A long-running call by the Specialist Engineering Contractors’ Group (SEC Group) for the use of project bank accounts is now being backed by the Federation of Small Businesses (FSB).
The construction trade organisation has been lobbying for the use of PBAs for many years with the issue being highlighted in the wake of the collapse of Carillion last week.
The FSB has written to David Lidington, minister for the cabinet office, urging the UK government to extend the use of PBAs for all major public projects to ensure that businesses are protected against catastrophes, such as Carillion’s demise, happening again.
PBAs enable all those delivering infrastructure and services to be paid out of one pot – a ring-fenced bank account. Those in favour of them argue that if PBAs had been in place on all Carillion’s contracts, the losses incurred by the supply chain would have been significantly less.
The FSB said the practice which would see money for a public project held in trusts as opposed to by a tier 1 contractor. This would protect businesses throughout the supply chain if a big firm, running a public project, goes bust and would allow them to be paid for work they have already completed.
Furthermore, holding project money in trusts would help stem the poor payment practices used by some bigger companies as it allows money to be released promptly as and when work is completed, the organisation added.
Major projects, such as the £14.8 billion Crossrail project, have already implemented similar arrangements, as have construction spending departments including Highways UK.
FSB national chairman, Mike Cherry, said: “Sadly this sorry saga has laid bare the danger of having the fate of huge supply chains resting on the financial health of a few large companies, and especially in a sector of the economy riddled with poor payment practice.
“Countless small businesses working for Carillion have not been paid for months and are facing the prospect that they will not receive a penny for their hard work, products or services.
“It is unacceptable that the future of these businesses, and the jobs they provide, have been put in jeopardy by the reckless and irresponsible behaviour of one company. Government must take action now to ensure that this cannot happen again.
“Introducing protected project bank accounts, for all public projects, would ensure that money for work carried out would still be paid to those who have put in the hours and delivered on what they’ve been asked to do. It would also help stop the awful payment practices deployed by big businesses that squeeze smaller firms and put them risk.
“Carillion’s collapse is a watershed moment that cannot be ignored. Small businesses need to be given the confidence that a catastrophe of this scale cannot happen again. Otherwise the post-Carillion legacy could be a public sector procurement programme that is small-business-free, further increasing costs and risks to the taxpayer.”
Professor Rudi Klein, SEC Group CEO, said that he was delighted that the FSB had come “on board”.
He added: “I would now like to see the government introduce legislation requiring PBAs to be used on all construction works over £1 million. Queensland in Australia has done this. From 1 January 2018 this will happen on public sector works and from 1 January 2019 on private sector works.”