LA year ago, everything looked rosy for Henry Construction Projects. The fast-expanding contractor sat at number 41 in the 2022 CN100 after making a profit of £14m on turnover of £400m in the year to 30 June 2021. However, for to those keeping an eye on the situation, the company’s appointment of administrators in June may not have come as a complete surprise.
In the previous months, the company had faced a series of liquidation requests from subcontractors who claimed the company had withheld payments in error. Although most of these cases were settled out of court, the weeks just before Henry’s collapse saw rumors of a slowdown in activity at many of the company’s sites as its credit rating suffer.
A quick scan of social media comments reveals palpable anger that, once again, suppliers are likely to face the negative consequences of a prime contractor’s financial woes. Many commentators focused on the perceived inequities of the current withholding system, arguing that project bank accounts (PBAs) – which lock in money from the start of projects – are needed to provide greater protection for subcontractors.
Coincidentally, a week after Henry’s problems became apparent, the issue of PBAs came to Parliament. Debbie Abrahams, Labor MP for Oldham East and Saddleworth, has been beating the drum for PBAs for a few years now. Their latest attempt to include them in the statute (for all contracts worth more than £2m) came through a proposed amendment to the infrastructure bill. It fell on the rocks of the government opposition.
A junior minister explained the government’s position to parliamentarians. While he claimed the government was a big fan of PBAs, saying they were “most often an effective way to ensure fair payment and protect suppliers”, ruling out their use in all contracts it would be a step too far.
It is clear that the move to mandatory PBAs would not be painless for prime contractors, who would face set-up costs and issues related to cash flow and working capital. However, the government’s position is somewhat self-contradictory. If the burdens on contractors are prohibitively onerous, then why did the Minister reiterate that government departments are committed to using PBAs “unless there are compelling reasons not to”?
With a record number of administrations in the sector in May and dark clouds on the economic horizon, this is an inconsistent position that will likely come under increasing scrutiny.
