Procurement Bill retentions amendment stalls

Debbie Abrahams MP, the Member of Parliament for Oldham East and Saddleworth, put forward a new clause to the Procurement Bill mandating the use of project bank accounts in public sector contracts over £2m, ensuring retention money is kept safe in an independent account.

The government blocked the move, despite ostensibly supporting the use of project bank accounts (PBAs).

Mrs Abrahams has been campaigning on this issue since 2011 after she met a haulier who was struggling to get paid promptly by a big supermarket chain. She introduced a ten-minute rule bill on using project bank accounts in 2019 after another constituent, Neil Skinner, lost £176,000 through the collapse of Carillion.

Debbie Abrahams MP said: “Small businesses are the backbone of the economy including in communities like Oldham and Saddleworth. In difficult economic times like these it is more important than ever that they are supported, and abusive payment practice is stamped out. It is estimated that 6000 small construction firms will become insolvent this year, driven largely by unprecedented cost pressures but made unmanageable by large companies exploiting their power and using a myriad of poor payment practices.

“That’s why I have tabled this new clause – using project bank accounts will ensure public sector contracts are paid into PBAs ring-fenced by trust, giving a fair playing field to small businesses.

“Ultimately, this is a fairness issue. Big businesses should not be allowed to run roughshod over the small businesses at the heart of our local economies.”

Cabinet Office minister Alex Burghart acknowledged the benefits of PBAs but felt that Mrs Abrahams’s amendment went too far.

“Project bank accounts are most often an effective way to ensure fair payment and to protect suppliers, and they are already the government’s preferred vehicle for construction contracts where it is cost-effective and cost-efficient,” he said. “Government departments have made a commitment to use PBAs in construction projects unless there are compelling reasons not to do so. However, it is not the government’s position that PBAs should be mandated across all contracting authorities, as they are not always suitable or cost-effective, particularly where the subcontractor is very small or is paid more frequently than monthly, or where the supply chain is short. Instead, we intend to continue educating contracting authorities, through guidance, on the circumstances in which we believe PBAs are practical and effective.”

He added: “We are already working with industry to discourage the withholding of retentions by supporting zero retention for high-quality work pilot projects and reducing the default rate of retentions within certain types of contract to zero. However, we do not support dictating the operation of construction contracts to the degree proposed.”

Numerous construction trade associations have been campaigning against the abuse of retentions for years.  Retention payments are traditionally withheld until a job has been completed to the client’s satisfaction. However, Tier 1 contractors at the top of the supply chain have traditionally seen the practice of withholding retentions as a useful way to keep their own bank accounts inflated, protecting their own cashflow.  Some are not always swift to release money owed. However, since the collapse of Carillion left so many out of pocket, most have realised the game is just about up. There has been a lot of talk about abolition of retentions and the adoption of project bank accounts to put the money in escrow, but not an awful lot of action.

The Construction Leadership Council’s 2014 Construction Supply Chain Payment Charter supported abolition of retentions and in 2019 it gave its backing to Build UK’s Roadmap to Zero Retentions plan, which envisaged zero cash retentions by 2025.

The use of project bank accounts (PBAs) was mandated in the government’s 2020  Construction Playbook despite opposition from Tier 1 contractors who tried to keep them out. However, to what extent they are being used by government departments is not being monitored, as Debbie Abrahams herself uncovered, which suggests support within Whitehall remains less than fulsome. [See our previous report here.]

Given that the CLC is co-chaired by whoever is the government minister with construction in their portfolio, and given that its secretariat is provided by Whitehall – the CLC is literally inside governemnt – it is unclear why it takes an opposition backbencher to push for something that ostensibly has universal support and is already, supposedly, government policy.

Nothing is as clear as it might seem, however. Professor Rudi Klein, subbies’ champion and former chief executive of the Specialist Engineering Contractors’ (SEC) Group, revealed to us in 2021 that Tier 1 contractors had engaged law firm Pinsent Masons to discredit the use of project bank accounts and had tried to keep them out of the Construction Playbook. He specifically named Mace and Laing O’Rourke as companies that had tried to pressure the Cabinet Office away from supporting PBAs. Mace chair and major shareholder Mark Reynolds is currently the industry-side chair of the CLC.

The British Construction Steelwork Association (BCSA) supported Debbie Abrahams in her campaign. It said that it would be “disappointed if government does not take up the amendment and once again misses the opportunity to help many SMEs”.

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