The purpose of the Bill is to ensure prompt payment of amounts due to businesses for the supply of goods and services by public sector purchasers.
Late payment of business debt is a serious restriction on the cashflow of businesses and causes squandering of scarce management time in chasing payment of bills. It is an unproductive use of resources which could be better spent developing the business. The Government, as part of its programme for Government and its commitments under Partnership 2000, is committed to the introduction of legislation to provide for the prompt payment of bills by the public sector. We honour that commitment in this Bill. Indeed, we have gone beyond our commitment by including all businesses, not just small businesses, in its provisions.
In recent years a number of surveys have been conducted in Ireland and other European countries which have tried to quantify the time taken to pay accounts and the extent of the late payment problem. The small business task force estimated that payment periods in Ireland were 79 days on average, which was poorer that the European average. A European business survey by Grant Thornton International Business Strategies Ltd. in May 1996 showed the average payment period in Ireland to be 59 days, which is two days lower than the EU average of 61 days but nine days longer than the UK average.
No specific surveys were conducted on the extent on public sector versus private sector delays. However, a small study was carried out in 1992 by the Society of Chartered Surveyors which covered 11 companies and 139 fee payments. The study indicated the average payment period was 154 days. As the study was quite unrepresentative, I commissioned a survey on the issue. The purpose of the survey was twofold; first, to identify existing practice and, second, to establish a benchmark for the future. The survey involved a sample of 75 public sector organisations, with 100 invoices selected for examination in each case. The results of the survey were based on an analysis of more than 7,000 payments.
The key findings of the survey were: 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; almost 57 per cent of payments were made later than 45 days. The distribution was bad also in that 26 per cent of payments were made after 60 days and 12 per cent were made later than 80 days. Clearly, some businesses experienced long waiting periods for payment. There is significant scope for improvement in public sector payment practices. This underpins the need for the Bill.
The legislation will require public bodies to pay amounts due to their suppliers on or before the date due under the terms of the contract, provided it is in writing. Where the payment date is not established by a written contract, payment must be made within 45 days of receipt of an invoice or date of supply, whichever is later. The Bill also contains appropriate safeguards to deter public bodies from seeking unduly long credit periods in written contracts. A key provision is an automatic right to interest in respect of late payments.
No legislation applies to the private sector and the Government does not intend to introduce such a Bill at this stage. However, this does not mean private sector payment practices are not without fault. The Government is willing to give time to see whether the voluntary codes established by the various business organisations bring about improvements is private sector payments. While it would not be appropriate to introduce legislation at this stage to govern private sector payments, the Government has not closed its mind to that concept. We will monitor the position and consider whether it is necessary to introduce such legislation.
The Bill will be implemented as and from 1 January 1998. This gives public sector bodies time to put their houses in order to ensure they are in a position to update their systems and every staff member so they can meet the new demands and reporting requirements of the Bill.
Section 1 deals with interpretation and definitions. All public bodies and subsidiaries are listed in a Schedule to the Bill. People will know at a glance who is covered by the legislation. The definition of purchaser extends beyond public sector bodies to include contractors on public sector contracts. If contractors will receive the benefit of the Bill, people rightly feel that subcontractors should also have that benefit. The 45 day payment period is also defined. It applies in cases where there is no written contract. There is also a power under section 10 to reduce that period by order. There is an opportunity for progressive improvements in payment practices over time.
Section 2 deals with the commencement date of the Bill while section 3 provides that the Minister may changes the list of public bodies covered by the legislation. However, a Minister cannot frivolously remove bodies. He or she must give the reason for the deletion of a specific body. Ministers cannot decide off their own bat that certain bodies should not be covered by the Bill.
Section 4 is the key provision. It provides for the prompt payment of accounts and requires purchasers to pay for the supply of goods and services by the prescribed payment date. If payment is not made by the due date, the purchaser must pay an interest penalty on the amount outstanding. The interest must be paid in respect of the period beginning on the day after the due date of payment and ending on the date on which payment is made. Most importantly, the section specifically provides that the interest penalty cannot be waived by the supplier. Moreover, the interest penalty must be paid without any demand for its payment by the supplier.
The automatic entitlement to interest in respect of late payments is a fundamental requirement for the effective operation of the legislation. Suppliers are in a vulnerable position vis-á-vis large purchasers. If they were open to pressure not to demand payment, an unfair situation, which section 4 specifically prevents, would develop. Section 4 also sets down when payments shall be taken to have been made by the purchaser which can be in one of three ways — when the supplier has received the appropriate amount of cash, when the appropriate amount is credited to the suppliers account or when the purchaser enables the suppliers to credit his or her account; in other words if they issue a cheque which is in the possession of the supplier.
Section 5 is designed to address situations where an incorrect or inadequate invoice is furnished by a supplier. It ensures if there is a problem with an invoice, the purchaser is given ten days to return it if he believes it has been incorrectly made out. The interest penalty would not accure until ten days after the purchaser receives a corrected invoice or until the payment due date arrives, whichever is the later. If the purchaser is late in returning the invoice to the supplier, then the ten day period of grace allowed for payment after receipt of the corrected invoice will be reduced by the corresponding number of days. If the purchaser lets it drift to 15 days, the day's grace will be cut back to five days. This will ensure people do not deliberately dispute invoices to get a period of grace.
Section 6 specifies that when any payment which includes an interest payment is made, it must be accompanied by a notice stating the amount of the interest penalty included and the rate at which and the period for which the interest penalty was computed. The Minister may prescribe additional information in the light of experience which will have to be provided in invoices or in such payments. This ensures clarity in the way this operates and over time we can develop payment practices under the provisions of the Bill.
Section 7 deals with the payment of invoices in disputes. I have provided for the partial payment of invoices in disputed situations so that if one item in an invoice is disputed, the entire payment cannot be held up but only the disputed item.
Section 8 provides for the resolution of disputes and it gives the supplier the option of submitting to arbitration disputes relating to the payment of an interest penalty. This meets a concern which I am sure is shared by Senators that going to court is not always the best way in which to deal with these matters. This gives the option, at the suppliers discretion, to go to arbitration as an alternative. If the purchaser refuses to co-operate with the supplier, there is a provision for the appointment of an arbitrator by the president of the Law Society or another person prescribed by the Minister.
Section 9 is designed to ensure that main contractors on public sector contracts pass on to their subcontractors the benefits of being paid promptly. That is the only area in which the private sector is affected and it is only fair. Section 10 provides that the Minister may, by order, following consultation with the Minister for Finance, fix the rate of penalty interest which will apply to late payments. It allows the Minister to amend it as time goes on and ensures a penalty rate of interest which is linked to the market rate. Section 10 also allows the 45 day payment period to be reduced by ministerial order.
Section 11 provides a major sareguard against public sector bodies seeking unreasonably long payment periods in written contracts. It gives the Minister the power to police the payment practices of public bodies. If the Minister decides the contract used by a public body is unfair and it should be compelled to pay within the 45 day period for reasons of natural justice, he will have to advise the public body of the grounds for believing its credit terms are unreasonable and afford it the opportunity to respond before the order is made.
Section 12 is intended to ensure transparency in regard to payment practices by public bodies. It will require all public bodies listed in the Schedule to disclose details of their payment practices. Where the body is required, by statute, to publish an annual report, the report must include details of the payment practices in the period covered by the report. Where a public body is not required to publish an annual report, it must submit an annual review of its payment practices to the Minister who then has the power to specify the kind of details which must be included in the reports.
Section 13 provides that every auditor auditing the affairs of a body must report on whether that body has complied with the provisions of the Act. That is an important protection which is built in to ensure this is given a high level of importance within the company and is part of their audit.
Section 14 deals with the areas of tax clearance certificates and withholding tax. The section makes it clear that the Act does not require the payment of an amount due to a supplier who has failed to comply with a request to provide a tax clearance certificate and it extends the time limit for payment where there are delays in furnishing such certificates. The section also makes it clear that the leglislation will not affect the power to deduct withholding tax from any payment to a supplier.
Section 15 is a standard section which empowers the Minister to make necessary regulations under the Act. Section 16 is also a standard provision which deals with the short title and commencement of the Bill.
This legislation has long been regarded as important as it would improve the climate for small businesses. It will ensure that public sector bodies will move from their present payment practices to establish best practice in this area. I commend the Bill to the House.
