HA project banks to end pay abuse

The Highways Agency (HA) will investigate its contractors’ payment methods over the next six months as it toys with the idea of being the first public sector client to roll out project banks across all its future contracts.

A mention of project banks was made in the agency’s 2005 procurement strategy review, released last week, which also reveals the HA’s move to introduce project insurance on future contracts to help reduce risks and premium costs.

"It would be fair to say that payment across the supply chain has shown vast degrees of variance," said the HA’s procurement director Steve Rowsell.

"As an agency we now have a good payment record with 98.5% of monies handed over within 30 days. However, on the supply side we have no comprehensive figures of exactly how big the payment problem is.

"We need to get a better understanding of this, find out what the issues are, and see where project bank accounts can find their place to ensure fair and protected payment down the supply chain."

The only documented use of a project bank in the public sector was on Defence Estates’ Andover prime contract.

Rudi Klein, chief executive of the Specialist Engineering Contractors’ Group, described the announcement as "wonderful news" after years of campaigning for payment protection.

On project insurance, which is regularly used by airports operator BAA, but never in the public sector, Rowsell said the agency is now in discussions with the Association of Consultancy and Engineering, and some insurers, to see if a pilot project can be introduced to an early contractor involvement (ECI) scheme as soon as the start of next year.

"We played with the idea of project insurance when we first piloted the construction management contracts, but we found that premiums were no cheaper due to the size of the contract," Rowsell said.

"However, on a larger ECI scheme we can see benefits of project insurance to end adversarial relationships between suppliers as there will be minimal risk from a no-blame culture. The lower risk of litigation will mean cheaper premiums and added value."