Ringfenced project bank accounts (PBAs) should be extended throughout the construction supply chain to “eliminate” payment-related mental health issues, a white paper has argued.
A two-tier PBA system would offer not only financial but also psychological protection to small and medium-sized construction businesses that are the backbone of the industry, Marc Preston says in Unlocking the action plan for better mental health in UK construction.
Preston, who is chief executive of New Foundation Counselling, a qualified surveyor and director of Construction Dispute Experts, calls for such a two-tier system to be introduced by the middle of next year.
“This is an effective approach that works through existing JCT [Joint Contracts Tribunal] arrangements and can eliminate mental ill health caused by late payments or anxiety over payment structures,” he says.
As a solution to the problem of “late and uncertain payment” – a long-standing stress point for contractors – Preston’s proposed system would include a top tier with PBA provisions within a JCT contract, and the “addition of a new subcontractor bank account subordinate to the main account”.
This second-tier PBA would operate in the same way as the top level, “enabling tier three and four sub-subcontractors to be paid soon after the subcontractor has received payment funds”, Preston says.
He recommends that each subcontractor sets up its own PBA to provide payments to their own subcontractors, with a short delay from when the subcontractor receives payment from the main contractor.
“This would mean that tier three contractors are paid within 28 days of their application for payment,” his white paper says.
“It is recommended that the maximum period for payment to reach lower tier subcontractors – tier four and self-employed [sole traders] – be restricted to 42 days.”
Large UK contractors are already required by law to report on payment practices every six months.
But as Preston points out, the regulations only apply to firms with an annual turnover greater than £54m, total assets of more than £27m and more than 250 staff as of 6 April 2025.
Only a small percentage of firms meet these criteria.
“Of the 364,514 registered construction firms operating across the UK, 98 per cent employ [fewer] than 24 people,” Preston notes. “Only 618 have a turnover of more than £50m.”
A 60-day payment period is permitted “if fair” under existing regulations, he adds.
“In my view, it can never be considered fair if this payment length extends the time taken to pay the bottom of the supply chain to 120 days.”
The scale of the issue was underlined by an analysis released today (19 February) by Funding Circle, which specialises in loans to SMEs.
It revealed that construction businesses are more exposed than those in any other sector, with more than 2,100 firms estimated to have closed in 2024 due to delayed payments.
The two-tier PBA is one of 28 calls for action in Preston’s white paper, which include:
- Removing health and safety and mental health costs from competitive tenders within six to nine months.
- Mandating the widespread appointment of dedicated mental health managers by mid-2027.
- Establishing an industry taskforce to monitor AI’s impact on mental health, to report by the end of this year.
“Some of the steps are easy to achieve, others will take a collaborative approach to deliver,” Preston says.
“The one thing that is certain is that if we keep on doing the same old things in the same old way, nothing will improve.”
