Small businesses have urged the government to extend the use of project bank accounts for major public projects to protect firms against the risk of catastrophic market events like Carillion’s liquidation.
In a letter to David Lidington, minister for the Cabinet Office, the Federation of Small Businesses (FSB) urged government to implement a new business practice, which would see money for public projects held in trusts, as opposed to with top tier contractors.
As a result, businesses throughout the supply chain of a major project would be protected should the main contractor go bust, and payment would be guaranteed for work already completed.
The FSB’s national chairman, Mike Cherry, claimed the collapse of Carillion had emphasised the need for major change to public procurement practices in Britain.
He 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.
“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 at risk.”
Around £800m in retention payments were owed to Carillion’s small suppliers and sub-contractors when the construction firm went bust on 15 January. The UK’s second largest construction company had debts of roughly £1.5bn.
“Carillion’s collapse is a watershed moment that cannot be ignored,” Cherry went on to say. “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.”
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