Blog 009 - High Speed 2's High Speed Payments

Welcome news this week that after successful trials on the enabling works packages, High Speed 2 (HS2) will now be using Project Bank Accounts across its key packages. HS2 seem to be setting the standard for fair management of the supply chain having recently improved payment terms to help the supply chain with COVID-19 cash flow issues and removing the outdated use of retention on its contracts.

What is a Project Bank Account? A Project Bank Account is a single Bank Account to which the value of the works in the period are paid directly into. The money in this account is then ring fenced for the Main Contractor, Specialist Trade Contractors and any Sub-Subcontractors to be paid directly. This removes the ability for the Tier One contractor to receive the whole payment and then make the Supply Chain wait for payment whilst it takes benefit of holding the cash.

The system is most commonly used with NEC form of contracts, however it is designed to work with other forms and in the private sector too, although there it little to no take up in the private sector.

It is clear from the lack of use that this system doesn’t benefit the Tier One contractors, it prevents them holding the supply chains cash and underpinning the fact that the Tier One contractors in this industry are under capitalised to function as Main Contractors.

As the realisation of the current market situation settles in, the rush for cash amongst the Main Contractors, Specialist Contractors and Suppliers is set to bring this issue to the surface. Left to self-govern, the Employers and Tier One’s will not voluntarily improve their payment terms or elect to utilise Project Bank Accounts. The adoption of these processes on infrastructure projects are due to the government policy makers enforcing their use, even then, take up and execution could be better.

In order to address the unfair payment practices that exist in today's market and to secure the supply chain for the future, immediate action has to be taken. Reporting late payment to Build UK or the Fair Payment Charter has done little to advance the resolution of this decades old issue. Instead, the local authorities need to be tasked to enforce this through the private sector, abolishing the use of retention and capping payment terms at 30 days to Tier Two and Tier Three Contractors as a fundamental condition of planning consent. Too many profitable Specialist Contractors will be lost during these times as a result of poor cash flow from another party unfairly holding onto their money.

If you’re interested in learning more about managing cash flow or are struggling with payments from Main Contractors, drop me an email and we can discuss further.