Late payments

December 2020

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1.0 Introduction

1.1 The Office of the Procurement Ombudsman

The Office of the Procurement Ombudsman (OPO) is a neutral and independent organization of the Government of Canada that works collaboratively with federal organizations (“departments”) and Canadian businesses (“suppliers”) to promote fairness, openness and transparency in federal procurement. OPO delivers on this mandate by connecting stakeholders, investigating complaints, resolving problems, making recommendations and sharing best practices.

OPO employees:Footnote 1

  • Review the practices of departments for acquiring materiel and services to assess their fairness, openness and transparency and make any appropriate recommendations to the relevant department.
  • Review any complaint respecting the award of a contract for the acquisition of goods below $26,400 and services below $105,700 where the criteria of the Canadian Free Trade Agreement would otherwise apply.
  • Review any complaint respecting the administration of a contract for the acquisition of materiel or services by a department, regardless of dollar value.
  • Ensure that an alternative dispute resolution process is provided, if the parties to the contract agree to participate.

In 2018, OPO launched a knowledge deepening and sharing (KDS) initiative to better understand key issues in federal procurement. Through the publication of KDS studies, OPO intends to share knowledge and provide meaningful guidance for federal procurement stakeholders.

1.2 Purpose of the Study

The purpose of this KDS study was to describe the process used by departments to pay suppliers; explain how the concept of “late payments” is perceived differently by suppliers and departments; identify some of the root causes of late payments; and suggest ways to mitigate the problem. It is hoped a better understanding of the issues, combined with the implementation of mitigation measures, will contribute to a decrease in late payments in the federal procurement process.

1.3 Scope of Work

This KDS study is based on situations when a supplier expects payment by a certain date but it does not arrive until after that date. OPO did not examine issues related to payments intentionally withheld or delayed by departments for reasons such as poor performance.

1.4 Audience

OPO developed this KDS study for departments which buy goods or services (collectively “work”) from suppliers, and for suppliers selling their work to departments. This study assumes the reader’s familiarity with key procurement practices and vocabulary.

1.5 Case Analysis

Based on complaints to OPO from suppliers, OPO examined 17 contract files awarded by 10 departments between September 2017 and September 2019, representing 93 late payments.

1.6 Enquiries

Enquiries should be directed to:

Office of the Procurement Ombudsman
410 Laurier Ave. W., Suite 400
Ottawa, Ontario  K1R 1B7

Toll-free for hearing-impaired:

2.0 Defining the Problem

2.1 What is a “late payment”?

From a legal standpoint, a “late payment” refers to a payment made after the due date, which is defined in Treasury Board’s Directive of Payments as the date at the end of a “…30-day payment term […] starts when both an invoice is received and the goods or services are accepted […]” except in three specifically-noted instances.Footnote 2 From the Government’s perspective, the due date is important because payments made after the due date must also include interest.Footnote 3 From the supplier’s perspective, it needs to know when the payment will be made so it can plan its finances accordingly and continue to carry on its business. Understanding how the due date is determined is part of the challenge facing suppliers.

2.2 Payment period

Whether the contract is for the one-time delivery of goods or involves monthly claims for services, each delivery of work, and that work’s associated invoice, is considered a separate transaction and has its own payment period. Prior to a payment being made, a series of departmental checks and balances are undertaken to verify the accuracy of the work and the invoice.Footnote 4 Even if a supplier was submitting monthly invoices and had submitted perfect invoices for several months, the department doesn’t have the option of skipping one of the following steps because they have confidence in the supplier’s accuracy—each step must be undertaken before payment is made.

The payment process:

  • Step 1: Supplier performs the work
    • The supplier delivers the work, and
    • Submits the invoice to the department
  • Step 2: Department accepts the work
    • The department certifies the work/invoice match and meet the contract termsFootnote 5
  • Step 3: Department processes and approves payment
    • The department certifies the payment as being a legal charge against the related appropriation and is not in excess of its budgetFootnote 6
    • The department’s payment request and funds are sent to Public Services and Procurement Canada’s (PSPC) Standard Payment SystemFootnote 7
  • Step 4: Payment is made
    • Funds are released from the PSPC Standard Payment System to the Receiver General
    • Funds are released by the Receiver GeneralFootnote 8
  • Step 5: Payment is issued
    • The payment is issued to the supplier

2.3 Different perceptions of the “payment period”

While it is generally accepted the payment period is “30 days”, suppliers and departments often have different perceptions of when that 30-day payment period starts and ends.

The supplier’s interpretation of payment period

Suppliers may interpret the payment period as starting when the work and invoice are delivered (Step 1: Supplier performs the work), and ending once the full amount is deposited into the supplier’s account (Step 5: Payment is issued).

The Government’s definition of payment period

The Government considers the payment period to start when the latter of the following has occurred:

  1. date that the work was received in acceptable condition at the location(s) specified in the contract; or
  2. date of receipt of an invoice in proper form.Footnote 9

The contract will spell out the information required for an invoice to be “in proper form”, typically the following information must be included or the Government can return the invoice to the supplier to make corrections:Footnote 10

  • the date, the name and address of the client department, item or reference numbers, deliverable/description of the Work, contract number, Client Reference Number (CRN), Procurement Business Number (PBN), and financial code(s);
  • details of expenditures (such as item, quantity, unit of issue, unit price, fixed time labour rates and level of effort, subcontracts) in accordance with the contract’s Basis of Payment, exclusive of applicable taxes;
  • deduction for holdback, if applicable;
  • the extension of the totals, if applicable;
  • if applicable, the method of shipment together with date, case numbers and part or reference numbers, shipment charges and any other additional charges; and
  • applicable taxes

Only when all of the required information is included in the invoice can the invoice be considered “in proper form” and “received”.Footnote 11 Any mistakes on the invoice will prevent the invoice from being considered “in proper form” and only when the mistakes are corrected can the invoice is considered “received”.

Considering the invoice should not be submitted until after the work is delivered, the invoice receipt date is normally the earliest date at which the Government would consider the payment period to start.Footnote 10 (Step 2: Department accepts the work). As will be discussed below, when the supplier submits its invoice and when the Government verifies that the invoice is correct can be different dates.

The Government payment period ends when the payment from the Receiver General is issued to the supplier. (Step 5: Payment is issued)

Therefore, for departments, the payment period starts when the work/invoice are confirmed as having been received and in accordance with the contract, i.e., Step 2: Department accepts the work. Departments then release “their” funds to PSPC’s Standard Payment System (Step 3: Department processes and approves payment).Footnote 7 At this point, despite the fact the supplier has yet to be paid, the department’s job is “done” as it has moved the payment request on to PSPC/the Receiver General. While Steps 3-4-5 can occur in rapid succession, there are processes, and delays, on the part of PSPC and the Receiver General, over which the department has no control.

3.0 Payment Rules

3.1 The Financial Administration Act

The Financial Administration Act (FAA) provides for the financial administration of the Government of Canada.Footnote 12 Sections 33 and 34 of the FAA read, in part:

  • 33 (1) No charge shall be made against an appropriation except on the requisition of the appropriate Minister of the department for which the appropriation was made or of a person authorized in writing by that Minister.
    • […]
      • (3) No requisition shall be made pursuant to subsection (1) for a payment that
        • (a) would not be a lawful charge against the appropriation;
        • (b) would result in an expenditure in excess of the appropriation;
        • […]
  • 34 (1) No payment shall be made in respect of any part of the federal public administration unless, in addition to any other voucher or certificate that is required, the deputy of the appropriate Minister, or another person authorized by that Minister, certifies
    • (a) in the case of a payment for the performance of work, the supply of goods or the rendering of services,
      • (i) that the work has been performed, the goods supplied or the service rendered, as the case may be, and that the price charged is according to the contract, or if not specified by the contract, is reasonable,Footnote 13
      • […]

Section 34 of the FAA is addressed by Step 2: Department accepts the work, and section 33 is addressed in Step 3: Department processes and approves payment. Essentially, section 34 requires a departmental representative to certify that the work was delivered in accordance with the terms of the contract and that the invoice contains the required information and properly reflects this work. Once section 34 has been certified, another departmental representative ensures the payment is a legal charge against the related appropriation and exercises section 33 authority by releasing departmental funds to PSPC’s Standard Payment System.

For suppliers, the “hidden” aspect of section 34 can be that it is not only the work which is considered by the department, but also the invoice reflecting the price of that work.Footnote 5 Payment for the delivery of a $1M piece of equipment could be delayed if the invoice calculated the taxes incorrectly, or referenced a wrong part number.Footnote 14 Even if the department has received the equipment and verified it is what was to be delivered under the terms of the contract, section 34 cannot be certified until the invoice is revised, re-submitted and confirmed to be correct.Footnote 11 The department does not have the option of “back-dating” the corrected invoice to when the work was delivered and original invoice was received. In other words, the clock for the 30 day payment period (which determines the due date for payment) does not start ticking until that revised invoice is received and its accuracy confirmed.Footnote 17

3.2 The Treasury Board Policies and Directives

The Treasury Board Contracting Policy (TBCP) states federal contracting will be conducted to “stand the test of public scrutiny in matters of prudence and probity […] and reflect fairness in the spending of public funds […]”.Footnote 15 Its Directive on Payments, as derived from the Treasury Board’s Policy on Financial Management, expects “financial information [to support] decision making and accountability to Canadians.”Footnote 16, Footnote 17

Section 12.2.6.c. of the TBCP defines the starting point of the payment period as “…the date that the goods or services were received in acceptable condition at the location(s) specified in the contract or the date that an invoice in proper form was received, whichever is later” and section 12.2.6.a states “…the standard payment period is 30 days”. Section 12.2.6 also directs that “… [p]ayments are scheduled so that they are made as close as possible to, but no later than, the due date.”Footnote 18

TBCP section 12.2.12Footnote 11 specifically addresses section 34 certification:

When goods or services are not considered to be in accordance with the contract, certification under Section 34 of the Financial Administration Act cannot be given… departments must notify suppliers within 15 days if the contract performance is disputed. The 30 day payment period begins upon receipt of the replacement goods or services or the revised invoice or additional information. (emphasis added)

In summary, the Government payment period does not start until the department receives the work in acceptable condition and invoice in proper form, and the payment is then scheduled to be made as close as possible to the end of the 30-day payment period.Footnote 9, Footnote 19 The PSPC Standard Payment System calculates the payment date based on the date of receipt of the invoice or the date of receipt of the work, whichever is the latest, which can be viewed as “Day 1” of the 30 days. So, even if a department certifies the invoice in accordance with section 34 on “Day 2” and quickly releases the funds to PSPC’s Standard Payment System, PSPC will only issue the funds to the Receiver General for furtherance to the supplier on Day 29 for deposit in the supplier’s account on Day 30.

If payments do occur after Day 30, section 12.2.6. of the TBCPFootnote 19 requires interest be automatically paid if the delay is caused by the department.

  • interest is paid automatically on accounts that are not paid on the due date, 30 days from receipt of an invoice or 30 days from acceptance of goods or service, whichever is later, if the government is responsible for the delay (i.e., accounts outstanding for 50 days or more when the standard payment period of 30 days applies);
  • the period for which interest is paid automatically is measured from the due date to the date that the payment is issued

If, within the first 15 days of delivery/invoice submission, the department notes that something about the work or invoice does not match the contract, section 34 cannot be applied and the supplier must either deliver work which matches the contract requirements or re-submit a corrected invoice. Only after these corrections are made can section 34 be applied and the 30-day payment period starts. The department is not responsible for this delay, so interest is not calculated based on when the original work, or original invoice, was received.

3.3 Contract Clauses

PSPC is the central buyer for the federal government and has a library of clauses for solicitations and resulting contracts—the “Standard Acquisition Clauses and Conditions” (SACC) Manual.Footnote 19 SACC templates, including model contract clauses, vary depending on the complexity of the requirement as well as whether the work consists of goods, services or construction services. These clauses, however, are not universal and do not automatically apply to non-PSPC contracts unless the department specifically incorporates them while they conduct their own contracting processes.Footnote 19

An example of a standard SACC payment period clause reads as follows:Footnote 19

Canada's standard payment period is 30 days. The payment period is measured from the date an invoice in acceptable form and content is received in accordance with the Contract or the date the Work is delivered in acceptable condition as required in the Contract, whichever is later. A payment is considered overdue on the 31st day following that date and interest will be paid automatically in accordance with the [appropriate clause in the contract].

If the content of the invoice and its substantiating documentation are not in accordance with the Contract or the Work is not in acceptable condition, Canada will notify the Contractor within 15 days of receipt. The 30-day payment period begins upon receipt of the revised invoice or the replacement or corrected Work. Failure by Canada to notify the Contractor within 15 days will only result in the date specified in subsection 1 to apply for the sole purpose of calculating interest on overdue accounts.

While these terms are not found in every contract, if they are used, their thrust is that within 15 days of receiving the work/invoice, the department will either certify section 34 for the work/invoice or advise the supplier of issues with the work or invoice. If remedial action is required by the supplier, the 30 day clock will only start once the work/invoice is rectified and deemed by the department to be in accordance with the contract.

These standard SACC clauses also explain what information has to be on the invoiceFootnote 19 as well as how interest is calculated if payment is not made by the day following the day it was due, i.e. “Day 31” when payment is due by “Day 30” after receipt of the invoice or the work by the department.Footnote 19

It is also noteworthy that, many times, SACC clauses are incorporated by reference into a solicitation document or its resulting contract. The contract will, therefore, contain a single line stating “2010B (2018-06-21, General Conditions—Professional Services (Medium Complexity) apply to and form part of the Contract”.Footnote 19 This requires the supplier to find SACC General Conditions 2010B on PSPC’s website and read and understand all 35 clauses in 2010B, including the two regarding payment period and interest on overdue accounts.Footnote 19

4.0 What causes late payments?

4.1 When is a late payment not “late”?

The difference between “late” and “slow” payments is that standard contract clauses state a payment made at least one day past the due date is “late” and interest should accrue.Footnote 19 The Government calculates lateness based on the day the Government payment period starts, i.e., Step 2: Department accepts the work—the day the department received the invoice or the goods, whichever date is later. If the work/invoice do not match the contract, discrepancies between the work/invoice and the contract must be addressed prior to section 34 certification. This renders a payment “slow”, but not technically late. Interest does not accrue, regardless of how much time has passed between the work and invoice being delivered and when the department received the corrected work and/or invoice. In such circumstances, the TBCP and contract clauses regarding interest are not triggered because the department is not responsible for the delay, i.e. the supplier either didn’t deliver the exact work expected under the contract, or there was an error in the invoice.

It is important to note that regardless of whether a payment is considered late or slow, it is still “late” from the supplier’s perspective.

4.2 Interest on late payments

As noted above, both the TBCP and the SACC contract clauses identify that interest will be paid when a payment is overdue if the department is responsible for the delay.Footnote 21, Footnote 19 The template contract clauses specifically state interest will be paid automatically as of “31st day”.Footnote 21 Many contracts do not directly reference the TBCP, so whatever is stated in the contract is normally the standard used to determine if interest is due.

Interest payments are a financial liability to the department and the Canadian taxpayer in general. Departments have limited budgets and having to spend additional funds on interest may mean less goods and services can be procured by departments to deliver their programs to Canadians.

However, the impact of late payments on suppliers can be significantly greater than the impact of interest payments on departments. In one case reviewed by OPO, the supplier finished the work in December and was due the final Holdback payment of $16,741 in mid-February. OPO was contacted in late-June as the supplier was unable to contact anyone in the department who could help them. The supplier finally received the payment on July 30, meaning it wasn’t paid until 7 months after completing the work. The department, which should have automatically included interest in this delayed payment, then required the supplier to submit a separate invoice for the interest, which was paid in August.

Fortunately the supplier at issue was able to carry the amount owing, but such delays disproportionately affect smaller companies, which may not necessarily have the cash reserves to pay suppliers and sub-contractors while it waits for the department to pay what it owes. In order to meet its own supply chain obligations, suppliers may be forced to take on a credit facility (likely on terms worse than the incoming interest payment), or in severe situations take on significant debt, default on sub-contracts and force layoffs.

4.3 Root causes of late payments

Section 34 is a federal safeguard to ensure public funds are spent in accordance with the terms of an approved contract.Footnote 5 Without it, departments risk paying wrong amounts for work received, including possibly paying the wrong supplier, paying for defective work or exposing public funds to fraud. While its importance cannot be understated, OPO observed it was the delays in section 34 certification which affected nearly every late or slow payment assessed in this study. Section 34 certification delays were found in 80 of the 93 payments reviewed by OPO.

4.3.1 – Time required to inspect the work and invoice

Delays in the departmental inspection occur while the departmental representative(s) check for defects and discrepancies in the work/invoice during the first 15 days after their delivery to the department. However, in some cases, it was observed that it was the department receiving a supplier’s past-due notice which prompted a department to begin these inspections. As a result, not only was the payment already perceived as late by suppliers, hence the “past due” notice, but because funds are to be released “…as close as possible to, but no later than, the due date”,Footnote 19 suppliers then had to wait through the 30-day federal payment period for the payment to be deposited into their accounts.

It should be noted that, in accordance with section of the Treasury Board’s Directive of Delegation of Spending and Financial Authorities, the same individual cannot exercise both section 34 and section 33 authority on the same transaction.Footnote 20 Although this can be an effective measure in reducing fraud, as it ensures the same individual is not able to both accept the work and then issue payments, it also has the unfortunate effect of adding an additional administrative step during the payment period. One department indicated its section 34 approval process alone involved an 11-point checklist, which may require more than one person to verify all aspects of the checklist are assessed, i.e., the technical authority may take delivery of the work, the invoice might be sent to the contracting authority and the department’s resource centre manager may be the one handling the checklist and therefore needs the input of the other two to confirm all 11 items are addressed. Once that person is satisfied all 11 points are addressed and section 34 certification has occurred, it is then sent (point 12) for section 33 approval and payment via the PSPC Standard Pay System (point 13) to the Receiver General (point 14) and finally being deposited in the supplier’s account (point 15). This means there are actually 15 points at which an error could be made while the data is being verified or handed off between steps.

Generally, these internal steps can add days or weeks to the total time involved in paying suppliers. In addition to the above-noted financial impact on the supplier, these delays also incur interest accrual charges back to the department’s budget, thereby possibly impacting other procurements due to a lack of funds.

4.3.2 – Frequency of rejecting the work or invoice

A second type of delay—rejecting the work or invoice—reflects the importance of section 34 certification and ensuring the Government is delivered what it is contractually obligated to receive. This requirement represents a shared responsibility between departments and suppliers. If a contract did not adequately define the work’s acceptable condition, or what information had to be included on the invoice, either could be rejected based on differing interpretations of what the contract required. After each rejection, more time must be added for the supplier to correct the work/invoice, and for the department to re-inspect the work/invoice before section 34 can be applied.

In 11 of 93 payments, delays were due to the section 34 authority determining: (a) there was no written contract; or (b) the work/invoice reflected an undocumented change to the contract requirements.  In such circumstances, section 34 certification cannot be granted as the work does not match the contract. The fault can lie on either side, for example: If the supplier changed the scope of work (for example by delivering a substitute item) without the department’s written permission (for example via a contract amendment), payment cannot be made even if the product was considered acceptable. In such cases, if the contract is not amended to allow for the delivery of the substitute item, the supplier will still be obligated to deliver, at their expense, the work necessary to meet the original scope of the contract. In instances where the department requests a change to the scope of work, the contracting authority should issue a contract amendment, after consultations with both the supplier and the technical authority to legitimize the change. While this may cause a slight delay in producing/delivery of the work, from the supplier’s perspective, a delay at this stage is preferable to having to address the change after delivery of the work. The simplest example would be if a departmental representative told a supplier to deliver 15 units of item “X” instead of the contract-specified 14 units. An amendment must be drawn up for this extra unit before its delivery and the section 34 certification process, as such changes cannot be done after-the-fact; either the contract is amended, with the approval of the contracting authority, before the extra work is done or the extra work must be regularized by an after-the-fact “confirming order”.

Confirming orders will result in a much longer payment period for the original out-of-scope work as an entirely new contracting process will have to be undertaken for the work in question.Footnote 21 The rules respecting confirming orders do acknowledge that sometimes it is not possible to incorporate a change into the contract before the work is done.Footnote 22 In such cases, the confirming order mollifies the fact that the particular work and its related aspects (work description, dates, amount, transfer of intellectual property) are not set out in the contract. The purpose of the confirming order is only to document the particular work in question, not legitimize the whole transaction or contract. Of the 17 files reviewed as part of this KDS, 5 required confirming orders. Of those 5, 4 were completed, i.e., payment was issued, anywhere from 1 month after the work was completed to 18 months after the work was completed. In this last instance the department conducted an internal investigation to determine when authority was given for the changed work, and if that person was properly authorized to make that change. The invoice was ultimately paid 546 days after it was submitted.

Even if the supplier upheld its end of the arrangement, and a decision is finally made for the department to pay for the changed work, the supplier has to absorb the financial carrying cost over an undefined amount of time or write off the loss altogether.

5.0 How to reduce late payments

5.1 Examples of efforts to address payment concerns

5.1.1 Simplification—Include key contractual terms in the body of the contract

PSPC has undertaken efforts to simplify and streamline contracting documents to make procurement less burdensome for suppliers, and has trialed the new simplification processes in a number of solicitations. Its goal is to continue to further simplify and reduce the size of routine and highly competed goods and services contracts by at least 50 percent by 2020.Footnote 23

OPO is supportive of efforts to simplify and streamline contracting documents, and caution must be taken to not create new burdens or challenges for suppliers as a result of simplification. Payment terms are of seminal importance to the supplier and must be understood. If such clauses are incorporated by reference in future contractual agreements, it is less likely that they will be read and understood by suppliers. As a result, OPO believes that key contractual terms regarding payment should be stated in plain and consistent language and included in the body of the contract.

5.1.2 Federal Prompt Payment for Construction Work Act

The Federal Prompt Payment for Construction Work Act was passed in 2019 “… to promote the orderly and timely carrying out of construction projects […] by addressing the non-payment of contractors and subcontractors [...]”.Footnote 24 For these types of contracts, the above-noted 5 step payment process is extended by an additional step beyond the control of the Government. For many construction contracts, a prime contractor hires specialized companies (sub-contractors) to do the work, for example an electrician to do the electrical work; a plumber to install bathroom fixtures. After the Government pays the prime contractor, it is then up to the prime contractor to properly pay its sub-contractors. There is now a website—Prompt payment in the construction industry—which is updated weekly and provides sub-contractors, trades and suppliers with information about payments made to prime contractors.Footnote 25

The website also includes a prompt payment action plan and states the following principles:

  • Promptness: The department [for which the work was done] will review and process invoices promptly. If disputes arise, Public Services and Procurement Canada will pay for items not in dispute, while working to resolve the disputed amount quickly and fairly
  • Transparency: The department will make construction payment information such as payment dates, company names, contract and project numbers, publicly available; likewise, contractors are expected to share this information with their lower tiers
  • Shared responsibility: Payers and payees are responsible for fulfilling their contract terms including their obligations to make and receive payment, and to adhere to industry best practice.

A key factor in this legislation for expediting payments was by starting the payment period “no later than the 28th day after the day on which the proper invoice is received”.Footnote 26 However, the legislation lacks details on what constitutes a “proper invoice”,Footnote 27 so neither departments nor suppliers can do anything other than what is already contemplated by the TBCP’s requirement of an “…invoice in proper form.”Footnote 28 

A June 2018 industry report on prompt payment and adjudication, commissioned by PSPC, recommended using the Ontario Construction Act’sFootnote 29 definition of a “proper” invoice, which lists a minimum of seven characteristics to be met for the invoice to be “proper” and for the payment period to start:Footnote 30

  1. The contractor’s name and address.
  2. The date of the proper invoice and the period during which the services or materials were supplied.
  3. Information identifying the authority, whether in the contract or otherwise, under which the services or materials were supplied.
  4. A description, including quantity where appropriate, of the services or materials that were supplied.
  5. The amount payable for the services or materials that were supplied, and the payment terms.
  6. The name, title, telephone number and mailing address of the person to whom payment is to be sent.
  7. Any other information that may be prescribed.

This explicitness helps suppliers understand and proactively provide these requirements. Clarity could be gained at a federal level by explicitly detailing the minimum work and invoice requirements in the contract. Including these details reduces the odds that a mandatory requirement is overlooked or misunderstood, and saves time that would otherwise be lost correcting the deficiency.

5.2 Reconcile “30-days” with realistic timelines

Given what has been noted above, it is clear that not all payments are made within 30 days of delivery of the work. The TBCP’s statement that the “standard payment period is 30 days” can be misleading because the further explanation of “…the payment period is measured from the date that the goods or services were received in acceptable condition at the location(s) specified in the contract or the date that an invoice in proper form was received, whichever is later”, can be missed.Footnote 31 However, “30 days” is often the only explicit timeline consistently shared with suppliers, who use it to manage their own operations and they may not take into account the aspect of the proper invoice date. The “test of public scrutiny” contained in the TBCP would be supported by departments sharing an up-to-date schedule and explanation of all the timelines involved, most importantly including the expected lead-up to approving section 34.Footnote 32

5.3 Understand what is in the contract

While the supplier/department relationship is guided by the obligations found in the FAA and the TBCP, the specific contract in question forms the backbone and structure of this relationship.

If the department uses the SACC clauses noted above, or has its own set of department-specific terms and conditions, the payment terms will be outlined in them. To ensure prompt payment:

  • Suppliers should:
    • deliver exactly what was in the contract to the correct location;
    • ensure the invoice matches exactly what was in the contract;
    • deliver, and confirm receipt of, the invoice to the contract-specified addressee as close as possible to the delivery date of the work, or as soon as allowed by the contract; and
    • follow up with the department 15 days after delivering the invoice to ensure there are no defects to the work/invoice.
  • Departments should:
    • conduct the inspection of the work as soon as possible;
    • ensure any time limits (for example 15 days) on that inspection are respected;
    • use the correct baseline date of the invoice when entering the information in the financial management system to calculate the 30-day payment date correctly;
    • ensure suppliers are informed of defects to the work/invoice within the contract-noted timelines, for example, the 15 days noted in the SACC clauses, if used; and
    • allow departmental staff to process invoices when minor and inconsequential errors of form might otherwise cause the invoice to have to be re-submitted.

5.4 Do not informally change the contract

Neither suppliers nor departments can unilaterally make changes to the contract. Suppliers cannot choose to deliver a substitute item nor can departments decide to pay a lower price for the work once it has been delivered.

If SACC conditions are used, they contain a provision dealing with amendments to the contract:Footnote 33

To be effective, any amendment to the Contract must be done in writing by the contracting authority and the authorized representative of the Contractor.

The contract will also normally contain a clause identifying the “contracting authority” by name and a statement to the effect of:

The Contracting Authority is responsible for the management of the Contract and any changes to the Contract must be authorized in writing by the Contracting Authority. The Contractor must not perform work in excess of or outside the scope of the Contract based on verbal or written requests or instructions from anybody other than the Contracting Authority.

However, it is not uncommon for the supplier and the department’s technical authority (often a program manager or subject-matter expert within the department) to agree to a contractual change, sometimes as a result of an unexpected opportunity like a supplier advising it was able to produce extra items on the production run, which the departmental technical authority may want to accept. Other times, the technical authority and supplier may agree on some work which was not envisioned by the contract, like allowing overtime to be charged for extra work which has arisen in the conduct of the work. In addition, the technical authority and supplier may agree to change the contract as a result of an unforeseen crisis or emergency, such as a natural disaster.

These changes must be incorporated into the contract by way of amendment before the work is performed to avoid disputes down the road. As noted above, when parties don’t amend the contract prior to performing uncontemplated work, the parties are taking significant risks and ultimately require confirming orders to document these after-the-fact changes and enable payment.

It is important for suppliers to understand that technical authorities may be more concerned with receiving the work and the end product, as opposed to the administrative aspects of contract management, and their attention may be focussed elsewhere when it comes time for contractual amendments to be formalized. It is, therefore, imperative that both the supplier and technical authority keep the contracting authority informed as soon as such situations arise; something as simple as the supplier cc’ing the contracting authority on the e-mail to the technical authority confirming the scope of the amended work. If the contracting authority has any objections to the inclusion of the extra work, these discussions must occur before the supplier undertakes the work or disputes are likely to arise down the road.

If it is known before the additional work is started that the contracting authority will not amend the contract to incorporate the additional work, the supplier should not perform any additional work. If the additional work has already been performed without amendment, the department will have to initiate the confirming order process.Footnote 34 This will result in a much longer payment period as an entirely new contracting process will have to be undertaken for the work in question, because, without a contract, the work/invoice cannot be certified in accordance with section 34, without which payment cannot be made.

In the cases of confirming orders, it is not uncommon for departments to conduct administrative investigations into the circumstances behind these arrangements, including whether there is any conflict of interest or fraud involved. These investigative processes can be run parallel to the confirming order process, or, like in the case OPO reviewed in relation to this KDS study, the investigative process may have to be concluded before the confirming order process can be started and the supplier can be paid.

5.5 Understand interest may not make up for a late payment

Departmental staff understand interest starts accruing after “Day 30” and may regard that interest as making up for the weeks or months the payment is delayed. Suppliers, on the other hand, are missing the total amount owing for the work until the payment is deposited into their accounts. In order to fully appreciate the potentially devastating impact late or delayed payments can have on suppliers and others in the supply chain, departmental staff may draw the analogy to how many federal public servants have said they have been affected by the failures of the Phoenix pay system.

For smaller companies, delays in payments can represent a significant hardship as they may not have cash reserves on hand to tide themselves over or pay sub-contractors until payment is received. This means the suppliers may have to obtain credit from their banks/investors and possibly reduce staff levels until the money starts “flowing”.

5.6 Incentivize the Government to pay early

Section 12.2.10 of the TBCP provides a rationale for departmental staff to deviate from the 30-day payment standard:Footnote 35

Exceptions. When it is more advantageous to the government, because of factors such as discounts, to pay accounts earlier, or when the terms and conditions for payment and interest under a contract are different from the 30-day standard, the standard payment period may be set aside.

Thus, if a supplier is willing to offer a discount for early payment, it can include such terms as “2/10, n/30” indicating a supplier is willing to give a 2 percent reduction in price if the entire purchase price is paid within 10 days of receipt or else the full amount is due within 30 days.Footnote 36 This will give the Government the incentive to not wait until Day 30 to issue payment.

5.7 Not waiting until Day 30 to pay suppliers

Section 12.2.6.d of the TBCP states “… [p]ayments are scheduled so that they are made as close as possible to, but no later than, the due date”.Footnote 19  On the one hand, the government benefits from the interest accrued while holding the money for as long as possible, i.e. until Day 29 of the payment period. On the other hand, Canadian suppliers and their sub-contractors would greatly benefit from being paid as soon as possible.  

In February 2018, PSPC launched a pilot project to expedite payment to suppliers. The project affected contracts, valued at less than $100,000 and awarded by PSPC’s Acquisitions Program, with the goal of processing invoices by “Day 15”. The goals of the program are:

  • improving small and medium enterprises (SMEs) cash flow, allowing them to more easily meet financial obligations;
  • accelerating the invoice-to-cash cycle, so that SMEs can focus on growth and innovation opportunities;
  • reducing administrative burdens for SMEs through the increased use of electronic invoice submissions and direct deposit; and
  • increasing SME confidence, interest, and participation in Government of Canada procurement opportunities.

OPO hopes this project can be expanded to include larger contracts and that there will be an increasing number of participating departments.

5.8 Departments missing the “Day 15” date to notify suppliers of deficiencies

If standard SACC clauses, or similar, are used, they describe the Government’s obligation to inform the supplier of any deficiency in either the work or the invoice within 15 days of receipt:Footnote 21

Canada's standard payment period is 30 days. The payment period is measured from the date an invoice in acceptable form and content is received in accordance with the Contract or the date the Work is delivered in acceptable condition as required in the Contract, whichever is later. A payment is considered overdue on the 31st day following that date and interest will be paid automatically in accordance with the [appropriate clause in the contract].

If the content of the invoice and its substantiating documentation are not in accordance with the Contract or the Work is not in acceptable condition, Canada will notify the Contractor within 15 days of receipt. The 30-day payment period begins upon receipt of the revised invoice or the replacement or corrected Work. Failure by Canada to notify the Contractor within 15 days will only result in the date specified in subsection 1 to apply for the sole purpose of calculating interest on overdue accounts. (emphasis added)

OPO notes the last line of the above clause explains the consequences to the Government of not meeting this 15-day deadline, i.e. it “only” adjusts the date for the calculation of interest payments. This consequence to departments for failing to notify suppliers of deficiencies to the work/ invoice is not proportionate with the significant impacts a supplier may endure while it waits for payment. In addition, unless a supplier knowingly deviated from the contract’s requirements, it would have no way of knowing there is a problem with the work/ invoice and that the payment process had not yet begun. Departments should ensure that suppliers are notified as soon as possible, and certainly within contractually-stipulated timeframes (for example 15 days following receipt of the work/ invoice), when deficiencies to the work/ invoice exist.

6.0 Conclusion

The following steps can be taken by departments and suppliers to reduce the frequency and duration of late payments in the federal procurement process:


  • Reconcile “30 days” with realistic timelines—Suppliers should understand in advance that the general understanding of “30 days” does not always equate to receiving payment 30 days after the receipt of the work and invoice by the department.
  • Understand interest may not make up for late payments—Departments must understand that the TBCP-mandated interest earned for a late payment does not make up for the financial burden placed on suppliers, particularly small and medium sized suppliers, when they don’t receive payment on time.

Contractual requirements

  • Understand what is in the contract—Both suppliers and departments must understand and respect the contract’s terms and conditions, including the exact work to be done, the proper form and content of the invoice and when the inspection of the work/invoice is supposed to be done.
  • Do not informally change a contract—Both suppliers and departments must work within the existing contract parameters as, without a formal agreement, performing work beyond the scope of the contract can cause significant problems including delays in getting paid.
  • Simplification—Include key contractual terms in the body of the contract—Departments should avoid requiring suppliers to reference secondary documents in order to clearly understand requirements related to payment.

Government inspection and processing

  • Incentivize the Government to pay early—The TBCP allows suppliers offering an early payment discount to be paid before “Day 30” if that discount is “advantageous” to the department.
  • Not waiting until Day 30 to pay suppliers—Consider expanding on PSPC’s pilot project to expedite payments to suppliers, including larger dollar value contracts and increasing the number of participating departments.
  • Departments missing the “Day 15” date to notify suppliers of deficiencies—Recognizing the significant hardship borne by suppliers when they are not paid in a timely manner, departments should take steps to ensure suppliers are notified of deficiencies as soon as possible, and within contractually-stipulated timeframes.
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