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Trusts hailed as subbies' lifeline

Project bank accounts could offer subcontractors protection against Benson-style loss

THE GOVERNMENT'S spending watchdog has said its future projects should be run using a project bank account to ensure firms get paid if a main contractor goes bust.

If the recommendation in this week's 100 page report by the National Audit Office is implemented, the result could see an end to the kind of misery suffered by the subbies of failed contractor Benson, which collapsed last year owing £23 million to 3,000 firms.Most have given up any hope of getting back what they are owed.

The NAO said Government departments should provide subcontractors with certainty that they will be paid by setting up an account as a trust.

The report, Improving Public Services Through Better Construction, is the first on construction procurement since 2001.

It also recommends that project-wide insurance should be introduced on Government jobs. It says separately insuring every company is wasteful because of overlapping cover and works against the idea of teamwork, with firms merely interested in protecting their no claims records.

The NAO also estimates that the use of project accounts and insurance will save £325 million in future central Government capital spending if introduced across the whole public sector.

Already subbies' leaders are hailing the NAO's findings as the future driver of a huge step-change in procurement practices for the whole of construction.

Specialist Engineering Contractors Group chief executive Rudi Klein said: 'With a bank account there is no need for retentions and, if projects do have them, they are protected.

This report should lead to fairly radical changes.

'The recommendation is important given the number of high-profile insolvencies that have hit the industry recently.'

Benson went into administration owing subbies £5 million in retentions.

The report also said the Government should put in place an early warning system, signalling what will be spent on future construction programmes, which will be handled by a Government construction client forum.

Industry reformer Sir Michael Latham, who wrote the report's foreword, said a senior Treasury minister should head the client group.

Sir Michael added: 'The forum is a clear signal to Whitehall on how vital best practice is and how it should be driven through Government.'

The report suggests Government clients should look at developers like Stanhope and BAA to pick up tips on how to procure better.

The NAO also found that leadership on projects can be weak and lacking in continuity. It said Government departments with long-term building programmes should beef who wrote the report's foreword, said a senior Treasury minister should head the group.

Sir Michael added: 'The forum is a clear signal to Whitehall on how vital best practice is and how it should be driven through Government.'

The report suggested Government clients should look at developers like Stanhope and BAA to pick up tips on how to improve procurement.

The NAO also found that leadership on projects can be weak and lacking in continuity. It said Government departments with long-term building programmes should beef up their project management capabilities.

It found that between April 2003 and December 2004, 55 per cent of projects were delivered on budget, compared with just 25 per cent in 1999. But it said there is a way to go in meeting Achieving Excellence targets of 70 per cent of projects on time and budget.

The Public Accounts Committee will consider the findings later this year.