Project Bank Accounts provide security for Construction Sector

Money makes the world go around. It is not the most important thing in the world, but it oils the cogs and wheels of our economy and if money flows smoothly then everyone in Wales benefits.

6th February 2015

This is especially true in our construction industry and a reason why the Welsh Government is promoting the use of Project Bank Accounts (PBAs) to provide some security to the Welsh construction sector. PBAs support the Wales Procurement Policy Statement, requiring public bodies to adopt best practice approaches to payment through the supply chain.

Construction holds the key to creating the right infrastructure in Wales to maintain our growth out of recession, generate jobs and regenerate communities whilst giving us the homes, hospitals and schools we urgently need. But we can’t build what we want if the companies in the supply chain are not being paid on time.

No one likes a bad debt, but when you’re a small business it is not simply an inconvenience; not being paid a bill on time can be the difference between trading and business failure. The vast majority of the Welsh construction supply chain is made up of Small and Medium-sized Enterprises (SMEs). These SMEs play a significant role in the delivery of public sector projects through sub-contracting arrangements, and they are dependent on the main contractor ensuring fair and prompt payment through the supply chain.

The construction industry is notoriously known for its cash flow uncertainty, with payments taking up to 120 days or more to find their way along the supply chain from the contracting authority. Projects, lives and communities cannot afford the risk of being unfinished or jobs lost due to lack of cash, insolvency or just an unfair payment process.

That’s why Welsh Government has intervened, and in 2013 the Minister for Finance and Government Business, Jane Hutt launched the Construction Procurement Strategy making a commitment to PBAs – as  prompt payment via these accounts can give security to Welsh construction, Welsh contractors and their families.

In April 2014, the Minister reaffirmed its commitment to fair payment in the construction industry with the publication of a PBA guidance and procurement advice note. Public sector bodies are now requested to build the use of PBAs into their construction and infrastructure work programmes. Subsequently, three pilot projects have been identified to test the implementation of PBAs and capture lessons learnt; the projects will be carried out with Swansea Council, Flintshire Council and the Welsh Government’s Transport department.

PBAs represent best practice to ensure better timing and greater security of payment for the supply chain, by ensuring prompt simultaneous payment to the main contractor and supply chain. PBAs are ring-fenced bank accounts with ‘trust status’ which act solely as a receptacle for transferring funds from the client to the lead contractor and supply-chain. Whereas payments normally made direct to the lead contractor are paid onto the supply-chain at a later date, PBAs allow simultaneous payments to the lead contractor and supply chain partners within 3-5 days of the deposit of money into the PBA following certification of the claim. PBAs ease cash flow pressures for businesses and supports closer working within the supply chain.

PBAs will bring certainty to our SMEs in Wales. Over time, we envisage the 3 pilot projects to evidence this and show public sector clients – the biggest spenders in Welsh construction – that prompt payment not only means better projects, but a more collaborative approach to design, build and management and a radically improved Welsh built environment.

If you would like to get involved in PBAs, Constructing Excellence  in Wales are running an event with the first PBA Pilot project with Swansea Council and Dawnus Construction on Tuesday 3rd March 2015. To register your attendance click CEWales Events