Called to account

Unfair payment practices cause significant financial losses and inhibit productivity through conflict and distrust.

For this reason, the Specialist Engineering Contractors’ (SEC) Group has provided advice and support to the Office of Government Commerce (OGC) and the Public Sector Construction Clients Forum (PSCCF) on the benefits of project bank accounts.

This work has been instrumental in the development of the Guide to Best Fair Payment Practices, recently launched by the OGC for use on all public sector construction procurement projects.

The OGC guide recognises that the use of these accounts should improve construction performance and provide value for money to public sector clients. Benefits include:

• greatly improved payment certainty for supply chain members;
• greater transparency in the payment process. Public sector clients could expect to save up to 5% of construction costs by the use of project accounts;
• further savings of time, because the supply chain is able to reduce overheads relating to lengthy waits for payment, debt chasing and administration;
• underpinning collaboration. Certainty over how much and when payment is made builds trust between delivery team members and underpins collaborative working;
• improved productivity and fewer contractual disputes.

Trust status

The project account is not a client or contractor account. It is set up in trust on behalf of the whole supply chain. It operates in a similar way to a solicitor’s client account. The trust status of the account is essential in order to avoid potential problems if the lead contractor goes into administration. It prevents the monies in the account being seized, including monies that are rightfully due to the supply chain.

The OGC guide includes a generic trust deed. Three high street banks – Barclays, Bank of Scotland and HSBC – are developing accessible account products. These products will be available for the launch of the OGC Fair Payment Initiative this autumn.

Training and implementation

The key to unlocking the improved construction performance and value for money that these accounts can bring involves more than just the successful implementation and operation of the account.

It is important on the first schemes where a client uses a project acount that the project teams – client, consultants, contractors and their supply chains – receive specialist familiarisation training.

Guidance would need to cover:

• early familiarisation briefing for senior management to enable informed decisions on the adoption of project accounts;
• training the client to select the project team. The team will be the ambassadors for the system at project level, and it will be their knowledge and enthusiasm that
• sells the benefits on to clients and the industry;
• selecting and appointing a bank, with details of products available and their terms and conditions, to enable the most appropriate one to be selected;
• setting up and use of accounts – the processes and procedures involved;
• amendments to terms of appointment/tender/contract documentation to accommodate payments made via an account;
• arrangements for supply chain members outside the account. It is not likely to be feasible to bring all levels of a supply chain into an account regime on a one-off project, but fair payment practices need to be applied;
• ensuring the supply chain is adequately briefed on the benefits to them in respect of payment certainty and transparency. This is essential in unlocking potential savings;
• detailed training of the project team in the operation and use of the account.

The SEC Group has been working closely with Rider Levett Bucknall in setting up specialist familiarisation training. Rider Levett Bucknall has been operating project accounts for six years, and developed the project banking model used on the Defence Estates Andover North Site project in Wiltshire.

This received critical acclaim from the National Audit Office for “ensuring timely payment by all parties and mitigating the risk of contractors unfairly withholding payments from their supply chain.”

The SEC Group has organised an account event called ‘Fair payment practices – making it happen’, on 14 November at the RAC Club, Pall Mall, London.