Scotland switches to project bank accounts

The Scottish Government is introducing project bank accounts on public work projects to protect subcontractors from insolvency and payment abuse.

Royal Hospital for sick children
Subcontractors on the Royal Hospital for sick children called for project bank accounts after the collapse of Dunne Group last month

From 31 October, project bank accounts will be a tender requirement on building projects over £4m and civil engineering projects valued over £10m.

The Scottish Government has been co-ordinating trials for a couple of years and contractors received the first project bank account payment from NHS Lanarkshire on two work packages worth £1.4m at Monklands Hospital several years ago.

The payment was made under the NHS Frameworks Scotland 2 agreement with Graham Construction. Other schemes where the payments were trialled include Transport Scotland’s Inveramsay Bridge project with Balfour Beatty Civil Engineering, and Scottish Borders Council’s Galashiels Transport Hub project.

Project bank accounts ringfence payments for subcontractors and suppliers, who are typically paid within five days of the commissioning public body paying the value of the interim certificate into the account.

Legal trust status ring-fences amounts in the project bank account, protecting the funds should a main contractor fall into adminsitration.

Under the new requirement main contractors will be exempt from setting up project bank accounts if 75% of the work is carried out in-house or by associated firms.

Present accounting standards also allow main contractors to claim a project’s full value within stated revenue figures.

Finance secretary Derek Mackay said: “This is an important milestone in the government’s commitment to improving cashflow for smaller firms.

“The PBA guidance translates trial programme experience into a simplified common approach with practical resources for implementation in Scottish Government projects. We urge all other organisations involved in commissioning work on Scotland’s infrastructure to use PBAs.”

The Specialist Engineering Contractors’ Group Scotland said it was delighted by the move.

Chairman Eddie Myles said: “SEC Group Scotland has been the leading exponent of PBAs since they are the most effective method for ensuring regular and secure payments to construction supply chains, especially SMEs.”

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