The government has refused to back a move that would have made project bank accounts (PBAs) mandatory for public projects worth more than £2m.
On Tuesday (June 12), Debbie Abrahams, Labor MP for Oldham East and Saddleworth, proposed that the measure be inserted into the recruitment bill. However, the government refused to support Abraham’s clause and it was not chosen by the speakers of the House of Commons to be put to a vote.
PBAs protect subcontractors from payment abuse by being paid in full and quickly from a neutral bank account controlled by the client, rather than relying on money to trickle through first-tier contractors, who are known to pay slowly, try to force discounts or become insolvent.
Under Abraham’s proposal, companies would have been paid from a PBA within 12 days, while the disputed money would have remained in the account until a resolution. PBAs are already mandatory for major projects in Scotland and Wales.
Speaking in the House of Commons during a reading of the procurement bill, Abrahams said the measure would help some of the “6,000 small construction businesses”. [that] they are at risk of insolvency,” adding that £800m of retention money was lost in the collapse of Carillion alone.
However, junior Cabinet Office minister Alex Burghart said the UK government was not interested in making PBAs mandatory, telling the Commons: “We do not support dictating the operation of construction contractors for [this] degree.”
Government procurement rules already say PBAs must be used unless there are compelling reasons not to. However, some government departments and agencies do not routinely use PBAs, Construction news understand
Abrahams said “the Cabinet Office has failed to enforce the implementation of its own policy”, adding that the Department for Business and Trade had also failed to respond to the outcome of a 2018 consultation on the reform of the retentions.
“The vast majority of respondents supported a proposal to limit retention money, but the department and its branch, the Construction Leadership Council, have refused to act on it,” he said.
Burghart said: “It is not the government’s position that PBAs should be imposed on all contracting authorities as they are not always appropriate or cost effective, particularly where the subcontractor is very small or is paid more frequently than monthly , or when the supply chain is short.
“Instead, we intend to continue to educate contracting authorities, through guidance, about the circumstances in which we believe PBAs are practical and effective.”
He added: “We are already working with industry to discourage retainage retention by supporting zero retention for pilot projects of high quality work and reducing the retention default rate to zero on certain types of contract.”
Since 2019, PBAs have been used in Scotland on all public sector building projects worth over £2 million and on all public sector civil engineering projects over £5 million .
Meanwhile, Welsh Government projects worth more than £2m must use PBA unless there are compelling reasons not to; in this case, departments and agencies are expected to write a decision report detailing the reasons, which is then audited.
In a statement, the British Constructional Steelwork Association, which represents structural steel companies, said it was “disappointed” by the government’s decision not to accept Abraham’s clause and control its own procurement rules (see full comment below).
Statement by the British Constructional Steelwork Association
According to accountant Mazars, 4,135 construction companies, mainly SMEs/small businesses, went into insolvency in the 12 months to the end of January 2023. This was a 49% increase on the previous year.
The ability of companies in the sector to cope with rising costs continues to be severely hampered by poor cash flow, often the result of poor payment practices, long payment terms, a myriad of excuses to pay less of the invoiced/requested amount and not or late. release of retention money.
BCSA has supported an amendment to the Public Procurement Bill to promote project bank accounts in all public contracts and end cash retention.
As central government and other public contracting authorities make up such a large proportion of construction procurement that takes place in the UK and even more so in the infrastructure sector in which our members have a large market share, we believe that the government should set the highest standards in how recruitment should be done.
It has therefore been disappointing that over the last eight years the UK Government has not enforced its own legislation in England (the Public Contracts Regulations 2015) and required project bank accounts to be used by contracting authorities unless that there is a compelling reason not to do so. .
They are already required to use them on public sector projects by the contracting authorities in Scotland and Wales and the procurement bill amendment only aims to enforce this in England as well as protect money from retention and prevent millions from being lost to SMEs due to insolvency.
Statement by Debbie Abrahams, made after the procurement bill was read in the House of Commons
Small businesses are the backbone of the economy, even in communities like Oldham and Saddleworth. In tough economic times like these, it’s more important than ever that abusive payment practices are supported and eliminated.
An estimated 6,000 small construction firms will be insolvent this year, driven in large part by unprecedented cost pressures but made unmanageable by big firms exploiting their power and using a myriad of poor payment practices.
That is why I have introduced this new clause: the use of project bank accounts will ensure that public sector contracts are paid to trust-limited PBAs, giving small businesses a level playing field.
Ultimately, this is a fairness issue. Big business should not be allowed to compete with the small businesses at the heart of our local economies.
BCSA will be disappointed if the government does not accept the amendment and once again misses the opportunity to help many SMEs.
