ProjectPay, the construction payments fintech, which received a project grant funded by the government’s innovation division, Innovate UK, to research and test how to solve cashflow problems in the construction industry, has now published its findings.  The report has been provided to the government. 

The report follows on from recent news1 that building levels are falling and companies do not have the confidence to invest. SMEs in particular are struggling, with a growing number unable to continue to operate. This could put the Government’s building boom plans at risk.  98% of the construction sector is made up of SMEs and both they and tier-one contractors are finding it challenging to deliver projects because so many firms are collapsing. Many small businesses find themselves stuck in a debt trap paying high interest expense whilst they wait a very long time to get paid.  The Prime Minister Sir Keir Starmer has committed to back small businesses by unlocking barriers to growth, with the government committed to addressing access to finance and payment practices.  

ProjectPay’s report highlights that the economic impact of this building boom could be devastating for the sector if insolvency rates are not addressed.  It draws parallels with Australia in 2024, when government investment caused insolvency rates to skyrocket to their highest rates on record. This government investment is now being investigated in Australia due to the disastrous results and billions in losses to taxpayers in creating a “profitless boom.” 

Louise Stewart, CEO of ProjectPay explains “These building grants damaged the industry with thousands of builders collapsing, leaving many Australians and small businesses financially ruined.  It contributed to the severe housing shortage, creating one of the most unaffordable housing markets in the world.  Warnings from industry experts were ignored, we cannot let the same happen in the UK.”  

The UK has the highest number of builder collapses and some of the worst payment times in the world2. After the collapse of ISG (September 2024), industry has warned that the late payments and insolvency crisis in the sector represents a significant threat to the government’s ambitions to grow the UK economy.  Many in the industry are now calling for fundamental reforms and new payment models to address and prevent recurring financial misconduct and instability. The report explains that the ISG collapse made a mockery of payment performance reporting which ranked ISG among the industry’s very best payers, when in reality subcontractors were owed large amounts and were battling to get paid.   

The Government’s new Procurement Act, which passed last month, mandates for government projects to report on contractor payment performance across the length of their supply chain.  It is now a key priority for government to access reliable payment performance data and to be able to enforce 30-day payment terms. The report shows that projects using ProjectPay demonstrated the platform’s effectiveness in providing validated data and guaranteeing payments are made within the 30-day timeframe, providing easy compliance for tier-one contractors.   

Selected tier-one contractors are being invited this week to participate in the next phase. Louise Stewart, CEO ProjectPay, said, “it is encouraging to see such commitment from the UK government in addressing this long-standing issue.” Stewart continues, “the government is the UK’s largest construction client, they transact over £2 billion in payments a year on construction projects (with plans to spend £650 billion on public projects over the next decade); they want to ensure that this investment benefits the UK economy by creating jobs and prosperity, not more collapses.” 

The report:  

• Explains that just digitising payments will not solve the problem, that the industry is burdened by outdated financial models and banking structures with many small businesses unable to access low cost or affordable working capital.

• Reveals that Project Bank Accounts, used by the government to provide some protections, are ineffective, costly and should be replaced with a superior solution.  

• Recommends that the government’s ENABLE Build programme is modified to address access to capital for SMEs that operate in the sector, not just builders, and is delivered in a way that removes government’s exposure to private sector losses in guaranteeing loans to builders.

• Highlights the regulatory environment in the UK does very little to provide security of payment in the sector compared to other countries:  

  • this could be a deterrent for private investment into the UK construction sector. 

  • exposes SMEs, should government hand over the keys to private investment on infrastructure projects that may adopt a “profits at any cost” approach, as has been experienced with the “vampire kangaroo”, Macquarie Bank and their investment into Thames Water.

ProjectPay is already being used on government projects in Australia and is being rolled out on public entity projects in the USA (where ProjectPay is poised to capture a segment of the US$2 trillion payments volume). ProjectPay is working with UK government departments looking to replace PBAs and to deliver an industry supported technology solution that eliminates late payments, reversing insolvencies and providing SMEs with much needed cashflow.