Debbie Abrahams has introduced proposed legislation to parliament via the Ten-Minute Rule Bill that seeks to make it mandatory for government to use shared project accounts
The Specialist Engineering Contractors’ (SEC) Group has backed proposed legislation introduced to parliament this week that would require government and other public sector contracts to make use of project bank accounts.
Labour Party MP Debbie Abrahams put forward the proposals through the parliamentary procedure of the Ten-Minute Rule Bill to open talks on mandating use of the bank accounts to better protect cashflow in industries such as the construction sector.
Another piece of proposed legislation that seeks to make it a legal requirement to hold cash retentions in a third party deposit scheme was introduced to parliament last January by MP Peter Aldous under the same procedure.
Although a Ten-Minute Rule Bill is not guaranteed to move towards a formal vote unless picked up by a government as policy, Ms Abrahams intervention reflects a growing push to reform payment practices in the public sector and beyond to protect industry from late or lost funds.
She has previously chaired and established a parliament inquiry focused on late payments in 2013 and said that the proposed legislation was focused on ensuring lead contractors and everyone else in the supply chain receive payments from a secure source of finance.
Ms Abrahams said in a statement that late payments from larger businesses had led to billions of pounds in payments owed to companies in sectors such as the building services industry to be lost.
She said, “When payments take a long time working their way along a supply chain from the contracting authority there is a risk that the cash could be cut-off at any time because of payer insolvency.”
“We witnessed the catastrophic effect this has with the collapse of Carillion a year ago, with £2bn of unpaid invoices to their smaller suppliers. The precarious position of other major government contractors like Interserve means urgent action is required.”
SEC Group chief executive Rudi Klein said the introduction of the bill to parliament was timely considering many UK contractors were in a precarious financial state at present.
He said, “In fact it would now be very neglectful of parliament or the Government to continue to ignore the concerns of SMEs in construction supply chains which have had to put up with payment abuse over many years.“
“Project bank accounts are now acknowledged to be the most effective method of ensuring secure and regular cash flow.”
According to the SEC Group, the bill calling for mandatory project bank accounts in public sector contracts enjoys strong cross party support.
Martin McTague, policy and advocacy chair for the Federation of Small Businesses, said that it was vital government was providing a good example concerning payment performance by making use of project bank accounts for contracts on major projects.
He added, “At a stroke this would prevent small suppliers going bust through no fault of their own, where a contractor goes bad – as happened with Carillion exactly one year ago.”
“It is right and proper that there be cross party support for this bill. The fact is Whitehall simply doesn’t use project bank accounts nearly enough – that needs to be fixed.”
Parliament’s Business, Energy and Industrial Strategy (BEIS) Committee urged the government last month to bring forward proposals to introduce mandatory project accounts with a mechanism to independently release cash retentions owed to contractors.
A report published at the time by the committee looking at small businesses and productivity was critical of existing efforts to combat both late payments and the abuse of existing retentions systems. This was seen as a particular concern in light of the collapse of Carillion and the negative financial impacts of building services specialists still owed money by the now defunct group.