Project Bank Accounts: Good news for the supply chain

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HS2 has announced its support for Project Bank Accounts (PBA’s) and this is brilliant news for the supply chain. So, what are they, why are they good news and will everyone welcome them? Copronet explains

Put simply, a Project Bank Account is a ring-fenced account from which payments are made by the client or employer directly to members of the supply chain within a matter of days of the work being carried out and signed off.

As a consequence, Tier 2 and Tier 3 contractors do not have to wait for payments to be processed by the main contractor. This gives the supply chain certainty and security and prevents them from the sort of financial abyss many subcontractors found themselves in after the collapse of Carillion, for instance.

So, this payment structure is undoubtedly good news for the supply chain.

But do main contractors welcome PBA’s with such open arms? The evidence might suggest not.

Project bank accounts make it “impossible for tier one contractors to generate significant cash surplus on projects” according to Paul Sheffield, then chief executive of Kier, in 2014. “If your construction business is no longer going to generate the levels of cash that it used to, why would you get out of bed for 1% or 2%?”

And in March 2020 Costain announced that it was seeking £100m from shareholders, in part because of the increase in use of PBA’s. It said: “…this has resulted in an increase in the level of Costain’s balance sheet cash being held in …project bank accounts, rather than being freely available for the Group to use for general working capital purposes.”

So, there it is. The admission that the Tier 1 contractors have been using payments due to their supply chain “for general working capital purposes”. Is that also an admission that main contractors are under-capitalised? We will let you draw your own conclusions but to us it is further evidence that our current industry structure is precarious at best.

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