Are You Prepared for October 2025? Government Contract Exclusion Risk for Payment Non-Compliance

Rachel Reeves's budget announcement has created a direct link between payment performance and government contract eligibility. From October 2025, companies failing to meet specific payment criteria will be excluded from bidding on central government contracts worth over £5 million—regardless of their technical capability or competitive pricing.

This represents a fundamental shift from guidance-based expectations to hard exclusion criteria that could eliminate companies from significant revenue opportunities.

The New Pass/Fail Criteria

The October 2025 requirements establish non-negotiable thresholds for government contract participation:

• 45-Day Average Payment: Companies must demonstrate average payment times of 45 days or fewer in either of the two previous six-month reporting periods (reduced from 55 days).
• 95% Within 60 Days: Existing requirements remain that companies must pay 95% of invoices within 60 days, or 90% with a detailed action plan for improvement.
• All Contracts Included: These metrics apply to all supplier contracts—including private sector work—not just government contracts. Your performance with private clients determines government contract eligibility.

Critically, companies must meet both criteria. Achieving the 45-day average while failing the 95% threshold, or vice versa, results in exclusion from bidding opportunities.

Legal Framework Changes

Previously, prompt payment requirements operated through guidance without statutory consequences. The budget announcement signals these obligations will move to a statutory footing, likely through secondary legislation under the Procurement Act 2023.

This creates enforceable compliance requirements rather than aspirational targets. Companies cannot argue exceptional circumstances or provide explanations for non-compliance—the metrics become binary pass/fail criteria.

Legal experts note this represents one of the most significant changes to public procurement qualification criteria in recent years, directly linking operational efficiency to market access.

Two-Period Reporting Window

The measurement approach creates both opportunity and risk for suppliers:

• Historical Performance Matters: Current payment practices are already being measured for future compliance assessment. Poor performance now affects contract eligibility from October 2025.
• Recovery Opportunity: Companies failing criteria in one six-month period can regain eligibility by meeting requirements in the subsequent period.
• Ongoing Monitoring: Performance must be maintained across rolling six-month periods to retain contract bidding rights.

This structure means companies should immediately assess their current payment performance against October criteria rather than waiting for implementation.

Operational Compliance Challenges

Meeting these requirements consistently demands systematic operational capabilities:

• Accurate Tracking: Companies need precise measurement of payment timing across all supplier relationships, not just estimates or approximations.
• Performance Reporting: Bi-annual compliance reporting requires audit-ready documentation that can withstand government scrutiny.
• Supply Chain Consistency: Payment performance must be maintained across diverse supplier relationships, contract types, and seasonal variations.
• Process Reliability: Manual payment processes struggle to achieve consistent compliance, particularly when handling volume fluctuations or approval bottlenecks.

Technology as Compliance Infrastructure

The binary nature of the exclusion criteria makes automated compliance systems essential rather than optional:

• Real-Time Monitoring: E-invoicing platforms provide continuous tracking of payment performance against both average and percentage thresholds.
• Compliance Reporting: Automated data collection ensures accurate, audit-ready documentation for government verification.
• Process Consistency: Systematic invoice processing eliminates the manual variations that create compliance failures.
• Risk Management: Early warning systems flag potential compliance issues before they affect bidding eligibility.

Strategic Risk Assessment

CFOs should evaluate the revenue impact of potential contract exclusion:

• Contract Portfolio Analysis: Identify current and pipeline government contracts exceeding £5 million annually affected by these requirements.
• Revenue Risk Calculation: Quantify potential revenue loss from exclusion versus investment in compliance systems.
• Competitive Positioning: Consider market advantage gained if competitors fail compliance requirements while your organization maintains eligibility.
• Implementation Timeline: Plan system deployment to ensure compliance demonstration before October 2025 assessment periods.

Implementation Urgency

The two-period measurement window creates immediate urgency. Companies not currently meeting the 45-day average requirement have limited time to implement systematic improvements before their performance record affects contract eligibility.

Organizations should begin compliance planning immediately rather than waiting for formal legislative publication. The budget announcement signals firm government intent, with implementation details following rather than preceding the policy direction.

Beyond Compliance: Competitive Advantage

While compliance prevents exclusion, superior payment performance can create competitive advantages in government contracting:

• Supplier Relationship Quality: Reliable payment practices strengthen supply chains and reduce project delivery risks.
• Subcontractor Attraction: Good payment reputation helps secure better subcontractor partnerships and pricing.
• Evaluation Scoring: Government buyers increasingly value supply chain reliability in contract award decisions.

For CFOs managing government contract portfolios, October 2025 represents a clear strategic choice: invest in systematic payment compliance or accept exclusion from significant revenue opportunities.

The shift from guidance to hard exclusion criteria makes prompt payment performance a business-critical capability rather than operational preference.