This week’s edition of Re:Construction, the Construction Index podcast (Ep.57), reveals that major contractors, including Mace and Laing O’Rourke, pressured the Cabinet Office not to mandate the use of project bank accounts on public sector construction contracts.
Project bank accounts – a ring-fenced account from which payments are made directly and simultaneously to all members of a supply chain – are generally regarded as the best available solution to protect suppliers from the abuse of retention monies and the insolvency of Tier 1 contractors.
However, they also prevent Tier 1 contractors using the money that belongs to their suppliers, and thus inhibits their cashflow.
There has been broad support from governments across the UK, to varying degrees, over the past 10 years and their use in the public sector has grown.
Project bank accounts (PBAs) gained further political support after the collapse of Carillion leaving most of its supply chain unprotected and unpaid. The exception was Carillion’s supply chain on Highways England projects. Highways England is the most prolific user of PBAs, which ensure that subcontractors are paid within 18 days. By 2025 over £17bn of highways works will have been paid through PBAs.
Carillion’s suppliers on the Crossrail Paddington Station contract also thought they were protected, because they too had a ‘project bank account’. However this one was held by Carillion itself, rather than by a third party, and so was useless (and arguably fraudulent).
All this was explained by Rudi Klein, recently retired as chief executive of the Specialist Engineering Contractors’ (SEC) Group, who told the hosts of Re:Construction that he could speak more freely now that he was ‘retired’ – albeit only sort of, as he maintains a private legal practice.
He revealed that Tier 1 contractors had fought to keep PBAs out of the Construction Playbook, the document that sets out government guidance on sourcing and contracting public works projects and programmes. Rudi Klein specifically named Mace and Laing O’Rourke as leading opponents of project banks accounts. He also said that Bam Nuttall had published research claiming that its suppliers do not like PBAs. When SEC Group explored these counter-intuitive findings, it began to find holes in Bam Nuttall’s methodology.
Rudi Klein said that the major contractors had previously engaged law firm Pinsent Masons to discredit the use of project bank accounts.
In the event, when the Construction Playbook was published by the Cabinet Office in December 2020 there was only a cursory reference to the use of PBAs, towards the back of the document, under the heading ‘Options to mitigate the risk of potential supplier insolvency’. It suggests that options include bonds, guarantees and, thirdly, project bank accounts. “As per Cabinet Office payment policy, PBAs are not always suitable, but should be used unless there are compelling reasons not to” is all the Playbook has to say on the matter.
It remains a clear endorsement of PBAs by the Cabinet Office but not exactly compelling promotion.
You can listen to the weekly Re:Construction podcast with Bishop & Taylor via all the familiar podcast outlets (Apple Podcasts, Spotify, Google Podcasts etc) or directly from www.theconstructionindex.co.uk/podcast