Sir, There is a simple way for the public sector to mitigate risks of contractor insolvency when awarding contracts — establish a project bank account via which all client payments are routed, not only to the main contractor but also its suppliers and subcontractors (“Carillion’s private failure is a public problem”, FT View, January 16).
This already happens on many contracts but should be used more widely.
Contractors in difficulty slow payment to the supply chain, thus increasing the risk of insolvency lower down the chain. Use of a project bank account prevents this.
On the other hand, if a government department wants an infrastructure project, it should be prepared to pay a fair price for it.
If serious unforeseen problems occur, contractors are not bankers and cannot be expected to finance too high a level of risk unless this is priced into the contract.
Pressures of tendering are such that any contractor seriously pricing risk is unlikely to win the tender because its price will be seen as too high.
London TW9, UK