Agenda item

The Executive Member for Environment and Finance & Governance and the Director of Finance submitted a report for the Executive’s consideration.

 

The purpose of the report was to seek approval of the procurement and implementation of a SIP for Middlesbrough Council.

 

As part of a drive to improve commercialisation, an opportunity had been identified which planned to allow the Council to continue to support the local economy and suppliers but also create an income stream that was not currently being achieved.

 

The SIP offered the Council the ability to continue to support the local economy and suppliers but also make a commercial return of approximately £150k per annum over the next 5 years.

 

The Council had been considering the implementation of the SIP programme for some time and it was hoped that the solution would further enable electronic receipt, matching and payment of supplier invoices thereby improving processes and cash flow for all suppliers as well as providing the functionality for an optional three way incentive programme to deliver even earlier payments (e.g. even earlier than 20 days).

 

With enhanced checks and controls in place as part of the SIP programme, it also planned to reduce the risk of duplicate and fraudulent payments, which presented a heightened risk in the current economic climate. The SIP planned to enable thousands of invoices to be processed early, injecting millions of pounds of liquidity into the economy, with the additional revenue generated from the SIP Programme being channelled into frontline services for the benefit of local residents.

 

The SIP worked on the following principles:

·        e-invoicing;

·        supplier payment terms were set at standard 30 days; and

·        no supplier was compelled to sign-up to, or participate in, the programme.

 

A description of the key objectives of the project were:

·        to procure and implement a SIP to suppliers;

·        to on board at least 40% of in-scope suppliers (3rd party Trade spend);

·        to improve P2P processes to maximise invoice acceleration; and

·        to improve cash flow for suppliers that could assist in recovery from COVID 19 and generate additional funds that could be reinvested into frontline services (on a free of charge basis for small local suppliers - “Freepay”)

 

OPTIONS

 

Implementing a SIP internally had been considered, however, the cost associated would have been significantly more than the cost of procuring it via the NEPO Framework.

 

Oxygen Finance were working with over 30 other local authorities and had proven experience in implementation and delivery that the Council could not duplicate without significant additional resources.

 

Oxygen had over 10 years’ experience in running Early Payment Programmes and had developed a tried and tested methodology. That included templates and a fully resourced team to minimise the effort required by the Council.

 

The Oxygen solution was VAT compliant and had been subject to legal guidance to ensure compliance to various relating legislative requirements including the Construction Act.

 

ORDERED

 

1.      That the Council reverting back to the Statutory payment term of 30 days be approved.

2.      That the procurement and implementation of a Supplier Incentive Programme (‘SIP’) with Oxygen Finance Ltd (‘Oxygen’), via the NEPO 521 Early Payment Services Framework, be approved.

3.      That utilising the E-Invoicing format to ensure compliance with Public Contract Regulations 2015 (PCR) be approved.

 

REASONS

 

In addition to the rebate there were also other non-cashable benefits that could be realised through the implementation of the system:

 

Benefits to the Supplier / Economy

·        Suppliers could secure even quicker payment terms, which would further improve liquidity and cash flow.

·        Local small and micro businesses would be able to benefit from ‘Freepay’ at no cost.

·        Deliver social value, contributing to the development and post Covid-19 recovery of the local economy through the earlier payment of invoices.

 

Benefits to the Council

·        There were legislative drivers that may be partially addressed through a properly implemented SIP:

o   The Public Contracts Regulations 2015 - liabilities paid within 30 days (increased compliance to target);

o   The Public Procurement (Electronic Invoices etc.) Regulations 2019 - Electronic Invoicing Directive contained provisions relating to the processing of electronic invoices (ability to comply through implementation of eInvoicing);

o   The Late Payments Directive - automatic entitlement to interest for late payment (reduction in late payment liability).

·        Improved Council performance in terms of Accounts Payable.

·        Improved strategic engagement with suppliers who choose to sign up.

·        Encouraged suppliers to help drive best practice (e.g. e-invoicing) and compliance (e.g. no PO/ no pay).

·        Contributed toward social value goals by improving cash flow for local businesses and creating added social value in Middlesbrough.

·        Over the medium term the programme would generate a net return (after implementation costs and lost interest on balances held) that could be reinvested into the delivery of front line services.