From January, employers on construction projects in the public sector have been asked to adopt the Fair Payment Charter developed by the Office of Government Commerce (OGC) in relation to construction projects.
One aspect of the charter is the use of project bank accounts (PBAs) on larger projects to ensure prompt payment of the supply chain.
The PBA is set up by the employer as a trust for the contractor and the key members of the supply chain, who then all sign up to the trust. Interim certificates are agreed in the usual way and agreement is reached as to the entitlement of the contractor and key members of the supply chain to a proportion of the sum certified. The client then deposits the payment to be made under the interim certificate into the PBA. This is then distributed by the bank with whom the account is held by BACS in accordance with the interim certificate and agreement as to entitlement.
The OGC believes that PBAs have a number of benefits including transparent management of cash flow, a reduction of financing charges across the supply chain, less opportunity for payment abuse and reduced impact of insolvency of a supply chain member, although it has to be said that the jury is still out as to the impact on insolvency.