Scottish Government to trial project bank accounts for public sector developments

The initiative is an early recommendation of a major review of the way in which public bodies in Scotland award contracts, which is due to publish its final report in the summer.

Project bank accounts are ring-fenced bank accounts which all contractors have access to and are able to draw their payments from. They allow clients to make payments directly and simultaneously to the main contractor and any subcontractors, removing the risk of any delay in payments to members of the supply chain from the main contractor's account.

In a debate on procurement at the Scottish Parliament, Deputy First Minister said that the new system should be in place later this year.

"The Scottish Government is working tirelessly to improve on the procurement system in Scotland's public sector in order to maximise economic growth and support jobs," she said. "We are happy to take on board the trial of project bank accounts for public sector projects and we are now looking to identify suitable opportunities which will support local and national economies and boost cash flow for both contractors and subcontractors."

Sturgeon announced a "root and branch" review of the way in which public bodies award construction contracts in October 2012. The project, led by KPMG's Robin Crawford, has been tasked with considering how to streamline procurement practices and delivery value for money for taxpayers. Construction is the largest single area of procurement spending by public bodies in Scotland, accounting for more than £2 billion of the £9bn spent each year.

Ken Lewandowski, deputy chair of the review, said that he was "delighted" that the Scottish Government was beginning work on trialling the recommendation.

"Times are tough in the construction industry, and when payment for work is delayed, things only get tougher," he said. "Project bank accounts can help to relieve some of that pressure, especially on Scotland's SMEs. The case for trialling them is so compelling, and the industry so important to the economy, that we felt it was appropriate to make this early recommendation before we publish our full report in the summer."

Once in place, the new system will enable all contractors to access funds paid electronically typically within five days, according to the Scottish Government. Ministers said that the scheme could reduce insolvencies, particularly amongst SMEs, as it would reduce the time between their initial spend on labour, plant and materials and subsequent payment.

The announcement comes shortly after figures released by online procurement portal Public Contracts Scotland (PCS) showed an increase in small local businesses winning contracts. According to the figures, 80% of the 13,308 suppliers awarded contracts through PCS in 2012 were based in Scotland, while 68% of the total number of contracts went to Scottish-based SMEs. The figures showed a 12% increase in the number of SMEs winning contracts since 2010, PCS said.