Should government agencies fall under universal pay-on-time reporting rules?

By Stephen Easton

Thursday February 14, 2019

Should a new scheme to encourage Australia’s largest organisations to pay their small suppliers on time apply to government agencies, or should they continue being subject to separate obligations?

The Payment Times Reporting Framework is under development, and a key question is whether it should apply universally, leave Commonwealth agencies under existing rules with similar intent, or something in between.

A quick two-week consultation period has begun and the Department of Jobs and Small Business published a discussion paper yesterday, requesting input from stakeholders on both sides of the equation. It sets out six design questions, including:

“Should government agencies be subject to the framework and / or comparable obligations?”

As the paper notes, there are already pay-on-time obligations for federal agencies that will get stricter later at the end of this financial year, and related reporting requirements:

“Currently, all Non-Corporate Commonwealth Entities (NCCEs) must pay invoices for contracts under $1 million within 30 calendar days (regardless of the size of the business). This is set to change to 20 calendar days in July 2019.

“In addition, the Department of Jobs and Small Business runs the annual Pay-on-Time survey, which measures the payment times of NCCEs. In the past, the survey has been voluntary; however, it will become mandatory by the 2018-2019 financial year. The survey does not identify the proportion of contracts under $1 million awarded to small suppliers.”

The new Payment Times Reporting Framework aims to extend similar requirements to the private sector. The discussion paper notes it is a “crucial design issue” as to whether federal agencies should have to report under the new framework.

The broad intention is to collect more information from big businesses and possibly government agencies on their payment records with regard to small suppliers, and make it “visible and easily accessible to small businesses and other interested stakeholders” without adding too much new red tape for any of the organisations involved.

One option is for Treasury’s existing pay-on-time survey to be abolished and government entities to fall under the new scheme. This would be simplest and hence most convenient for small businesses, and minimise the overall amount of administration required by government, notes the DJSB paper.

Another option is for the existing public-sector framework to continue unchanged, or take the middle ground. The department suggests two ways to achieve “partial alignment” of the rules for public and private sector bodies:

“a. Government agencies transition to reporting under the Payment Times Reporting Framework, with their data published in the register, but the fields used for business and government may be customised to suit their circumstances.

“b. Government agencies continue to use the Pay-on-Time survey, but the survey fields are aligned with the Payment Times Reporting Framework obligations.”

One potential argument for the “partial alignment” option is: “Government agencies use standard contract terms set centrally (for non-ICT contracts valued up to $200,000 with an option to use up to $1 million), whereas large businesses have significant variation in terms, so the utility of collecting term information will differ by sector.”

“Further, Government agencies currently report in some depth on payment time practices, such as specifying the number and value of contracts paid within specified time brackets,” the paper adds.

“There are no minimum thresholds that trigger the obligation to report. If the Payment Times Reporting Framework were to attempt to minimise the regulatory burden on businesses by involving less onerous or detailed reporting requirements, or a financial threshold, there may be benefits to having Government agencies retain their existing reporting format.”

If anyone wants to submit that federal agencies should stick with the current system unchanged, they would need to argue that “there are significant differences in the context or information required of business and government which mean it is more insightful to have them report under separate schemes” or contend that the cost or complexity of switching to the new scheme would be too great.

Other design questions concern how small business should be defined, and the specifics of the proposed reporting framework such as what information should be required, and how “small businesses and other interested stakeholders” should access it. Peripheral stakeholders include the makers of business software and credit reporting agencies.

One key question is around the administrative approach:

“What is the preferred balance between regulatory certainty (through legislation and administrator powers) and flexibility (through standards and self-regulation)?”

The government has already stated it wants the framework to apply to organisations that turn over more than $100 million a year, but the paper suggests consolidate revenue as defined by the Australian accounting standards might be a better option than consolidated turnover figures used to calculate tax liabilities.

Minister for Jobs and Small Business Michaelia Cash said there were positive economic effects including “stronger employment and wages” from similar schemes to get small businesses paid on time in the United States and Europe.

The issue has been around for a very long time and the minister says it is still a common complaint to her office.

“Reports that some large businesses push out payment terms to 60 or even 120 days, or demand discounts just for paying on time, place huge financial and mental stress on business owners,” she said in a statement.

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