I move: "That the Bill be now read a Second Time."
The purpose of this Bill is to ensure the prompt payment of amounts due to suppliers of goods and services by public sector purchasers and by contractors on public sector contracts. The difficulties caused to suppliers by the late payment of business debts have been well documented. An obvious problem relates to cash flow. Late payment requires firms to extend overdraft facilities or to engage in additional borrowing. This is particularly serious for small business where cash flow problems are one of the main causes of business failure. In addition, monitoring and chasing late payments absorbs a substantial amount of scarce management time. This is an unproductive use of resources which would be better spent in developing the business.
The Task Force on Small Business, which reported in 1994, noted that getting paid on time was a never ending problem for small business and recommended that legislation should be introduced to ensure prompt payment by the public sector. The Government is fully committed to addressing this issue. A commitment was given in the programme. A Government of Renewal, to bring forward legislation in respect of the public sector. The Bill now before the House fulfils that commitment and also fulfils a more recent commitment given in Partnership 2000 to introduce such legislation. The Government has gone beyond these commitments by introducing legislation in respect of all businesses doing business with public bodies, not just small companies.
There has been a number of surveys and estimates of the time taken to pay accounts in Ireland and in other European countries. The task force estimated that payment periods in Ireland were 79 days on average, which was poorer than the European average. A European business survey, published in May 1996 by Grant Thornton International Business Strategies Ltd, showed the average payment period in Ireland to be 59 days, which is two days less than the EU average of 61 days but nine days more than the UK average of 50 days.
The surveys do not distinguish between public and private sector purchasers. A survey which is often quoted in support of the contention that payment practices in the public sector are extremely poor is a survey of public sector fee performance undertaken in 1992 by the Society of Chartered Surveyors which indicates that the average payment period was 154 days. However, as the survey was based on responses from only 11 companies, covering a total of 138 fee payments received, it could hardly be regarded as providing a comprehensive or representative view of the position in the public sector as a whole.
In view of the absence of firm information on payment practices in the public sector, I decided to commission a survey on the issue. The purpose of the survey is twofold: first, it is intended to provide reliable information on existing payment practices and, more important, second, it is intended to establish a benchmark for measuring progress in reducing payment periods and in assessing the effectiveness of this legislation in eliminating the problem of late payment in the public sector.
The survey was based on a random sample of 75 public sector organisations, with a target sample of 100 invoices selected for examination in each organisation. Consequently, the results of the survey are based on an analysis of over 7,000 payment records. The key findings of the survey are as follows: the average payment period between the date of invoice and the date on which payment is made is 55 days; the average payment period for payments made after 45 days is 76 days; and approximately 57 per cent of payments are made later than 45 days. The average payment period varied between different types of organisations. For example, the average payment period for Government Departments was 50 days, which was the same as the average payment period for commercial semi-State bodies, while local authorities at 57 days and health boards and hospitals at 58 days had relatively long average payment periods. Average payment periods do not, of course, give a full picture of payment practices and a more useful indicator is probably the proportion of payments which are made late. The survey gives information on the portion of total payments which were made in a range of payment periods. This gives a clearer indication of the extent of the problem. For example, it shows that approximately 57 per cent of payments are made after 45 days, 26 per cent are made after 60 days and 12 per cent are made later than 80 days.
Other analyses of payment data have been undertaken in the survey, giving information on such areas as the proportion of late payments in the different categories of public bodies, payment performance by size of payment and payment period by type of goods purchased. In addition, the survey deals with such issues as the reasons given by purchasers for making late payment. I do not propose to give details of all the information resulting from the survey, but I will make the consultant's report available to the public as it contains many valuable insights into the problem of late payments. The details I have given make it quite clear that there is significant scope for improvement in public sector payment practices and underpin the real need for the introduction of this Bill which will give the necessary legislative stimulus to the achievement of prompt payment practices in the public sector.
The Bill will require public bodies to pay amounts due to their suppliers on or before the date due under the terms of the contract, provided that the contract is in writing. Where the payment date is not established by written contract, payment must be made within 45 days of receipt of an invoice or date of supply, whichever is the later. The Bill also contains appropriate safeguards to deter public bodies from seeking unduly long credit periods in written contracts. A key provision of the Bill is an automatic right to interest in respect of late payments. There is no scope for having any interest due waived, which is a key factor in ensuring that public bodies will comply with the provisions of the legislation.
The Bill will apply primarily to purchasers in the public sector. I am well aware, of course, that some private sector purchasers are not without fault in regard to their payment practices. However, I agree with the Task Force on Small Business that different approaches should be adopted, at least initially, to try to resolve any problems in this sector. In the case of the public sector, I favour a legislative approach because that sector should have an exemplary record in paying its accounts on time. Moreover, the public sector devotes substantial resources to the development of business and it simply does not make good economic sense to undermine and contradict such development policies by engaging in late payment practices which damage the cash flow, stability and survival propensity of firms.
In the case of the private sector, legislation would not be the best approach, at least initially. Taking into account that codes of practice on prompt payment have been adopted by employer organisations, it would be reasonable to allow some time to elapse to judge how effective these codes will prove to be. It would also be prudent to allow some time to gain experience of the operation of the legislation in the public sector before making a decision on its extension to the private sector. As an exception to that general principle, however, I have brought contractors on public sector contracts within the scope of the Bill. If the main contractor gets new statutory rights and protection in relation to public sector purchasers then it seems only fair and reasonable that the legislation should ensure that the cash flow benefit is passed on, in particular, to small business suppliers.
The Bill will be brought into operation on a date designated by order. For reasons of transparency and clarity it is useful to mention, at this stage, that I intend to make an order which will bring the legislation into operation with effect from 1 January next year. This implementation date will allow public bodies the necessary time to ensure that their systems are adequate to meet the new payment and reporting demands of the Bill. I also want to make it clear that I am not closing the door on the concept of legislation for the private sector. I am committed to a full review of the operation of the private sector codes of practice and this legislation three years after its implementation to determine the merits of extending it to the private sector. There are significant economic benefits for business and for Ireland generally in the implementation of a comprehensive system of prompt payments.
I will now deal with the provisions of the Bill and elaborate on its main features. Section 1 is an interpretation section, defining the terms used in the Bill. Key terms defined are "purchaser" and "prescribed payment date". The definition of "purchaser" encompasses the persons and bodies who will be obliged to comply with the payment provisions of the Bill. These include public bodies which are listed in the Schedule to the Bill, subsidiaries of those public bodies and contractors who supply, or contract with another person to supply, goods or services to the bodies listed in the Schedule or their subsidiaries. The public bodies listed in the Schedule include all Government Departments, local authorities, health boards, vocational education committees and all State companies. The purpose of listing the bodies covered is to try to make the scope of the Bill as transparent as possible for suppliers so that they will have no doubts as to which purchasers or prospective purchasers are encompassed by the provisions of the Bill. This will ensure clarity and certainty, which is so often advocated by the business community.
The Schedule is in two parts. Part 1 lists all the public bodies or categories of public bodies who will be bound by the terms of the legislation from the date on which it comes in to operation. Part 2 lists three bodies, Aer Lingus, Bus Éireann and Bord Telecom Éireann. The Bill proposes that the three bodies listed in Part 2 will not come within the scope of the legislation until one year after the implementation date. However, I am delighted to inform the House that the Government has decided that all public sector bodies will have to comply with the legislation from the date of implementation. I will, therefore, introduce an amendment at Committee Stage to rescind the provisions which allow a one year transition period for Aer Lingus, Bus Éireann and Telecom Éireann.
The definition of "purchaser" extends beyond public sector bodies to include contractors on public sector contracts. The intention is to ensure that the benefits flowing to main contractors from being paid on time by public sector bodies will be passed on, in turn, to their suppliers. This provision will be of particular benefit to small business.
The second key term defined in section 1 is "prescribed payment date". This is the date on which payment for the provision of goods and services will be due under the Bill.