Implied Payment Terms

Late payment is one of the most persistent problems in UK public sector supply chains, particularly for small and medium-sized businesses that lack the financial resilience to absorb delayed payments. The Procurement Act 2023 addresses this directly by implying standard payment terms into public contracts, creating legally enforceable rights to prompt payment throughout the supply chain without requiring suppliers to negotiate these protections in every individual contract.

What are implied payment terms?

Implied payment terms are payment conditions that the Act writes into every contract within its scope where the parties have not expressly agreed different terms. The core implied term is that a valid invoice must be paid within 30 days of receipt. This applies both to the contracting authority paying its prime contractor and, importantly, to the prime contractor paying its subcontractors at every tier in the supply chain.

The 30-day payment term operates as a default: if the contract is silent on payment timing, 30 days applies automatically. If the contract expressly specifies different terms, those terms govern provided they are not unlawfully burdensome on suppliers. The Act also gives the government powers to set further payment standards through secondary legislation.

The supply chain payment obligation is particularly significant. Public contracts have historically suffered from a "cascade delay" problem: even where the contracting authority pays the prime contractor on time, subcontractors at tier 2 and below often face much longer payment delays imposed by the prime. The Act's implied terms apply throughout the supply chain, meaning each contractor in the chain has a legal obligation to pay its own suppliers within 30 days, not simply to pass on payment within 30 days of receiving it from above.

Key Performance Indicators for contracts above GBP 5 million may include payment compliance metrics, creating additional accountability for supply chain payment behaviour.

Why it matters for bidders

As a prime contractor, the implied payment terms create both an entitlement and an obligation. You are entitled to be paid within 30 days by the contracting authority; you are obliged to pay your subcontractors within 30 days of a valid invoice from them. Failure to comply with the supply chain obligation can expose you to legal claims from subcontractors and, in cases of persistent non-payment, may provide grounds for a contracting authority to take action under the contract's performance management provisions.

As a subcontractor, the implied terms give you a legally enforceable right to 30-day payment from your main contractor regardless of whether the contract documents express this clearly. If payment is delayed beyond 30 days, you are entitled to statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 in addition to any contractual late payment provisions.

Example

A facilities management company wins a GBP 8 million cleaning services contract with a metropolitan council. The contract is silent on payment terms for subcontractors. The company subcontracts specialist window cleaning to a small local firm. Under the implied payment terms in the Procurement Act 2023, the company must pay the window cleaning subcontractor within 30 days of a valid invoice, even though the contract documents do not expressly say so. When the subcontractor submits an invoice at the end of each month, the company must process payment within 30 days or face statutory interest liability.

Frequently Asked Questions

What counts as a valid invoice for the purposes of the 30-day term?

A valid invoice is one that contains all the information required by the contract and, where applicable, VAT regulations: the supplier's name and address, the buyer's name and address, a description of the goods or services supplied, the amount due, the VAT amount if applicable, and the date. Buyers and prime contractors cannot artificially delay the payment clock by finding technical deficiencies in invoices that are substantially complete.

Can a contracting authority agree payment terms longer than 30 days?

The Act permits express agreement to different terms, but there are limits on what is permissible, particularly where extended terms would be unlawful under the Late Payment of Commercial Debts legislation or where the terms are manifestly unfair to suppliers. Government policy strongly discourages payment terms beyond 30 days for SMEs.

How are implied payment terms enforced?

Subcontractors can enforce the implied terms through the courts as a matter of contract law. For prime contractor obligations to the contracting authority, non-payment can trigger statutory interest and, in serious cases, may constitute a breach entitling the authority to withhold future payments or take other remedial action.