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Fri, 26 February 2021

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The Case for Project Bank Accounts

The Case for Project Bank Accounts
6 min read

For healthy growth we need to support our entrepreneurs and small businesses, writes Debbie Abrahams MP, and it’s time that late payment is viewed as being as unethical, and unacceptable, as tax evasion. 


It’s exactly a year ago today since the construction giant, Carillion, announced it was going into liquidation. 
 
There was widespread concern about what this would mean for the completion of major public sector projects already underway, including hospitals and HS2, which Carillion was also working on as part of a consortium. 
 
But we also mustn’t forget the 30,000 or so small businesses, sub-contracted by Carillion to work on these public sector contracts, and what the collapse meant for them.
 
After Carillion’s liquidation a survey of building, engineering and electrical firms showed that these small businesses were, on average, owed £141,000 by Carillion out of a total of £2bn owed to suppliers. Around 780 small building firms went into insolvency in the first quarter of 2018 as a direct consequence of Carillion’s collapse.
 
Neil Skinner, whose construction firm Johnsons Brothers is based in my constituency, was one of Carillion’s suppliers and lost £176,000. Carillion had used all the familiar late payment tactics with Johnsons Brothers, from finding fault with an invoice, referring him to their overseas accounts office, querying statements and disputing invoices paid.  
 
Eventually, they offered him a 15% non-negotiable discount on the money they owed or they threatened to send all unpaid invoices back to their quantity surveyor’s department. Neil reluctantly signed this contract, just for Carillion to collapse 10 days before the first part payment was due.
 
As Neil said “Large companies know late payment can destroy small businesses like us, but they rely on these tactics to ‘cook the books’ and be seen to be profitable themselves. Carillion went under owing us well over 15% of our annual turnover.” 

 

My Ten Minute Rule Bill, which I propose today, would ensure that public sector projects over £500,000 use Project Bank Accounts – or PBAs - not only stopping small businesses being paid late by large companies, but also protecting them from losing monies owed to them should the Tier 1 supplier become insolvent, like Carillion. 
 
PBAs are ring-fenced bank accounts into which monies due to firms providing construction or other works are paid. The accounts are ring-fenced within a trust arrangement so that if a Tier 1 contractor becomes insolvent the monies for the subcontractors are protected.  
 
Internationally, many Australian states mandate for PBAs to be used in construction projects and last year the European Commission agreed to use PBAs for European projects.
 
My all-party inquiry into late payments in 2013 found that the use of the late payment as a business tactic reflects the culture of a company and its leadership. In my view, late payment is used as a form of corporate bullying, and many large companies build their balance sheets on the backs of small businesses, operating business models which rely on delaying payments to their suppliers.
 
Small businesses are the power house of our economy, contributing annual turnover of £2.0 trillion, constituting over 99.9% of all businesses and 60% of private sector jobs and yet they are owed £14bn in overdue payments.
 
For healthy growth we need to support our entrepreneurs and small businesses and I believe it’s time that late payment is viewed as being as unethical, and unacceptable, as tax evasion.  Project Bank Accounts are a step towards helping end the scourge of late payment, once and for all. 
 
Debbie Abrahams is the Labour MP for Oldham East and Saddleworth
 
PoliticsHome Member, National Federation of Builders has responded to this article, saying "The supply chain needs to be a fairer place for SME subcontractors." Read the full response here.

Read the most recent article written by Debbie Abrahams MP - Covid-19 is a disease of poverty

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