I am sure that most of you will remember the so-called Carillion scandal in 2018. Carillion was a major supplier of construction and associated services to the public sector and folded up owning over £1 billion. A huge issue was that even when it was known they had major financial problems, a number of public sector bodies kept awarding new contracts – sometimes making “up-front” payments for work that was never completed.
But as Carillion failed they took down hundreds, maybe event thousands, of their small sub-contractors who never got paid for work they had undertaken.
The – then – Government introduced new legislation in order to prevent such a scandal arising again but it appears that in spite of this legislation the problem has just reared its ugly head once more.
It seems that a company called ISG went into administration last month. ISG was a major contractor to the Ministry of Justice (a certain irony there) with contracts to undertake major works in prisons in Birmingham, Liverpool and Dorset.
But the ISG collapse has left around 40 small businesses with substantial unpaid bills. Some of these SME’s will certainly “go-under”.
But they should have been protected by the MOJ payment terms. The main contracts were supposed to be using Project Bank Accounts (PBA’s) to ensure payment. On some large contracts such as these, the buyer (in this case the MOJ) sets aside the funds to pay for the work and pays the sub-contractors directly without the money going via the main contractor. That guarantees that in a situation such as Carillion the SME’s still get their money.
But it appears that in this case the PBA failed. On behalf of those SME’s – some of whom may be Your Business Community members – I will be asking Ministers for an explanation.
I will update you all in a future blog.