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Second reading for project bank accounts bill

16 January 2019 | By Neil Gerrard

Debbie Abrahams

A Labour MP’s bill proposing the use of project bank accounts (PBAs) on all public sector projects has been moved forward to a second reading in Parliament.

Debbie Abrahams, MP for Oldham East and Saddleworth, brought in her bill to require public authorities to pay suppliers using project bank accounts during a hearing in Parliament yesterday (15 January).

It was agreed that the bill will now be read a second time on 1 March.

Presenting her bill, Abrahams said: “It is exactly a year ago today since the construction giant Carillion announced it was going into liquidation. At the time, there was widespread concern about what that would mean for the completion of major public sector projects already under way, including hospitals and HS2, which Carillion was also working on as part of a consortium. There were also real worries for the 30,000 or so small businesses that, as part of Carillion’s supply chain, were also working on these projects. After Carillion’s collapse, thousands of those subcontractors lost major contracts and were left reeling with substantial debts.”

Abrahams highlighted how construction firm Johnson Bros, based in her constituency, was one of Carillion’s suppliers and lost £176,000 following its collapse.

She explained how the firm’s director, Neil Skinner, had told her how difficult it was to get paid. She said: “Neil told me: ‘Carillion often went over sixty days before it paid, with a lot of chasing, and once the job for a particular customer was finished our sanction, to stop working, was gone and their payments just stopped even though Carillion still owed money for the job that Johnson Bros had done for it.

“'They resorted to using all the familiar late payment tactics, from finding fault with an invoice, referring us to their India accounts office, statement queries, disputed invoices paid, and so on.

“’Then, lastly, they imposed a 15% non-negotiable discount on our work or they would send all unpaid invoices back to their quantity surveyor’s (QS) department. We reluctantly signed this contract and then they went ‘bump’ the Monday after signing and 10 days before the first part payment was due.

“'As a result of Carillion’s late payment tactics small enterprises like mine have been suffering greatly, if not terminally.’”

Abrahams' bill would require that all public sector projects over £500,000 use project bank accounts.

She added: “My bill would not only protect small businesses from losing money owed to them should the tier one supplier become insolvent, as Carillion did, but stop small businesses being paid late by large companies.

“PBAs are ring-fenced bank accounts ​into which monies due to firms providing construction or other works are paid. The accounts are ring-fenced in a trust arrangement so that if a tier one contractor becomes insolvent, the monies for the subcontractors are protected. They do not disrupt contractual arrangements, but instead of public bodies paying tier one contractors directly, the public body pays money directly into the PBA. The tier one contractor and suppliers are then all paid simultaneously, usually within 15 to 18 days.”

She highlighted how some government bodies, such as the Highways Agency, already use PBAs, while they have also been used on building projects in Scotland, Wales and Northern Ireland.

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