knowledge 25 February 2020 |

Prompt Payment by Public Authorities: Must Ireland do More?

The Court of Justice of the European Union has determined that Member States have a positive obligation to ensure compliance by public authorities with deadlines imposed on them in the Late Payments Directive (2011/7/EU).  The Directive is given effect in Irish law by the European Communities (Late Payments in Commercial Transactions) Regulations 2012 (as amended in 2016).  Under the Regulations, a public authority must pay for the goods and services that it procures within 30 days of receipt of the invoice or else interest is – automatically – payable.

Background to the case

In European Commission v Italian Republic, the Commission had asked the Court of Justice (“ECJ”) for a declaration that Italy had failed to fulfil its obligations under the Directive.  The Commission argued that Italian public authorities had continuously exceeded the payment periods set out in the Directive.  Italy, for its part, argued that the extent of the state obligation was to enact transposing legislation and, in any case, average payment periods in Italy were decreasing and were not grossly in excess of the deadlines.

Reasoning of the ECJ

In late January 2020 the ECJ held that the obligation imposed on Member States in the Directive was that they “shall ensure … the period for payment does not exceed the … time limits”.  The ECJ held that the obligation on Member States to ensure compliance was a conscious and deliberate additional obligation placed on public authorities and went beyond a mere duty to transpose the Directive.  The fact that the time period for payments by public authorities in Italy was improving was irrelevant to the question whether Italy had failed to meet its obligations.

The position in Ireland

The Regulations have transposed the Directive into Irish law.  Separately, it is a Government policy requirement (which does not change the contractual basis for late payments as reflected in the Regulations) that all public sector bodies (such as central Government departments, the Health Service Executive and local authorities) must pay their suppliers within 15 calendar days of receipt of a valid invoice.  As part of this requirement, Government departments and other relevant public sector bodies must publish their quarterly payment performance reports on their respective websites.  A Government department must also publish the quarterly composite reports covering the public bodies for which it is responsible1.  Please see here and here for examples of these quarterly returns from the Department of Business, Enterprise and Innovation and the Department of Housing, Planning and Local Government respectively.

The latest published information shows that not all public authorities effect payment within the Government’s stipulated period of 15 days (or, indeed, within the 30-day period prescribed by the Regulations).  Suppliers are encouraged to report late payment by any public authority but it is unclear what further action, if any, is then taken by relevant Government departments to promote or secure compliance with either the Government’s 15-day period or the 30-day obligation in the Regulations.

Comment

Although the 15-day payment period initiative is not directly related to or underlined in the Regulations, it might nonetheless be sought to be relied upon by Ireland were the Commission to take action against Ireland for failing to properly fulfil its obligations under the Directive.  Although the initiative has shortened the time taken by public authorities to effect payment to suppliers, that fact of itself, based on the recent ECJ decision, is not enough and the obligation remains for Ireland, and other Member States, to ensure that their respective public authorities comply with payment obligations in the Directive.

Public authorities might expect increased State scrutiny and active ‘policing’ of their payment practices and any that do not comply with the payment periods stipulated in the Regulations may face pressure to adjust those practices to a compliant form, even if their current delays are not especially lengthy.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.