Project Bank Accounts (PBAs) are not a new invention; their popularity ebbs and flows according to government policy and the economic climate. In the aftermath of the Brexit vote, discussions surrounding PBAs are coming to the fore, and the construction industry is weighing up the merits of their use once again.
What are PBAs?
PBAs are bank accounts which are usually set up in the name of the contractor (or in joint names with the employer). The account will be set up as a trust with the contractor, the sub-contractors and other relevant members of the supply chain as the beneficiaries.
The building contract will then contain a mechanism for calculating the sum payable by the employer into the PBA at regular intervals. Once this money is received, the contractor or the project manager will instruct the bank to pay all the beneficiaries simultaneously on or before the final date for payment. PBAs do not cut across the payment provisions in the contract so the employer can still issue a "pay less notice" in the usual way, although the contractor may be required to "top-up" the account so that the other beneficiaries do not lose out.
How have they been used/received in the construction industry?
The rationale behind PBAs is to alleviate the construction industry’s poor payment reputation, with the aim of promoting prompt payment and the transparency of cash-flow between parties of all tiers. The UK government has also shown its support for PBAs in its Construction 2025 strategy, initially advocating the use of PBAs on central government contracts unless there were "compelling reasons" not to do so (as set out in its Construction Supply Chain Payment Charter). However, last month the government indicated a shift in its policy towards PBAs by amending this charter to only require signatories to use PBAs "where specified by the client".
Despite this watering down of government support, PBAs are still a prominent feature of government projects, with an estimated £10 billion of projects using them. They also feature heavily in Environment Agency and Highways England projects.
However, PBAs are not only a tool for use in the public sector. The advantages of using PBAs are common to both public and private sector projects and are focused around ensuring prompt payment for sub-contractors and other suppliers, and a transparent payment mechanism. This in turn contributes to promoting a culture of collaborative working. The trust status of PBAs also serves as an added protection for the beneficiaries against the insolvency of the contractor.
Despite their benefits, PBAs are not universally popular. It has been suggested that administration of the bank account can increase the cost of the project, making them suitable only for larger schemes. In addition, it may not always be practicable to include all of the lower tiers of sub-contractors and suppliers as beneficiaries, meaning that those at the bottom of the chain are still likely to face the same cash-flow issues arising from late or delayed payment. From the contractor's point of view, PBAs also remove the ability of the contractor to use the money from the employer as working capital before it pays those further down the supply chain.
Nevertheless, PBAs represent a clear step towards improving some of the payment practices of the construction industry. It remains to be seen whether the economic shock of Brexit helps to make them a permanent fixture rather than a passing trend.