Small Business Shorter Payment Terms Policy

Policy

Updated: 1 Jul 2021

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Large businesses with NSW Government contracts valued at $7.5 million or above will be required to pay small business subcontractors within 20 business days.

Overview

Cash flow can be a major issue for small businesses and can be impacted by non-payment, late payment or extended payment terms imposed by larger businesses.

The Small Business Shorter Payment Terms Policy aims to support the important role of small businesses in the NSW economy by promoting the faster payment of small businesses on NSW Government contracts.

Policy

Under the policy, for goods or services contracts with a large business with a contract value of $7.5 million or above, a NSW Government agency must require the large business to:

Identify direct subcontractors¹, which are engaged to provide goods or services to the large business for the purposes of the relevant goods or services head contract between the large business and the NSW Government, and inform them of this policy.
Include in its subcontracts with small business subcontractors, which are (wholly or in part) for the provision of goods or services for the purposes of the relevant NSW Government head contract, a requirement that the large business make payments under the subcontracts within 20 business days following the receipt of a correctly rendered invoice from the small business subcontractor.
Pay small business subcontractors for the provision of goods or services relevant to the NSW Government agency head contract² within 20 business days following receipt of a correctly rendered invoice.
Report under the head contract as per the contractual requirements relating to this policy.

[1] This relates to direct subcontractors of the large business only and not to further levels of subcontracting in the supply chain.

[2] This relates to payment terms associated with the provision of goods or services relevant to the head contract with the NSW Government agency only. This policy does not cover, nor does it require changes to be made to, payment terms associated with the provision of goods or services by a small business to the large business to the extent those goods or services are not relevant to the NSW Government head contract.

If the estimated contract value is $7.5 million, agencies should use the model tender and contract clauses DOCX, 36.79 KB.

For guidance on how to estimate contract values, agencies can refer to:

the Procurement Policy Framework
enforceable procurement provisions (EPP Direction).

Agencies often ask suppliers to advise of any intended subcontracting during the tender process. Therefore, suppliers should be able to identify direct subcontractors.

Identifying small business participation on a government contract is also consistent with the SME and Regional Procurement Policy.

This policy only relates to direct subcontractors of the large business. It does not relate to further levels of subcontracting in the supply chain.

The policy applies regardless of the value of the subcontract.

Large businesses must inform direct subcontractors of this policy and reporting under the contract.

They can do this by providing them with a link to the policy: buy.nsw.gov.au/policy-library/policies/small-business-shorter-payment-terms-policy

This policy applies when:

the direct subcontractor is a small business, and
the contract between the large business and the small business is associated to the provision of goods or services relevant to the head contract with the NSW Government agency.

Large businesses must pay direct small business subcontractors within 20 business days.

For this to happen, the eligible subcontractor must identify themselves to the large business as a small business. We encourage eligible subcontractors to do this as soon as they have been notified of the policy.

The 20 business day period starts on the first full day after the correctly rendered invoice is received by the large business.

Subcontractors should find out how to submit a correctly rendered invoice to the large business to help ensure they get paid on time – this may not be the same for every large business. Only invoices associated with the provision of goods or services relevant to the head contract with the NSW Government agency are covered by the policy.

Large businesses have to report on:

the number of small business subcontractors they’re required to pay within 20 business days
the total value of those subcontracts.

Large businesses must report twice per financial year. This can be shorter depending on the nature and term of the contract.

This reporting complements the SME and Regional Procurement Policy.

View the key elements of the policy summarised in a diagram PDF, 54.66 KB.

Definitions

Business day means a day that is not a Saturday, a Sunday or a public holiday in NSW.

Large business is defined as an entity which:

has 200 or more full-time equivalent employees (excluding registered charities and not-for-profit organisations), or
is a ‘reporting entity’ within the meaning of the Payment Times Reporting Act 2020 (Cth).

Small business subcontractor means a direct subcontractor entity, which is identified as a small business on the NSW Government website buy.nsw.

A small business subcontractor is a subcontractor which has been identified by the large business supplier under the policy, and having been informed of the policy, requests to be paid by the large business within 20 days on the basis that it is a genuine small business, having 1-19 FTEs (including sole trader or start-up).

If a subcontractor no longer meets the definition of a small business, it should tell the large business. In this case, the large business may no longer be obligated to pay the subcontractor within 20 business days.

Application

This policy applies to the procurement of all goods or services by a NSW Government agency, within the meaning of section 162 of the Public Works and Procurement Act 1912.

A NSW Government agency must apply this policy to all new goods or services procurement activities that commence from 1 July 2021.

The policy does not apply to goods or services contracts between a NSW Government agency and a large business executed:

before 1 July 2021, or
after 1 July 2021 in circumstances where the approach to market in respect of that contract commenced before 1 July 2021.

The policy does not apply to construction work or the provision of goods or services under a construction contract, which is subject to the Building and Construction Industry Security of Payment Act 1999 (NSW).

A new approach to market may include:

expression of interest
request for quote
requests for proposals or tenders.

It includes tender processes for whole-of-government or panel arrangements.

Compliance

In the first instance, a small business subcontractor should raise with the relevant large business any issues relating to potential non-compliance with contracted payment terms.

The NSW Small Business Commissioner can provide mediation services to small businesses if necessary.

In the event the issue cannot be resolved with the large business, a small business subcontractor may raise the issue with the relevant contracting agency.

A NSW Government agency may undertake a review at any time to determine a large business’s compliance with contractual obligations relating to this policy, regardless of whether an issue has been made by a small business subcontractor.

Non-compliance with the policy may result in a breach of:

the large business’s contract with NSW Government, or
the subcontract between the large business and the small business.

Potential breaches should be dealt with under the relevant contract(s).

Agencies should take a risk-based approach to reviewing compliance with this policy.