Project bank accounts policy ensures prompt payment to suppliers.
Project bank accounts (PBAs) are a way of addressing poor payment practices in public sector supply chains by facilitating fair and prompt payment. They have proved particularly helpful during the Covid-19 pandemic.
Historically, extended payment terms of 60, 90 or 120 days, and poor payment practices in sub-contracting arrangements, have disproportionately affected the cash flow of small to medium enterprises (SMEs).
PBAs offer a different approach to the traditional chain of payments from the contracting authority, to contractors and sub-contractors. Contracting authorities deposit money into a PBA, subject to the usual confirmation of goods, services or works, subsequently ensuring that all contractors and sub-contractors are paid promptly on the same day. Resulting timescales for payment are within 3 to 5 days from the deposit of money into the account; improving their cash flow, financial stability, resilience and capacity to grow.
Supporting SMEs who play critical roles in both public and private sector projects by ensuring fair and prompt payment both reduces the project risk of supply chain failure, and more equitably distributes the socio-economic benefits in our economy and local communities.
Between 2012 and 2017, PBAs were promoted as good practice to the Welsh public sector, with minimal take up. Recognising the potential benefits of PBAs, the Welsh Government focused on its own expenditure and opportunities to influence others through its funding to other organisations.
To promote and encourage the use of PBAs in Wales, the Welsh Government made compliance with PBA policy a requirement in its own contracts from 1 January 2018. It also made PBAs a condition of funding in major investment programmes. These include the 21st Century Schools; NHS Capital; Transport and Infrastructure and Transport for Wales Metro programmes.
Between 1 January 2018 and 31 December 2020, just over £1 billion worth of investment in public sector projects have used or are committed to using PBAs.
While PBAs are designed to support sub-contractors and suppliers main contractors can also benefit. Morgan Sindall Ltd; the main contractor managing the £29 million build of 916-pupil secondary school Ysgol Cefn Saeson in Neath Port Talbot reported:
“We have established that there is no greater administrative work and people are receiving money quicker. We genuinely believe this is boosting the performance of sub-contractors across the site.
Ian Thomas Construction Ltd, groundwork sub-contractor on the project, stated:
“It is the quickest we have ever been paid by any main contractor and it gives us the certainty we need to invest back into the company.”
Detailed guidance on project bank accounts is available on the Welsh Government website. The guidance explains how public bodies can set up and use PBAs to help ensure fair payment of suppliers.