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SELECT drives action on slow payment for construction industry’s sub contractors

The Scottish Government is at last turning its attention to project bank accounts in a move that would help the construction industry mitigate the worst effects of the economic downturn and improve payment speed and security for thousands of small firms across Scotland.

The announcement came at a conference organised by SELECT, the trade association for the electro-technical industry and held at the Scottish Parliament on 19 January. It also saw the launch of Barclays Commercial’s Project Bank Account for the Scottish market and an undertaking by Defence Estates to use project bank accounts wherever possible in future standalone contracts.

A Scottish Government spokesman said: “The Scottish Government is liaising with the Office of Government Commerce and industry groups and will consider the implications for Scottish policy of the Office of Government Commerce’s monitoring/evaluation of the Guide to Fair Payment Practices, including project bank accounts, in practice.”

The Scottish Government may also legislate to make project bank accounts a statutory procurement requirement for public bodies and the spokesman added: “The Construction Procurement Manual contains mandatory policy and procedures for the procurement of construction projects by Scottish Government organisations. It was introduced in 2005 as a web-based document and is regularly updated.”

In the past, the Scottish Government has not embraced the idea of project bank accounts and Newell McGuiness, managing director at SELECT, said the change of heart was very welcome.

“It is great news that the Scottish Government is looking so closely at project bank accounts and we hope it will play a leading role in making them a fact of everyday life in the Scottish construction industry. It has taken time to get real momentum behind this issue, but things are picking up and we hope to see them move faster in the coming months.”

Project Bank Accounts consist of both a deposit and current account. The client and the main contractor of a project hold the account jointly and the funds in it are protected by a trust deed.

Once the client pays monies into the account, they are then distributed to the main and sub contractors in accordance with the terms of the project’s contract. This means the sub contractors get paid at the same time as the main contractor and that sub contractors are protected from the insolvency of firms further up the traditional payment chain.

It also ensures that funds paid to a main contractor are used specifically for the project they relate to and not for any other purpose.

Euan Murray, Relationship Director at Barclays Commercial Bank, said: “The use of Project Bank Accounts would generate cost efficient means of supply chain payment, increasing transparency and trust for all concerned. This will enable a more streamlined and fair payment process at a time when sub contractors are even more focused on their cash flow.

“This is something that provides all parties - client, main contractor and sub contractor - with the surety that the payments due to them from the account are secure and will be made on time.”

This point of view is supported by Defence Estates, one of the biggest clients in the public sector. It is intended to implement project bank accounts on a number of imminent projects and Richard Peart, who heads up commercial policy for the organisation, added: “This will see a change in our procurement approach and we are looking to include project bank accounts in all future standalone projects, wherever possible.”

Having chaired the conference, Lord O’Neill of Clackmannan, who is also president of the Specialist Engineering Contractors’ (SEC) Group, commented: “Against a background of rising insolvencies, bad debt, lack of availability of borrowing facilities and credit insurance, PBAs will ensure that the cash is safe for the whole project delivery team.”

He concluded: “The Governments at Westminster and in Edinburgh have announced their intention to pay suppliers within ten days. As always the problem is to ensure that this is implemented along the supply chain. Project bank accounts will help to deliver this policy aim. Furthermore, they will enable the team to work closely together and focus on the delivery of best value instead of being distracted over conflict and disputes arising from poor payment practices.”

Email: karenmaclachlan@blueprintmedia.co.uk


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