New government spot checks to tackle late payments in public sector supply chains

The UK government is ramping up efforts to ensure the fair treatment of small businesses by introducing new spot checks to tackle late payments in public sector supply chains. From 1 October 2025, a new procurement policy note  (PPN) will be part of this change.

Alison Walton, partner and head of procurement, and Katharine Ronn, solicitor, both members of our commercial team, explain the details of the new update.

What to expect from the new PPN

Central government departments awarding contracts worth over £5million annually will be required to include provisions in their contracts allowing for spot checks. These spot checks will allow them to confirm that subcontractor invoices are paid within the mandatory 30 days required right down the supply chain by the Procurement Act 2023.

This move is designed to support small and medium-sized enterprises (SMEs), social enterprises, and charities that often face significant cash flow challenges due to delayed payments throughout the supply chain for public sector contracts.

30-day payment terms

The initiative, which is mandatory for central government and recommended best practice for all other public sector bodies, complements the Procurement Act 2023.

The Act legally requires all public contracts (and all subcontracts within the supply chain) to include 30-day payment terms for invoices. It also reinforces prompt payment as a standard expectation, giving smaller suppliers greater certainty and protection.

Unannounced spot checks

A key part of the update includes unannounced spot checks, where the government will examine whether payments to suppliers within the supply chain are being made on time, specifically within 30 days, as required under existing rules. This applies not only to direct contracts but also to subcontracts that are vital to the delivery of public services.

These spot checks come in response to longstanding concerns from small suppliers who have struggled with late payments, which can severely impact their operations and growth. By enforcing timely payment through both policy and monitoring, the government aims to tackle these concerns and create a fairer procurement environment for all.

Under the new guidance, contracting authorities are expected to conduct spot checks at least once every six months from the date a contract is awarded. More frequent checks may be necessary if there is a higher risk of non-compliance. This could include contracts or sectors with known payment delays, financial stability issues, or areas where complaints have been raised.

Requests for suppliers' information

As part of these checks, contracting authorities will need to request information from suppliers, including copies of each contract's 30-day payment terms, payment dispute resolution processes, and confirmation that these procedures have been shared with subcontractors.

Suppliers must respond to a spot check within 20 days and provide supporting evidence such as financial system screenshots, invoices, bank statements, and verification from subcontractors.

If late payments are found, contracting authorities can take action by reminding suppliers and subcontractors of their legal obligations regarding 30-day payment terms. They can advise subcontractors to pursue late payment interest, require suppliers to address non-compliance, and inform suppliers that they may be in breach of their own contract.

What happens after a spot check?

After completing a spot check, contracting authorities are required to report the results within three months on Find a Tender, the central platform for public sector contracts.

Contracting authorities can also offer guidance to subcontractors on how to take further action, which could include referring the matter to the Procurement Review Service, which has the power to investigate supplier misconduct. .

'Levelling the playing field' for SMEs

Minister for the Cabinet Office, John Glen, emphasised the importance of these reforms in promoting economic growth and innovation:

"Small businesses are the backbone of our economy. These new rules are about levelling the playing field and ensuring government suppliers – regardless of size – get paid fairly and on time."

For procurement professionals and suppliers alike, these changes signal a significant shift in public sector buying behaviour.

Those working with or within government contracts should ensure their payment processes are aligned with the 30-day requirement and be prepared for increased scrutiny in the months ahead.

By holding public bodies to account and increasing transparency, these measures are set to improve supplier relationships, boost business confidence, and enhance the overall resilience of the UK's public procurement system.

Staying compliant

These changes will sit alongside the mandatory reporting requirements for contracting authorities to publish Payment Compliance Notices, which require statistics to be reported regularly on the percentage of supplier invoices paid on time.

With these new measures being enforced, timely payments are no longer just best practice and it is vital to make sure your organisation is prepared for these changes.

If you have any questions about these changes, please contact Alison Walton, head of our procurement team via 0191 2117850 or [email protected] for further information.