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23 January 2018

Project bank accounts could protect small business suppliers against repeat of Carillion collapse

The Government should extend the use of project bank accounts for all major public projects to ensure that businesses are protected against catastrophes, like Carillion’s collapse, happening again.

In a letter to David Lidington, Minister for the Cabinet Office, the Federation of Small Businesses (FSB) has urged the Government to adopt the practice which would see money for a public project held in trusts as opposed to by a tier 1 contractor. This would protect businesses throughout the supply chain if a big firm, running a public project, goes bust and would allow them to be paid for work they have already completed. 

Furthermore, holding project money in trusts would help stem the poor payment practices used by some bigger companies as it allows money to be released promptly as and when work is completed.

Major projects, such as the £14.8bn Crossrail project, have already implemented similar arrangements, as have construction spending departments including Highways UK.

FSB National Chairman, Mike Cherry, said: “Sadly this sorry saga has laid bare the danger of having the fate of huge supply chains resting on the financial health of a few large companies, and especially in a sector of the economy riddled with poor payment practice.

“Countless small businesses working for Carillion have not been paid for months and are facing the prospect that they will not receive a penny for their hard work, products or services.

“It is unacceptable that the future of these businesses, and the jobs they provide, have been put in jeopardy by the reckless and irresponsible behaviour of one company. Government must take action now to ensure that this cannot happen again.

“Introducing protected project bank accounts, for all public projects, would ensure that money for work carried out would still be paid to those who have put in the hours and delivered on what they’ve been asked to do. It would also help stop the awful payment practices deployed by big businesses that squeeze smaller firms and put them risk.

“Carillion’s collapse is a watershed moment that cannot be ignored. Small businesses need to be given the confidence that a catastrophe of this scale cannot happen again.  Otherwise the post-Carillion legacy could be a public sector procurement programme that is small-business-free, further increasing costs and risks to the taxpayer.”