Agenda Item No. 5

The Vale of Glamorgan Council

Audit Committee: 27th February 2018

Report of the Section 151 Officer

Project Bank Account

Purpose of the Report

To advise Committee of the proposals to use a Project Bank Account for the A4226 Five Mile Lane Improvements capital scheme.

Recommendations

It is recommended that:-

The proposed use of a Project Bank Account is endorsed.
The internal governance procedures are developed by the Head of Finance to manage the use of the account.

Reasons for the Recommendations

To ensure that members are informed of the proposal to use the Project Bank Account for this scheme.
To allow for the appropriate governance arrangements to be put in place.

Background

On 5th October 2015 Cabinet approved the implementation of the A4226 Five Mile Lane Improvement scheme, to be funded by a £25.8m Welsh Government grant.
The scheme is progressing and an update was presented to Cabinet on 31st July 2017. The design and build works have been tendered and awarded.

Relevant Issues and Options

Welsh Government is committed to ensuring that sub-contractors involved in the delivery of public sector contracts in Wales are treated fairly. Previous experience suggests that payment practices have been historically poor throughout the supply chain and has led to cashflow pressures, which can have a greater effect on smaller companies further down the supply chain.
In order to improve this situation and to provide greater certainty of payment through the supply chain and to optimise payment periods to minimise financing charges, Welsh Government procurement policy requires Project Bank Account (PBA) arrangements to be used for publicly funded construction/infrastructure projects. PBAs are considered as best practice in the adoption of fairer payment practices and ensuring certainty and quicker payment through the supply chain. Welsh Government has therefore requested that a Project Bank Account is set up as a vehicle to making payments under the design and build contract for this scheme.
PBAs are ring fenced bank accounts with trust status which act solely as a receptacle for transferring funds from the client to the lead contractor and its sub-contractors. PBAs allow simultaneous payments to all levels of the supply chain.
As the PBA has trust status, monies can only be paid to the named beneficiaries of the PBA. These would be the lead contractor and other sub-contractors within the project's supply chain. The Vale of Glamorgan Council and the lead contractor would both be trustees of the account, however the account would be set up by the lead contractor.
The setting up of such a bank account does not cut across the usual contractual provisions governing the preparation and submission of interim applications or the valuation, authorisation or certification of interim payments. A certificate will be approved in the usual way by a Council officer and then the equivalent sum would be transferred into the PBA by the Council instead of being paid directly to the Contractor. In addition to the current process the Council would then authorise the payment from the PBA and then the contractor would also have to authorise the payment, triggering payment to the lead contractor and any sub-contractors who are due payment. The breakdown of the sub-contractor payments from the account would be set up by the lead contractor.
Before implementing a PBA, consideration has to be given to its compliance with the Council's Treasury Management and Investment Strategy. The Council will only place its funds with institutions which have a credit rating of A- or higher if they are domiciled in the UK. The PBA would therefore need to be opened with an institution which meets this minimum requirement.
Under the Financial Procedures, all arrangements with the Council's bankers and the operation of bank accounts shall be made by or under arrangements approved by the Section 151 Officer. All Council bank accounts shall bear an official title and, under no circumstances, shall an account be opened in the name of an individual. The policies and administration of all other accounts, must be undertaken in accordance with procedures agreed by the relevant Chief Officer and the Section 151 Officer. The S151 Officer supports the opening of a PBA for this capital project.

Resource Implications (Financial and Employment)

There is minimal cost for bank charges to the project as interest earned by the account is used by the contractor to off-set banking fees.
Internal procedures will be developed to cover the process for transferring funding to and authorising payment from the PBA which will be approved by the S151 Officer.
Only the value of the sum certified for payment will be transferred into the PBA. In line with the current methodology for paying contractors, the funds will be transferred into the account when they are due for payment therefore reducing the time period monies will be held in the account.

Sustainability and Climate Change Implications

As detailed in the body of the report.

Legal Implications (to Include Human Rights Implications)

There are no legal implications.

Crime and Disorder Implications

There are no crime and disorder implications.

Equal Opportunities Implications (to include Welsh Language issues)

There are no equal opportunity implications.

Corporate/Service Objectives

Effective monitoring assists in the provision of accurate and timely information to officers and members and in particular allows services to better manage their resources.

Consultation (including Ward Member Consultation)

This report does not require Ward Member consultation.

Background Papers - None

Contact Officer

Carolyn Michael

Operational Manager - Accountancy

Officers Consulted

All Directors

Responsible Officer:

Carys Lord

Section 151 Officer