Firms involved in major public sector construction projects in Wales are to benefit from strengthened payment protection under a government initiative.
Three high street banks have been accredited by the devolved Welsh Government as part of its project bank account (PBA) scheme, which is designed to speed up payments for subcontractors working on large-scale public schemes.
Barclays, Lloyds and NatWest are the first banks to meet the criteria to become nominated providers under the scheme, which ministers hope will make it easier for small and medium-sized firms to benefit from the accounts.
The PBAs are ring-fenced bank accounts which ensure supply chain construction businesses involved in public sector schemes receive payment in five days or less.
They protect subcontractors from payment abuse by allowing them full and prompt payment from a neutral, client-controlled bank account, instead of forcing them to wait for money to filter down through tier one contractors, the Welsh government said.
As well as protecting payments against insolvency, PBAs help improve cash flow for subcontractors who, without the accounts, could be waiting for up to 90 days to see their accounts settled.
Elsewhere in the UK, there have been concerns that government departments are failing to use PBAs for large construction projects, despite Cabinet Office procurement rules.
Proposals that would have made the accounts mandatory for public projects worth over £2m were thrown out by Parliament two years ago.
However, PBAs are a condition of Welsh Government-funded, or part-funded, construction and infrastructure projects of that value, unless there are compelling reasons not to do so.
They are also encouraged as best practice for the wider public sector in Wales.
Rebecca Evans, cabinet secretary for economy, energy and planning, said the Welsh Government had been working with the banking sector to address concerns raised by smaller construction firms.
“Construction-based SMEs in Wales have told us that long waits and chasing late payments burdens their businesses and prevents them from expanding and securing new contracts,” she said.
Finance cabinet secretary Mark Drakeford said PBAs offered much-needed support to small firms.
“By ensuring SMEs receive payments within five days, we’re providing cash flow protection that helps these businesses thrive,” he said.
Research last year from the Chartered Institute of Building stressed the importance of timely payments to firms’ survival.
“Our recent research examined the risks faced by Welsh SMEs in the construction sector, all of whom had faced issues with receiving payments at one point or another and agreed ‘cash is king’,” said David Kirby, the institute’s senior policy and public affairs officer for Wales.
“Ensuring prompt payments for construction SMEs is key to their longevity, success, and growth, and beneficial for the wider Welsh economy by keeping critical businesses afloat in difficult financial situations and food on their employees’ tables.”
Among the report’s findings was that some local authorities were not “geared up” to get PBAs established quickly enough, potentially adding further delays.
Ifan Glyn, Wales director of the Federation of Master Builders, was cautiously optimistic that the economies of scale provided by major banks would help to make the scheme less administratively burdensome.
“Having them on board in theory…should make it less complex, less bureaucratic and less costly to establish and administer,” he told Construction News.
Lack of action to ensure prompt payment had been a long-standing frustration for the federation’s members.
“It’s been a long time coming, so it’s good to see some movement,” Glyn said.
Ed Evans, director of the Civil Engineering Contractors Association Wales, said that despite PBAs having been Welsh Government policy for years, it had taken banks a long time to come on board.
“Nevertheless, we very much welcome this long-awaited development,” he said.
“Anything that helps to keep improving security of payment and cash flow for contractors will give a huge boost to the industry.”
