Critics often say governments could be more efficient if they operated like a business.
When it comes to prompt payments, the state of New Jersey has taken a step from which some say the overall business community could take a lesson.
A new law to handle state contracts requires payments within 45 days, after which a compounding late fee is added.
The law, signed by Gov. Phil Murphy on Oct. 4, was co-sponsored by Sens. Steven Oroho (R-Sparta) and Troy Singleton (D-Moorestown); Assemblymen Lou Greenwald (D-Voorhees) and Jon Bramnick (R-Westfield), and Assemblywomen Carol Murphy (D-Cinnaminson), Angela McKnight (D-Jersey City) and Gabriela Mosquera (D-Turnersville).
The impetus for the law, according to Greenwald, was noticing the struggle small businesses faced despite improving economic conditions.
“Businesses were struggling in our economy even though unemployment started to drop, and was catching up to rest of country, but our economy was somewhat stagnant,” Greenwald said.
Without the law, small businesses working with the state government weren’t always getting paid on time, Oroho said.
And government agencies were pushing off the burden of costs at the expense of the business owner, Greenwald said.
“To some degree, businesses had developed a tolerance (for late payments),” he said. “It is unreasonable for a business to operate like that. A lot of people say government should operate like a business.
“If we truly mean that, we should pay our bills. That will help stimulate our economy because contractors will do more projects as money flows, hire more people and complete more jobs.”
And if the small or minority-owned business is a subcontractor to a larger entity, Greenwald said, the priority had been to get the large entity paid first.
“That makes it that much harder for a small, independent business,” he said. “It’s a side ripple to inequity.”
Which is why the government has taken the step despite lean economic times, Greenwald said.
“The government is setting the example and setting the tone,” he said. “The government was a more-poor payer. This creates the opportunity of choice for a business to choose if you want to do business in New Jersey. It sets a tone.”
So, can (or should) the law be expanded to apply to anyone doing business in New Jersey?
Both Greenwald and Oroho said no, and that it would be an overreach of government.
“Generally, that’s something in contract law,” Oroho said. “That comes down to the buyer and the company.
“I do think the civil courts is where you proceed there. And, quite frankly, the reputation and relationship (between the company and vendor) affects that. In government, you get the public bidding process, so you don’t have that. There are strict rules you’ve got to follow.”