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Fri March 29 2024

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Highways Agency pioneers prompt payment revolution

10 Feb 12 Contractors, subcontractors and suppliers on national road projects can expect to get paid much more quickly under a new payment scheme being pioneered by the Highways Agency.

According to the Cabinet Office, which has been promoting procurment reform, the move will revolutionise the way the construction supply chain operates.

It is not unusual for some SMEs in the construction industry to have to wait for up to 100 days to receive payment for their work. But the Highways Agency has implemented a new way of paying its supply chain on two of its projects that will see subcontractors getting paid within a few days from the due date.

The system – called project bank account (PBA) - has been introduced initially on the M4/M5 managed motorways scheme (Bristol) and the M62 J25 to J28 managed motorway scheme (North Yorkshire). Both schemes are under construction now, with work getting underway on the M62 in October 2011 and on the M4/M5 on 25 January 2012.

However, over the next three years the Agency proposes to use this approach on more than 20 construction and maintenance schemes to benefit hundreds of companies. It should see a total of over £2.5bn flowing through the new system.

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The Cabinet Office is working with public sector construction procurers to extend the use of PBAs. This year alone, more than £500m worth of projects have already been signed up to use PBAs and this will rise to £4bn by 2014. Within three years, this payment system will be used on 20% of all government construction.

 A PBA is a legally ring-fenced and protected bank account from which payments are made directly and simultaneously to all participating members of the supply chain. SMEs using the PBA will no longer have to wait for prime contractors to process their payment; instead they will receive it directly through a bank account specific to the project they are working on. 

Cabinet Office minister Francis Maude said: “We are leading the way with this approach to paying suppliers, and where better to do so than in an industry where 99% of businesses are SMEs. Project Bank Accounts mean SMEs in the construction industry will be paid faster, freeing them of the burden of juggling with their cash and allowing them to focus on expanding their businesses.”

"If you run a small company and you have to chase payment, it’s not only stressful, running around and spending time chasing invoices increases your costs even further. Companies involved in these projects will no longer have this headache. We will extend these further across the sector over the next two years.”

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