Project Bank Accounts – a positive solution for SMEs

FSBWhen organisations such as charities or public sector bodies or even businesses commission major pieces of work such as the construction of new buildings or refurbishment of existing ones, in the process of limiting their involvement in the day to day elements they can make a very big mistake if they are not careful. The clear and obvious risk which most people and organisations are fully aware of is trying to manage the project themselves as demonstrated by the domestic high risk self-build projects shown on TV. In order to avoid this problem most people or organisations will arrange for someone to act as a project manager who is outside of their organisation, or occasionally they will recruit someone to do this for them on a temporary contract. However they will of course also have someone or a committee within the organisation who is responsible for the project and so some areas of the management can occasionally fall between the two people or groups of people. However understandably the budget for the work itself will be managed by the finance team in the organisation and they rarely get involved in the project management in any depth, however they need to keep a careful eye on the way the money is being spent, after all it is their money (or the money from their donors or investors).

One of the most common ways of reducing the risk of things going wrong with the financing of the project as they see it, is to ask the main building contractor to deal with this. The contractor will of course be very happy to do so as they can now add costs to their work for the money and subcontract management and they can extend the value out so that whatever their payment agreement is with the client, the contractor can add weeks and even months to the pay arrangements for their subcontractors. A classic case for this is the way in which Carillion which was paid by the Government on 30 day terms and then paid its subcontractors on 120 days or even 180 days terms.

The company I work for was commissioned to work for a very high profile church in central London back in 2014. After six months of discussions with the client and agreements over costs, they asked us to then become a subcontractor to their main building contractor rather than work for them direct. We checked the contractor out on Experian and there was nothing to be concerned about. Their name was Fairhurst Ward Abbots or FWA. The company was established in 1941 and at the time held a royal warrant for building and decorating services to the Queen. The firm had a countrywide reputation for delivering renovation and refurbishment of historic properties, plus luxury new build projects. As well as the Royal Palaces, FWA worked on some of the UK’s finest historic buildings including the National Galley, the V&A and Chatsworth House. Tragically as we were finishing our work off, we got a letter through the post alerting us to the fact that they had gone into administration and the outstanding sum of £12,000 was never going to arrive in our bank account.

More recently we had a similar experience with an electrical contractor who we were asked to sub contract to, by a local University. They went bust owing us £7,000. These sums are not large enough to end our business, but they are big enough to remove large elements of the profits of the company. What is needed is a way forward that ensures that if we are ever asked again to become subcontractors that we can ensure our business will not be put at risk. We have just found one solution when a major charity asked us to do the same and so we told them they would need to guarantee that our payments would be made if the main contractor failed to pay us. They agreed to pay us directly. A tweet in the last 24 hours shown above from the federation of small businesses suggests that in the light of the Carillion fiasco Project Bank Accounts may be the way forward!

About ianchisnall

I am passionate about the need for public policies to be made accessible to everyone, especially those who want to improve the wellbeing of their communities. I am particularly interested in issues related to crime and policing as well as health services and strategic planning.
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