Business body says Carillion case proves the limitations of the PPC

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An influential business body has called for Britain’s biggest firms to be made subject to a so-called “three strikes” rule, as part of efforts to clamp down on late payment.

The Federation of Small Businesses (FSB) has reiterated calls for a more robust Prompt Payment Code (PPC) following the high-profile demise of construction giant Carillion.

Following the company’s collapse last week it has emerged that bosses had forced some small businesses to wait over 100 days before they were paid.

The controversy has prompted the FSB to argue for a change in regulations which would essentially bar FTSE 350 firms from bidding for public sector contracts if they had a poor record of settling invoices with contractors.

Mike Cherry, the organisation’s national chairman, said that the “sorry saga” of Carillion had exposed the weaknesses of the current Code.

While he believes that the policy is, at its heart, a good idea, the problems that many small businesses have experienced in getting the money they are owed have tended to suggest that large companies have not been held to account by the present arrangements.

“Although they were signatories of the PPC, Carillion were able to use their dominant position to squeeze smaller firms to mask their own financial failings,” said Mr Cherry. “This irresponsible behaviour has put many small businesses in jeopardy, with countless people fearing for their jobs.

“Government must step in immediately to strengthen the PPC by making it mandatory for all FTSE 350 businesses and introducing a tough penalty regime for those companies flouting the rules. Companies taking advantage of small businesses for their own gains should have no right to public sector contracts.

“The Small Business Commissioner needs to be given responsibility to toughen up the Prompt Payment Code.”

It has previously been suggested that late payments cost the UK economy in the region of £2.5billion a year and threaten the future of thousands of small business owners.

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