Government departments regularly fail to use project bank accounts (PBAs) on major construction projects, against their own procurement rules, according to exclusive data obtained by Construction news.
Cabinet Office procurement rules say PBAs must be used unless there are “compelling reasons” not to.
However, as of January 1, 2022, only nine of the 80 major construction contracts awarded by three of the largest government departments – Justice, Defense and Health – used the mechanism (see full data below), according to a response to a Freedom of Information (FoI) request made by CN.
Meanwhile, the Department of Education declined to reveal how many construction contracts it had awarded during the same period, but confirmed that “project bank accounts are not used in our construction contracts for school property projects” .
Rudi Klein, solicitor and former chief executive of the Specialist Engineering Contractors Group, said: “It is inexcusable that the Cabinet Office has not implemented this policy as it accepts that PBAs are an effective method of speeding up payments and reducing losses from insolvencies up”.
The rules on the use of government PBAs have been in place since 2010 and were reaffirmed in the Construction Manual published last year.
The Departments of Health, Education, Defense and Justice all declined to comment on their “compelling reasons” for not using PBA.
The Cabinet Office also declined to comment on the matter and confirmed that it does not track the use of PBA by government departments.
Use of PBA by four government departments
Department of Health and Social Care
Construction contracts let from 1 January 2022 worth over £2m: 2
Number of these contracts using or using PBA: 0
education Department
Construction contracts let from 1 January 2022 worth over £2m: not revealed
Number of these contracts using or using PBA: 0
Ministry of Defense
Construction contracts let from 1 January 2022 worth over £2m: 35
Number of these contracts using or using PBA: 0
Ministry of Justice
Construction contracts let from 1 January 2022 worth over £2m: 43
Number of these contracts using or using PBA: 9
Klein said: “National Highways has led the way in using PBA and as a result has been able to pay all its supply chain companies within 19 days. When Carillion went bust, losses from subcontractors in roads were minimal If roads can achieve this why can’t all other public contractors?
“The Department of Education says it does not use PBA. It would be interesting to know the average payment times of their subcontractors; I suspect they can’t be bothered to police this.
“But the main blame lies with the Cabinet Office for its failure to police the enforcement of what is, after all, government policy.
“Government departments and agencies need to be challenged if they have not provided compelling reasons not to use PBAs.”
National Highways’ head of cost intelligence Lloyd Biddell said CN that nearly 100 percent of their contracts use PBA, saying, “We don’t think it adds any real cost to projects … the impact to our organization is relatively small, if not negligible.”
He added: “The advantages of a PBA are insolvency protection and prompt payment; these are huge advantages and have proven their worth through Carillion and one or two smaller companies. [going under] since.”
However, said Mark Reynolds, CEO of Mace and co-chair of the Construction Leadership Council. CN he is “not a fan” of PBAs and had been “dead against” including them in the Construction Manual.
Reynolds, who emphasized that he was giving his personal view on the issue, said, “If everyone starts doing PBA, you will see a lot more people going into administration.
“We talk about productivity and efficiency. [PBAs are] very expensive to set up, bureaucratic [and] we need administration, which lowers our productivity. And is it actually really solving the problem?
“Yes [a tier one contractor] he doesn’t make enough money to begin with, he doesn’t really stick with it [money] will make the situation worse. Levels Two, Levels Three, Levels Four: It has no government [their payment terms].
“For me, we have to look at making sure that money flows through the supply chain as quickly as possible. Is a PBA the right mechanism to do that? It seems like a sticky plaster to me.”
Speaking of the latest edition of CNOn the First Site podcast, Iain McIlwee, Executive Director of the Finishes and Interiors sector, said: “[PBAs] they’re deployed very rarely and I think it’s something where we need to go back to the playbook and people should let us know what those compelling reasons are so that we can deal with any objections to PBAs because logically in projects of more than a certain size they make absolute sense.”
CNThe survey of payment and retention specialists revealed that 78% of respondents support the use of PBA.
Read more: Is the government making a clean start on withholdings or is it washing its hands?
A 2012 Cabinet Office guidance on PBAs noted that “there should only be a very small number of projects where PBAs cannot be used”.
PBAs are mandatory on Welsh Government construction projects worth more than £2 million, as well as on Scottish Government construction projects worth more than £2 million and civil engineering projects worth more than of 5 million pounds.
However, the UK government has refused to make PBAs compulsory in its own recruitment.
