The Payment Times Reporting Act 2020 (Cth) (Act) commenced on 1 January 2021. The Act introduces a scheme requiring large businesses and certain government enterprises to report on their payment terms and practices in relation to small business suppliers. Although not applicable to all Commonwealth entities, the underlying policy intent of the Act requires consideration.
Background to the Act
The policy intent underpinning the Payment Times Reporting Act 2020 (Cth) (Act) is to improve payment outcomes for small businesses by increasing transparency around the payment practices of large businesses and significant government enterprises in relation to their small business suppliers. A greater level of transparency will, it is hoped, assist in improving timely payments by such businesses and government enterprises and will also enable small businesses to make more informed assessments regarding the customers they provide goods and services to. This is considered important, given the negative impact on individual small businesses of late payments, which has a broader economy wide impact.
What Government entities will be subject to the Act?
The Act will apply to “reporting entities”, as defined in section 7 of the Act. These include each corporate Commonwealth entity and Commonwealth company within the meaning of the Public Governance, Performance and Accountability Act 2013 (Cth) that satisfy the following criteria:
- the entity carries on an enterprise in Australia; and
- the entity (or the group it is part of) has total income for its most recent financial year of more than $100 million.
Other entities may voluntarily opt in to the scheme established under the Act.
Examples of the Commonwealth Government entities that will be reporting entities are Australian Post, the Australian Rail Track Corporation and NBN.
What reporting requirements apply?
Reporting entities will be required to submit “payment times reports” twice yearly, within 3 months of the end of each six month reporting period. This means most Government entities that are subject to the Act will be required to submit their first report by 30 September 2021.
These payment times reports will include information such as:
- details about the entity’s standard payment periods, including its shortest and longest payment periods;
- details and an explanation about any changes to the entity’s standard payment periods during the payment period;
- details about the proportion of small business invoices paid within a number of different listed periods of time, for example, the proportion paid within 20 days of invoice date; and
- details of the proportion of all procurements carried out by the entity that were procurements from small business suppliers.
The payment times reports must be submitted to the Payment Times Reporting Regulator (Regulator). The Regulator will be a senior officer in the Department of Industry, Science, Energy and Resources. The first Regulator has not yet been publicly announced.
What information will be made public?
The Regulator is obliged to maintain a register of payment times reports. That register will be available on the internet for public inspection at no cost. There are circumstances in which these reports will not be made available, but these are very limited and link to whether disclosure would be contrary to the public interest.
Given the nature of the information that is required to be included, these publicly available reports will make very clear which large businesses and significant Government enterprises do not make payments on time. It is unlikely that individual small business suppliers will conduct a detailed analysis of the register to determine which entities do not pay on time. However, the register will be of interest to the media, which is likely to analyse and report the identities of those entities that disclose poor payment practices – particularly in the case of entities that report poor performance over a period of time.
What happens in cases of non-compliance?
The Act provides for a 12 month delay in the application of compliance and enforcement powers. This is to enable reporting entities to familiarise themselves with the requirements of the Act and transition effectively. Following that 12 month period, civil penalties apply to reporting entities (other than those that voluntarily opt in) if they do not submit required reports on time or if any submitted report is false or misleading.
Where a reporting entity has failed to comply with the Act, the Regulator may (provided it has first consulted with the non-complying entity) publish the name of the non-complying entity and the details of the non-compliance. This information may be published on the register and “in any other way the Regulator considers appropriate”, which may result in significant adverse publicity for non-compliance. The intention behind this disclosure is for the Regulator to “name and shame” entities who egregiously disregard their obligations under the Act, in an attempt to deter non-compliance.
What does this mean for Government agencies?
The Act applies to only a limited number of Commonwealth Government enterprises. However, this does not mean that Commonwealth agencies should ignore the Act and its underlying policy rationale. That rationale should be considered in dealings with small businesses, in addition to other obligations, such as the requirement under the Commonwealth Procurement Rules for non-corporate Commonwealth entities to comply with the payment terms set out in the Government’s Supplier Pay on Time or Pay Interest Policy in relation to contracts valued up to $1 million.