PPN 018: How to take account of a supplier's approach to payment in the procurement of major contracts · first published 3 December 2024
PPN 018 sets mandatory rules for how central government buyers must assess a supplier's payment practices when awarding major contracts. From 1 October 2025, any supplier bidding for a contract worth more than £5 million per year (including VAT) must answer standard questions — via a Procurement Specific Questionnaire (PSQ) — showing they pay at least 95% of invoices within 60 days (or 90% if they have an action plan), and that their average payment time across all invoices is 45 days or fewer. The key change from the previous rule (PPN 015) is a tighter average payment days threshold — suppliers now need to demonstrate faster payment practices to qualify. If a supplier cannot show effective payment systems, buyers can exclude them. This matters to SMEs because large prime contractors that win government work often sub-contract to smaller businesses: better payment practices up the chain means faster cash into your business.
WHO THIS APPLIES TO
THE ENKII VIEW
This policy is primarily a gate on large prime contractors — it forces them to prove they pay their supply chains promptly, which directly protects SMEs sitting further down the chain. If you are a subcontractor to a prime, this rule gives you leverage: from October 2025 your prime must meet the 45-day average threshold or risk losing major government contracts. If you are bidding as a prime yourself, you need to get your payment data in order before October 2025 or risk exclusion from the biggest contracts.
1. Pull your payment performance data now: check that you are paying 95%+ of invoices within 60 days and that your overall average is 45 days or fewer — and fix any gaps before October 2025.
SMEs bidding as prime contractors on central government contracts ≥£5m/year — From 1 October 2025 you must answer PSQ questions proving these thresholds are met; failure to do so can lead to exclusion from the bid.
2. Prepare a credible written action plan to improve payment performance — this allows you to qualify at the lower 90% threshold while you improve.
SMEs bidding as prime contractors who cannot yet hit 95% within 60 days — The PSQ allows a 90% threshold (instead of 95%) if the supplier provides an action plan, giving a bridging route for firms not yet fully compliant.
3. Ask your prime contractor clients whether they are aware of and preparing for PPN 018 — and use it as leverage to renegotiate payment terms toward 45 days or fewer.
SMEs subcontracting to large primes on central government work — Primes must now demonstrate average payment within 45 days to keep winning major government contracts, making faster payment to subcontractors a commercial necessity for them.
4. When evaluating whether to bid via a framework agreement or dynamic market, check the estimated individual call-off value — if it could exceed £5m/year, payment performance questions will apply and you must be ready to answer them.
All SME suppliers to central government — PPN 018 explicitly extends to frameworks and dynamic markets where individual contracts could exceed £5m/year, so the threshold can catch call-offs even from smaller frameworks.
5. Note that PPN 018 does not apply to NHS trusts or devolved-nation contracting authorities — check which payment rules apply in those specific procurement contexts separately.
SMEs considering bidding for contracts in devolved nations or NHS — PPN 018 explicitly excludes NHS trusts and devolved functions of Scotland, Wales and Northern Ireland, so different rules may apply.
Every rule below quotes the official document verbatim.
PPN 018 applies to all central government departments, their executive agencies and non-departmental public bodies (NDPBs). (All in-scope organisations)
“This PPN applies to all central government departments, their executive agencies and non-departmental public bodies. These are referred to as 'in-scope organisations'.”
The rules apply to contracts with an expected value above £5 million per year (including VAT), averaged over the life of the contract including any extension options. (In-scope organisations, contracts under Procurement Act 2023)
“in-scope organisations should take action to apply this PPN when awarding public contracts for goods and/or services and/or works, other than special regime contracts, with an expected contract value above £5 million per year (including VAT)”
Contract value is averaged over the full term including extensions — e.g. a 4-year contract worth £21m total is in scope even if year-one value is under £5m. (In-scope organisations, all in-scope contracts)
“a contract with a four year term with a total contract value of £21 million would be in scope, even if the value in the first year was under £5 million. The term length of a contract will include any extension options, if applicable.”
The rules also apply to framework agreements and dynamic markets where any individual contract awarded under them is estimated to exceed £5m per year. (In-scope organisations using frameworks or dynamic markets)
“This PPN applies to framework agreements and dynamic markets where it is estimated that the value of any individual contract to be awarded under the framework agreement or dynamic market is greater than £5 million per year (including VAT).”
In-scope buyers must apply PPN 018 to all relevant procurements advertised on or after 1 October 2025; PPN 015 continues to apply to procurements advertised before that date. (In-scope organisations)
“In-scope contracting authorities must apply the provisions of this PPN in relevant procurements advertised on or after 1 October 2025. In-scope contracting authorities should continue to apply PPN 015 to all relevant procurements before this date.”
Suppliers must demonstrate they pay at least 95% of invoices within 60 days (or 90% with an action plan) AND pay all invoices within an average of 45 days. (Suppliers bidding for in-scope contracts ≥£5m/year, from 1 October 2025)
“The questions require a supplier to demonstrate it is paying at least 95% of invoices within 60 days (90% with an action plan), and also paying all its invoices within an average of 45 days.”
Buyers can exclude suppliers that cannot demonstrate effective payment systems are in place. (Suppliers bidding for in-scope contracts ≥£5m/year)
“when it would be appropriate to exclude suppliers that cannot demonstrate effective systems are in place”
PPN 018 replaces PPN 015, and the key change is a reduction in the average payment days threshold suppliers must meet. (All in-scope suppliers and buyers from 1 October 2025)
“The key update is a reduction in the average payment days threshold suppliers have to meet to demonstrate they have effective payment systems in place to ensure the reliability of their supply chains.”
PPN 018 does not apply to NHS trusts or contracting authorities whose functions are devolved to Scotland, Wales or Northern Ireland. (Exclusions from scope)
“this PPN does not apply to NHS trusts or to contracting authorities whose functions are devolved or mainly devolved functions of Scotland, Wales or Northern Ireland.”
Other public sector contracting authorities outside central government may choose to apply this PPN but are not required to. (Wider public sector (non-central-government))
“Other public sector contracting authorities may wish to apply the approach set out in this PPN.”
This briefing is enkii's interpretation of the official document — the official text always governs.
Source document © Crown copyright, reused under the Open Government Licence v3.0 via the GOV.UK Content API. enkii tracks every Procurement Policy Note and briefs changes the day they land — see all briefings.