This article was written by Annabel Griffin, Stephen Mason and Jillian Kearns
As part of its overall policy of facilitating timely payment to suppliers, assisting with their cash flow and reducing the cost of doing business with the Commonwealth, the Minister for Finance recently announced an updated Commonwealth “pay on time” policy.
Under the revised policy, if a supplier and a non-corporate Commonwealth entity use e-invoices through a standardised framework (the Pan-European Public Procurement On-Line (PEPPOL) interoperability framework), the Commonwealth will pay the invoice within 5 days, or pay interest if the amount of interest is $100 or more.
Otherwise, the payment term will be 20 days or a shorter agreed period.
The policy will become effective on 1 January 2020.
The new policy is comprehensively set out in a new Resource Management Guide 417, released on 7 November 2019.
What is PEPPOL?
PEPPOL is a framework that simplifies e-procurement and e-business by enabling businesses to exchange standards-based documents (eg e-invoices) electronically. It has been adopted in over 32 countries. Businesses and trading partners communicate via Access Points, and they have the freedom to choose any Access Point Provider within the PEPPOL network. The ATO is PEPPOL Authority and an Access Point Provider for Australia, so it is able to support the framework and accredit service providers.
Who is caught by the updated policy?
The policy applies to non-corporate Commonwealth entities. Corporate Commonwealth entities are encouraged to comply with the policy.
It applies where the contract value is $1 million or less. In working out the contract value, count in GST but ignore options, extensions and renewals etc. It also applies to work orders of less than $1 million under standing offers. If you don’t know the contract value, you must treat it as $1 million or less, unless this is unreasonable.
The policy doesn’t apply where the contract or standing offer is already in place or being negotiated at 1 January 2020. Nor does it apply:
- to procurements overseas
- to real property transactions (including leases and licences)
- where the funding source is an administered appropriation
- where it’s impractical, because of the nature of the goods and services being procured, or the structure of the procurement (eg where the supplier’s standard terms are used)
- to procurements from Commonwealth entities
- to payments under a non-procurement (eg a grant).
What should you do?
The Government’s media statement says that the Government expects all non-corporate Commonwealth entities to comply with the policy from 1 January 2020. Additionally, the Public Governance, Performance & Accountability Act 2013 requires non-corporate Commonwealth entities to comply with Commonwealth policy. However, the media statement notes that the Government is prioritising e-Invoicing with the Department of Finance and Services Australia, and that other agencies will implement the capability throughout the year.
In preparation for the roll-out of the new policy, non-corporate Commonwealth entities and businesses should take the steps needed to select Access Point Providers (including ensuring that their software is PEPPOL compatible), and to ensure that their internal financial systems are modified to allow them to meet the 5 day deadline.
What about existing and template contracts?
The policy doesn’t apply to contracts in place or being negotiated on 1 January 2020. New contracts after this date should reflect the new policy requirements. The RMG provides example draft contract clauses to assist, but they don’t necessarily reflect all the exceptions to the policy and, like all templates, should be used with are. We expect that the standard Commonwealth templates will be updated in due course.
Payment card preferred
The policy also states that, with some exceptions, non-corporate Commonwealth entities are to use payment card processes at the point of sale for amounts below $10,000, in preference to suppliers issuing invoices.
 See also the Department of Finance’s website.