts by a large customer taking advantage of smaller suppliers. Tesco are claiming they are undertaking "reorganising, refocusing and retraining our teams". This is disengenous. They knew exactly what they were doing, and they did it as a deliberate policy. If they are serious about the apologies they need to sack the managers responsible immediately - all the way up to the board. Don't pretend they have already gone, or did not know what was going on. Fraud is a hard word but what else do you call signing contracts you have no intention of honouring?
People could have (and may have) lost jobs and businesses so that Tesco managers could claim inflated profits and cashflow, and falsely claim bonuses. Those bonuses must be recovered, and the victim businesses compensated.
In the end the accouting scandal of which this is part might cost Tesco £500m in fines. Was it worth it?
Almost a year ago I was writing about this here.
Let's be clear - this was a deliberate breaking of agreed contracts by a large customer taking advantage of smaller suppliers. Tesco are claiming they are undertaking "reorganising, refocusing and retraining our teams". This is disengenous. They knew exactly what they were doing, and they did it as a deliberate policy. If they are serious about the apologies they need to sack the managers responsible immediately - all the way up to the board. Don't pretend they have already gone, or did not know what was going on. Fraud is a hard word but what else do you call signing contracts you have no intention of honouring?
People could have (and may have) lost jobs and businesses so that Tesco managers could claim inflated profits and cashflow, and falsely claim bonuses. Those bonuses must be recovered, and the victim businesses compensated.
In the end the accouting scandal of which this is part might cost Tesco £500m in fines. Was it worth it?
Monday, 2 March 2015
SMEs and UK Public Procurement
SME's are constantly told that the government wants to increase the amount of business that it is doing with them. This is an important issue, one very dear to my heart, and as Peter Smith of Spend Matters points out the government is not telling the truth about their failure to deliver on this.
Peter links to the latest report which is extremely misleading about some of the key points, and skips over what I think is actually vitally important news about payment terms, and some potentially good news about a revamp of the currently lame Contracts Finder.
Before I rant about the data, let me get to the good news story: from 25th February 2015 everyone in the supply chain to central government must comply with 30 day payment terms. We can compare this to the Tesco/Sainsbury problems and see how vital this is for SMEs
The government has consistently remembered the importance of this issue, but not delivered - as signified by the changing language. 25% business central government business with SMEs has moved from a commitment to a target to an aim to an ambition and I think it is currently an aspiration.
The concept has suffered from an internal government clash between Mr. Eric Pickles' concept of piling things high (at sub-central level) to get economies of scale, and Mr Maude's more nuanced approach. But the upshot is that once again support from SMEs has not delivered.
I used to deliver programmes for BusinessLink operators, so I am probably biased but when these were cut SMEs lost an avenue for support (there are many valid discussions about whether it was the right support to the right businesses, but still). Directing more procurement to them would have helped them during an incredibly difficult time for many SMEs.
SMEs have been facing a terrible situations with banks not wanting to lend, reduction in public spending programmes (suitable for SMEs), reduction in overall business spending, withdrawal of BusinessLink (ok, maybe not such a loss for many), increased competition (from the many new one man bands and SMEs set up during this time) and exploitation from big customers paying late (if at all). The good think about Public Procurement is that it does pay, and relatively promptly.
I think it is great to encourage these business- some of which will grow, and others of which will die with the ones in the middle providing a living for many people. There are real problems in targeting government contracts to be appropriate for SMEs, and the government should not shy away from discussing that but it should also be honest.
The headline on the report says 25% business with SMEs. The text says £11.4bn and 10.3% directly (with 15.8% indirectly). Let us be clear - indirect does not count. If I buy a sandwich, and the shop owner buys some cheese with the money to make my sandwich, I did not buy some cheese. I did not say not stipulate where the shop owner bought the cheese, or how much he paid or when he paid, or who he bought it from. I bought a sandwich.
If we are going to include the supply chain the number should be a lot higher than 25%, because the shop owner might employ a cleaner - should that count as my spend because I bought a sandwich? The 25% figure is a nonsense even before you get to the fact that the indirect spend is based on information provided by big suppliers without any actual evidence. It is only been given so that the Cabinet Office can claim to have met a target (sorry an aspiration) ahead of the election - in doing so it degrades trust in public pronouncements.
In the breakdown there are good news stories: BIS is 34% direct, DCLG is 24%, DFID is 30%. Why not trumpet those successes and explain why the DWP is only 4%? And how you mean to address the overall spend?
Remember though that central government procurement at about £100bn is only half the total with the other half spend by sub-central bodies who may be better at engaging with SMEs.
And the last point, which I again I need to declare an interest on, is Contracts Finder. The revamp is very necessary, as on the old version the search engine did not work on the front page which is a pretty serious flaw (it works on the new version). More importantly awareness of it was low - one courses rarely did more than half of the delegates know about it before I told them. It cannot bring in SMEs if they do not know about it. In the press release Lord Young says that it is unique "in terms of scale and ambition" - well the old Supply2gov (run by BIP Solutions, who [full disclosure] I do work for) had pretty much the same function, the same ambition, a larger scale, and much higher brand recognition. (Note BIP Solutions now run Competefor which does a similar job on a smaller scale).
OK, what I've been ranting - what do I want? Honest data about the situation, a renewed commitment to increasing direct SME spend from 10% to 25% (or even 20%) over the next parliament, and a plan for doing so outlining the problems for particular departments and the potential costs (reduced economies of scale) and benefits (innovation, flexibility etc.). Not too much to ask I hope.
BTW, a year ago I discussed this with a senior Labour politician and they seemed to have no more recognition of this than the current government, so this is not a politically focused rant (and Mr. Pickles and Mr Maude are members of the same party).
Before I rant about the data, let me get to the good news story: from 25th February 2015 everyone in the supply chain to central government must comply with 30 day payment terms. We can compare this to the Tesco/Sainsbury problems and see how vital this is for SMEs
The government has consistently remembered the importance of this issue, but not delivered - as signified by the changing language. 25% business central government business with SMEs has moved from a commitment to a target to an aim to an ambition and I think it is currently an aspiration.
The concept has suffered from an internal government clash between Mr. Eric Pickles' concept of piling things high (at sub-central level) to get economies of scale, and Mr Maude's more nuanced approach. But the upshot is that once again support from SMEs has not delivered.
I used to deliver programmes for BusinessLink operators, so I am probably biased but when these were cut SMEs lost an avenue for support (there are many valid discussions about whether it was the right support to the right businesses, but still). Directing more procurement to them would have helped them during an incredibly difficult time for many SMEs.
SMEs have been facing a terrible situations with banks not wanting to lend, reduction in public spending programmes (suitable for SMEs), reduction in overall business spending, withdrawal of BusinessLink (ok, maybe not such a loss for many), increased competition (from the many new one man bands and SMEs set up during this time) and exploitation from big customers paying late (if at all). The good think about Public Procurement is that it does pay, and relatively promptly.
I think it is great to encourage these business- some of which will grow, and others of which will die with the ones in the middle providing a living for many people. There are real problems in targeting government contracts to be appropriate for SMEs, and the government should not shy away from discussing that but it should also be honest.
The headline on the report says 25% business with SMEs. The text says £11.4bn and 10.3% directly (with 15.8% indirectly). Let us be clear - indirect does not count. If I buy a sandwich, and the shop owner buys some cheese with the money to make my sandwich, I did not buy some cheese. I did not say not stipulate where the shop owner bought the cheese, or how much he paid or when he paid, or who he bought it from. I bought a sandwich.
If we are going to include the supply chain the number should be a lot higher than 25%, because the shop owner might employ a cleaner - should that count as my spend because I bought a sandwich? The 25% figure is a nonsense even before you get to the fact that the indirect spend is based on information provided by big suppliers without any actual evidence. It is only been given so that the Cabinet Office can claim to have met a target (sorry an aspiration) ahead of the election - in doing so it degrades trust in public pronouncements.
In the breakdown there are good news stories: BIS is 34% direct, DCLG is 24%, DFID is 30%. Why not trumpet those successes and explain why the DWP is only 4%? And how you mean to address the overall spend?
Remember though that central government procurement at about £100bn is only half the total with the other half spend by sub-central bodies who may be better at engaging with SMEs.
And the last point, which I again I need to declare an interest on, is Contracts Finder. The revamp is very necessary, as on the old version the search engine did not work on the front page which is a pretty serious flaw (it works on the new version). More importantly awareness of it was low - one courses rarely did more than half of the delegates know about it before I told them. It cannot bring in SMEs if they do not know about it. In the press release Lord Young says that it is unique "in terms of scale and ambition" - well the old Supply2gov (run by BIP Solutions, who [full disclosure] I do work for) had pretty much the same function, the same ambition, a larger scale, and much higher brand recognition. (Note BIP Solutions now run Competefor which does a similar job on a smaller scale).
OK, what I've been ranting - what do I want? Honest data about the situation, a renewed commitment to increasing direct SME spend from 10% to 25% (or even 20%) over the next parliament, and a plan for doing so outlining the problems for particular departments and the potential costs (reduced economies of scale) and benefits (innovation, flexibility etc.). Not too much to ask I hope.
BTW, a year ago I discussed this with a senior Labour politician and they seemed to have no more recognition of this than the current government, so this is not a politically focused rant (and Mr. Pickles and Mr Maude are members of the same party).
Friday, 6 February 2015
Bullying in the supply chain: Tesco
Following on from Sainsbury, the media is now focussing on Tesco and late payment. The BBC had a very relevant interview with a small supplier from October 2014 to illustrate this week's story - Moo Chocolate. Their point was that after contract Tesco decided to pay them late (or in their words to extend payment terms), and that the £6k involved was small change to Tesco but their monthly wage bill and late payment would have meant closure.
The interest on £6000 for an extra month is maybe £60 (based on 10%pa, which is probably too high as interest paid, and too low as interest charged). I know that the cumulative sum of all these £60 is going to be a big number, but let's think about this in more detail.
Firstly, if the buyer thought there was another £60 to be taken out of the price why didn't they go for it at the initial contract? If not, what do they think the consequences are going to be?
So, secondly, from working with ASDA Walmart years ago I believe that products are only going to be put on a supermarket shelf if they can make more money from the product than from whatever is on the shelf at the moment. How much more? Well I don't know. But maybe 10% more is realistic. Note that that is 10% more profit, not 10% more on the price. In the case of small niche products like this chocolate bar the price is likely to be higher than Cadbury's anyway, but the profit margin will depend on a wide range of factors (raw materials, marketing, order costs, economies of scale in manufacturing, supplier power, contribution to supermarket promotions etc.). So if the small supplier closes because of trying to get £60 extra out of the deal, you lose £60 in extra margin. (yes, it will be replaced but if it could be replaced by something with a higher margin it already would have been). That seems quite a risky way of doing things, unless you are absolutely certain that you can get the money out of the supplier - in which case see point 1.
And of course Tesco are now tarred with the same brush as Sainsbury, and in fact more publicly - which does not help their public relations and may have subtle longer term damage to the brand.
Was the £60 worth it? Are the other £60s (from other suppliers) worth it?
I (oddly) hope that it is part of a considered strategy. But I fear it was just opportunistic.
By the way, I was helping ASDA Walmart with bringing in these smaller suppliers. The team there was well aware that small suppliers needed support before they were handed over to the "beasts" in category management who are as tough as they need to be. And I don't underestimate how tough you need to be to do those jobs (I don't think I could) but you also have to be careful not to cross the line into being tough all the time when it is actually damaging to your long term interests
The interest on £6000 for an extra month is maybe £60 (based on 10%pa, which is probably too high as interest paid, and too low as interest charged). I know that the cumulative sum of all these £60 is going to be a big number, but let's think about this in more detail.
Firstly, if the buyer thought there was another £60 to be taken out of the price why didn't they go for it at the initial contract? If not, what do they think the consequences are going to be?
So, secondly, from working with ASDA Walmart years ago I believe that products are only going to be put on a supermarket shelf if they can make more money from the product than from whatever is on the shelf at the moment. How much more? Well I don't know. But maybe 10% more is realistic. Note that that is 10% more profit, not 10% more on the price. In the case of small niche products like this chocolate bar the price is likely to be higher than Cadbury's anyway, but the profit margin will depend on a wide range of factors (raw materials, marketing, order costs, economies of scale in manufacturing, supplier power, contribution to supermarket promotions etc.). So if the small supplier closes because of trying to get £60 extra out of the deal, you lose £60 in extra margin. (yes, it will be replaced but if it could be replaced by something with a higher margin it already would have been). That seems quite a risky way of doing things, unless you are absolutely certain that you can get the money out of the supplier - in which case see point 1.
And of course Tesco are now tarred with the same brush as Sainsbury, and in fact more publicly - which does not help their public relations and may have subtle longer term damage to the brand.
Was the £60 worth it? Are the other £60s (from other suppliers) worth it?
I (oddly) hope that it is part of a considered strategy. But I fear it was just opportunistic.
By the way, I was helping ASDA Walmart with bringing in these smaller suppliers. The team there was well aware that small suppliers needed support before they were handed over to the "beasts" in category management who are as tough as they need to be. And I don't underestimate how tough you need to be to do those jobs (I don't think I could) but you also have to be careful not to cross the line into being tough all the time when it is actually damaging to your long term interests
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