Project Bank Accounts
Project bank accounts (PBA’s) are ring fenced bank accounts with trust status from which payments are made directly and simultaneously to identified members of the supply chain. Designed to ensure fair and prompt payment for subcontractors, they also provide them protection in the case of insolvency of the main contractor.
With the construction industry still reeling from Covid-19, is now the time to implement them more widely?
10 years ago there was a recommendation by the Government that all public contracts should be let with a project bank account. However, since they restrict a main contractor’s ability to generate a cash surplus on a project, contractors have been resistant to agree to them. Other than by a minority of central government departments, PBAs have still not been widely adopted. If only they had been in place on all of Carillion’s public sector projects, the financial devastation to so many of their subcontractors would not have been so great.
Following the collapse of Carillion, there was a further push to use PBA’s on all public sector projects of £500,000 or more, by way of a Private Members’ Bill in Parliament. However, a casualty of the Brexit debate, the Bill failed to make its way through the parliamentary schedule. But now Covid-19 has put PBA’s back on the agenda again with the Cabinet Office suggesting both public and private sector projects might operate them to protect the supply chain.
Originally difficult and expensive to set up, both the JCT and NEC now have contract supplements, simplifying their adoption. Once in place, the normal payment provisions apply but with the employer instead paying into the project bank account. The PBA then introduces transparency of timing and amount of subcontractor payments.
Promoting good cashflow through the supply chain, PBA’s could certainly be a positive during these testing times, helping parties to focus on the project rather than commercial survival. Going forward, with prompt payment and protection against insolvency, PBA’s might encourage subcontractors to submit lower bids and thus reduce construction costs.
The challenge now will be the same as that faced when the government first promoted PBAs – main contractor reluctance. However, with subcontractors becoming ever more important in project procurement perhaps this could be another positive post-COVID change.