When this debate was adjourned I had been dealing with, in particular, section 1, the definitions section. The second key term defined in that section is "prescribed payment date", which is the date on which payment for the provision of goods and services will be due. In the case of a written contract, the due date will be the date specified in the contract. Where there is no written contract, or where the written contract does not provide for a date of payment, the payment date will be 45 days after receipt of the invoice or delivery of the goods, whichever is the later.
There is also provision in section 1, in conjunction with section 10 (2), for the 45-day payment period to be reduced by order, at a future date, if this should be considered desirable in the light of experience.
Section 2 specifies that the Bill will apply only to goods and services supplied on or after the date on which its provisions come into operation. Section 3 allows the Minister, by order, to amend the Schedule which lists the bodies covered by the legislation. This provision is necessary to allow the Act to be updated to include new public bodies which may be established in the future and to remove the names of those which cease to exist. For reasons of transparency, the section also specifies that, if the Minister deletes a body from the Schedule, the reason for its deletion must be specified in the order.
Section 4 is the key provision ensuring the prompt payment of accounts and requires purchasers, whom I described earlier, to pay for the supply of goods and services by the prescribed payment date. If payment is not made by the due date, the purchaser must pay an interest penalty on the amount outstanding. The interest must be paid in respect of the period beginning on the day after the due date of payment and ending on the date on which payment is made. Most importantly, the section specifically provides that the interest penalty cannot be waived by the supplier. Moreover, the interest penalty must be paid without any demand for its payment being made by the supplier.
The automatic entitlement to interest in respect of late payments provided for in this section is a fundamental prerequisite to the effective operation of the legislation. Very often suppliers regard themselves as being in a vulnerable position vis-à-vis purchasers. It is more than likely they would be reluctant to submit demands for payment of interest for fear of jeopardising their chances of securing future contracts. Section 4 is designed specifically to protect the supplier and ensure easy and automatic access for him or her to entitlements under the legislation.
Section 4 also stipulates when payment shall be taken to have been made by the purchaser. This shall be when the supplier has received the appropriate amount of cash, when the appropriate amount is credited to the supplier's account or when the purchaser enables the supplier to credit his or her account with the appropriate amount, for example, by means of a cheque which is subsequently honoured.
Section 5 is designed to address circumstances in which incorrect or inadequate invoices are furnished by suppliers. It is not uncommon for lengthy delays to occur while problems relating to invoices are resolved between the purchaser and supplier. Therefore, the objective of this section is to speed up this process or, at least, ensure that any undue delay on the part of the purchaser in querying an invoice will not result in the supplier having to wait indefinitely for payment. This section is intended to encourage the purchaser to raise any queries concerning the invoice with the supplier within ten days of receipt of the invoice. It provides that, where a purchaser returns an invoice to a supplier within ten days of receipt because of its inadequacy or inaccuracy and, at the same time, gives the supplier a written statement identifying the defects that prevent payment being made, the interest penalty shall not accrue until ten days after the purchaser receives a corrected invoice or until the due payment date, whichever is the later.
If the purchaser is late in returning the invoice to the supplier, the period of grace allowed for payment after receipt of the corrected invoice will be reduced by a corresponding number of days.
Section 6 specifies that, when any payment which includes an interest payment is made, it must be accompanied by a notice stating the amount of the interest penalty included, the rate by which and the period for which the interest penalty was computed. There is also provision to allow the Minister to prescribe that additional information must be provided if, in the light of experience, it transpires that further information would be useful to suppliers. The purpose of section 6 is to ensure clarity and transparency in relation to interest payments. It will enable the supplier to know exactly how much interest he or she is being paid, the rate used and the period involved. In the absence of such provision, it would be difficult for the supplier to ascertain whether or not he or she was receiving the correct entitlement.
Section 7 deals with the payment of invoices in the event of dispute. Suppliers often complain that it is common practice for purchasers to withhold payment of an entire invoice if any of the goods or services covered by the invoice are in dispute. They also contend that some disputes can be spurious and used as a delaying factor to postpone the date of payment. To rectify this problem in a fair manner I am providing for the partial payment of invoices in cases of dispute. The purchaser will not have to pay interest on amounts outstanding in respect of goods or services in dispute provided, first, the parties agree that the goods or services are genuinely in dispute or a court or arbitrator so decides and, second, the purchaser pays for the goods, if any, agreed or determined not to be in dispute.
Section 8 provides for the resolution of disputes. It gives suppliers the option of submitting disputes relating to the payment of an interest penalty to arbitration. Suppliers are sometimes reluctant to pursue cases in the civil courts for a variety of reasons, and I considered that some other form of resolution mechanism should be open to them under the Bill. Given the subject matter of this Bill, access to arbitration is particularly suitable. It is important to note, however, that the decision on whether to refer a dispute to arbitration rests with the supplier. It is still open to the supplier to bring a case to the civil courts if he or she would prefer that course of action.
The section also provides for the appointment of an arbitrator who may be chosen by agreement between the parties or, failing such agreement, may be appointed by the President of the Law Society or by any other person prescribed by the Minister. The provision of the Arbitration Acts will apply to arbitration under this Bill but, if necessary in the light of experience, the Minister may modify the provisions of those Acts for the purposes of arbitration on prompt payments or set additional conditions in relation to the arbitration.
Section 9 is designed to ensure that main contractors on public sector contracts pass on the benefits of being paid promptly to their subcontractors. The section applies where there is a written contract between a public sector body and a main contractor and where the main contractor then contracts, in writing, with other suppliers for the acquisition or supply of goods or services to be provided under the first contract with the public body. The main contractor must agree a payment period with his suppliers which is at least as short as the payment period he has secured from the public body.
There is one aspect of section 9, as published, with which, on closer examination, I am less than satisfied. The clause to which I refer is the provision which would allow the main contractor and his supplier to agree, in writing, to a longer payment period than would otherwise be permitted under the section. It appears this would have left a loophole and I have, therefore, decided to introduce an amendment on Committee Stage to close this off.
While section 9 refers only to circumstances relating to written contracts, suppliers to main contractors also have the protection of the legislation where there are no written contracts. By virtue of the definitions of "purchaser" and "prescribed payment date" in section 1, a main contractor would be obliged, under section 4, to pay his suppliers within 45 days in the absence of a written contract. The amendment I propose to introduce on Committee Stage will make this position clearer.
Section 10(1) requires the Minister, by order, following consultation with the Minister for Finance, to fix the rate of interest penalty which will apply to late payments. It also allows the Minister to amend such an order. This provision will allow for flexibility so that fluctuations in interest rates in the market can be taken into account, as necessary, in setting the rate of interest penalty on late payments.
Section 10(2) allows the Minister, after consultation with the Minister for Finance, to shorten the 45 day payment period specified in the definition of "prescribed payment date". It is my intention to monitor the operation of this legislation on an ongoing basis and this section will give me the power, if it is deemed necessary or desirable in the light of experience, to reduce the 45 day payment period at any stage.
Section 11 provides for a major safeguard against public sector bodies seeking unreasonably long payment periods in written contracts. It gives the Minister the power to police the payment practices of public bodies. Where the Minister considers any public body is availing itself of credit terms that are unreasonable in the circumstances, the public body can be compelled, by order, to pay for all or some of its goods and services within 45 days. For reasons of natural justice, the Minister will have to advise the public body of the grounds for believing that the credit terms are unreasonable and afford them an opportunity to respond.
Section 12 is intended to ensure transparency in regard to payment practices by public bodies. It will require all bodies listed in the Schedule to disclose details of their payment practices. Where the body is required, by statute, to publish an annual report, the report must include details of the payment practices in the period covered by the report. Where a public body is not required to publish an annual report, it will have to submit an annual review of its payment practices to the Minister and the review shall be laid before the Houses of the Oireachtas. The Minister also has the power to specify the type of details which should be included in the annual reports and reviews.
Section 13 provides a further mechanism for ensuring compliance with the legislation. It specifies that every auditor auditing the affairs of a body listed in the Schedule must report on whether that body has complied with the provisions of the Act. This is in line with the recommendations of the Task Force on Small Business which suggested that the Comptroller and Auditor General should be given a function in monitoring the payment performance of public bodies.
Section 14 deals with tax clearance certificates and withholding tax. It makes it clear that the Act does not require the payment of an amount due to a supplier who has failed to comply with a request to provide a tax clearance certificate and it extends the time limit for payment where there are delays in furnishing such certificates. The section also makes it clear that the legislation will not affect the power to deduct withholding tax from any payment to a supplier.
Section 15 is a standard section empowering the Minister to make necessary regulations under the Act. It also deals with the laying of orders and regulations before the Oireachtas. Section 16 is also a standard provision dealing with the short title and commencement of the Act.
This Bill represents further evidence of this Government's ongoing commitment to improve the operating environment for small business. The legislative requirement on public sector bodies to pay their suppliers promptly, with the automatic entitlement of suppliers to interest on outstanding payments, are positive steps to improving cash flow for small business and to freeing management time to concentrate on the essential elements of their business. In conjunction with the wide range of other improvements introduced by the Government, this Bill will ensure that small businesses will have the environment they need to grow and develop and to expand their very significant employment creation potential. Accordingly, I commend the Bill to the House. I welcome the support for the legislation, particularly from the Fianna Fáil benches. They were keen to see this Bill and I am glad we had the opportunity to introduce it in this session.