to which the provision applies
Fair payments provisions apply to
contracts entered into from 1 July 2007 where the value of the goods or
services does not exceed $3 million.
While it is acknowledged that a $3
million threshold will capture some contracts involving larger businesses, it
is considered as the appropriate minimum requirement to ensure the likely
coverage of all contracts involving small and medium businesses.
Agencies should include an appropriate
fair payments clause in these contracts. Clauses should provide for:
- Payment of debts within 30 days
- Penalty interest for late payments
- Requirement for the supplier to
give notice of the late payment in order to receive penalty interest
- Suspension of the 30-day payment
period in the event of a dispute.
A standard clause has been drafted, as
follows, for use by departments and agencies. Each agency should consult its
legal officers to ensure that the clause is appropriately tailored on a
1.1 [The Agency] will, on demand by [the
Contractor], pay simple interest on a daily basis on any overdue amount, at the
rate for the time being fixed under section 2 of the Penalty Interest Rates
Act 1983 (Vic).
1.2 For the purposes of clause 1.1,
"overdue amount" means an amount (or part thereof) that is not, or is
no longer, disputed in accordance with this Agreement:
(a) that is due and owing under a tax
invoice (as defined in the A New Tax System (Goods and Services Tax) Act
1999 (Cth)) properly rendered by Contractor in accordance with this
(b) which has been outstanding for more
than 30 days from the date of invoice or the date that the amount ceased to be
disputed, as the case may be.
reporting & evaluation
Agencies should ensure that appropriate
monitoring and reporting mechanisms are established. This will enable an
evaluation of the fair payments provisions to determine their effectiveness in
ensuring prompt payment of Government debt to business.
Specifically, information should be
- Number of claims for penalty
- Value of the invoices involved
- Overall payment terms, i.e.
percentage of all payments made within 30 days.
on late payments
The interest payable on late payments
will be in accordance with existing Victorian legislation, namely, the Penalty
Interest Rates Act 1983. Under this legislation, the penalty interest rate
which would apply to the late payment of commercial debts by agencies would be
the interest rate expressed as a percentage fixed by the Attorney-General from
time to time by notice published in the Government Gazette.
Such penalty interest would accrue 30
days after the debt arises.
The current penalty interest rate is
available from the Department of Justice and
penalty interest calculation
Assuming the following:
- Penalty interest rate is 10 per cent
- Value of the invoice is $100,000
- Payment occurs 12 days after the
conclusion of the 30-day period
- Interest owing = $ 100,000 × 10.00 per cent × 12/365 = $328.77.
of penalty payments
In respect of the ongoing administration
of the commitment, the penalty interest component on late payments will be
based on the supplier's initiation, which will minimise tracking of individual
payments by departments.