20 QUESTIONS AND ANSWERS ON
PROJECT BANK ACCOUNTS (PBAs)
The use of PBAs is now on the increase. The UK Government had a target
for introducing PBAs. By 2014 £4bn worth of central government
construction will be paid for using PBAs; government clients are required
to use them unless there are compelling reasons not to do so. The
target has now been reached. PBAs are now being used in Wales,
Scotland and Northern Ireland.
But what are the benefits for ECA members and what should one expect
when told that a PBA is in place?
1.
What is a Project Bank Account (PBA)?
It is a ring-fenced bank account out of which payments are made
directly and simultaneously to a lead contractor and members of his
supply chain (but it could also include consultants).
2.
What is meant by “ring-fenced”?
The PBA must have trust status; monies in the account can only be
paid to the beneficiaries – the lead contractor and supply chain
members. The bank account would be held in the names of the
trustees who are likely to be the client and lead contractor (but
members of the supply chain could also be trustees).
3.
How many trustees should there be?
At least two. There could be a hiatus in the operation of the account
if a sole trustee goes into insolvency.
4.
What happens if the lead contractor goes into insolvency?
The advantage of trust status is that an insolvency practitioner
(administrator or liquidator) appointed to the lead contractor’s
company cannot have access to the monies in the account. This is
because the monies are “owned” by the beneficiaries of the trust,
that is, both the lead contractor and members of the supply chain.
Crossrail (currently the largest construction project in Europe) is
using PBAs because they minimise disruption when a lead contractor
goes bust.
1
5.
PBAs are only for big projects. Is this correct?
The simple answer is No. A PBA may be suitable for a £1m project
or even smaller projects if there happens to be numerous subcontractors. At the beginning of 2013 the Northern Ireland
government announced that PBAs will be used on public sector
projects over £1m.
6.
So, what are the benefits?
7.

Once a public sector client has deposited the monies in the PBA
the supply chain’s cash is safe since the PBA is ring-fenced.

Payments out of the PBA are made simultaneously to everybody;
payments become more efficient and cashflow management more
transparent.

Payment times are the same for the main contractor and firms in
the supply chain.

Clients also make savings (up to 2½%) since financing charges
across the supply chain are reduced.

There is less risk for clients of disruption and delay as a result of
the supply chain suspending work for non-payment.

PBAs increase collaboration since there is more trust. The delivery
team can concentrate on working together without the distraction
of payment delays and abuse.
But will PBAs eradicate payment delays and abuse?
Since the lead contractor doesn’t have access to his supply chain’s
cash the temptation to use it isn’t there. This also applies to the
position between tier 2 and tier 3 contractors. The table below
illustrates this.
2
30 day payments often end up being 90 at the end of the supply chain
Traditional contracting
Project bank account
Days
30
Client to Contractor
Risk of abuse
Days
Client to PBA
Contractor to sub-contractor
Risk of abuse
30
30
Contractor + sub-contractors
Sub-contractor to sub-subcontractor
or supplier
5
35
30
(usually much
more)
Risk of abuse
90
This is the maximum length of time for
the money to be in the PBA
From the above it can be seen that the PBA removes a long-winded,
potentially abusive and hierarchical payment structure.
8.
How does the process actually work?
PBAs do not cut across the contractual provisions governing
entitlement to and discharge of payments. They are simply a safe
receptacle for the cash. Once the lead contractor has agreed his
application with the client the agreed amount is paid into the PBA.
The contractor then issues the authority to the bank listing the names
of the recipients and the individual amounts to be paid. The client
will also sign off the authority. All payments in and out of the
account are made electronically which means that monies should not
be in the account for more than 5 days.
The lead contractor and supply chain are paid simultaneously. If, for
whatever reason, there is a shortfall in the account the lead
contractor remains bound to pay what is due to his supply chain
members. This is not a pay when paid mechanism.
9.
What about notices to pay less? Can monies still be withheld
by the paying party?
Yes, provided the payer has issued a notice to pay less in time (i.e.
before the final date for payment). Since the cash is not in the
3
payer’s pocket there is no incentive to issue spurious notices in order
to hang on to it.
10.
Aren’t PBAs bureaucratic to set up and operate?
Not as bureaucratic as setting up and operating multi-layered
payment systems. In fact, they are very simple to set up and
operate.
11.
Who gets the interest for the periods when the funds are in
the PBA?
This is a matter for agreement between the client, lead contractor
and supply chain. In practice it is likely that interest earned will go to
discharge the cost of setting up the PBA which will be relatively small.
12.
Are the commercial banks supportive?
Yes. Barclays, Bank of Scotland and HSBC offer standard packages.
13.
What role do the banks actually play?
They set up the account at the instance of the client and/or lead
contractor. The operation of the account is governed by the Account
Bank Agreement between bank, client and lead contractor. Under
this Agreement funds are remitted to the PBA by the client.
14.
Do the standard contracts have PBA provisions?
Yes. All of them: the New Engineering Contract (NEC3), the Project
Partnering Agreement (PPC2000), published by the Association of
Consultant Architects and JCT contracts.
15.
What should the supply chain expect if there is a PBA in
operation?
You must be named as a beneficiary under the trust deed ringfencing the PBA. Furthermore:
 You must have details of the PBA.
 You must know who the trustees are.
 You must be kept informed of the respective amounts to be paid
into the PBA, dates of paying the amounts into the PBA and
discharge of such amounts.
4
16. Who decides whether I’m named as a beneficiary?
It is usually the case that the client names the trades he wishes to
benefit through the PBA. Occasionally the main contractor will be left
to determine the beneficiaries but this is not a desirable option.
17. Can sub-sub-contractors (i.e. tier 3 contractors) be included
within the PBA arrangements?
Absolutely. The Highways Agency – which is now using PBAs
throughout its construction programme – has extended the PBA
arrangement to sub-sub-contractors.
18.
Is there any guidance on PBAs?
Yes, the Government has published guidance in May 2012. This can
be downloaded from
www.cabinetoffice.gov.uk/resource.library/project-bank-accounts.
The Government has set minimum standards for the operation of
PBAs; these are in the Guide.
19.
What should I be doing as an ECA member?
There are 4 actions you could consider:
 Read the Government’s PBA guide.
Use the Mystery Shopper service for complaints about payment
practices on public sector projects.
http://procurement.cabinetoffice.gov.uk/policy-capability/doing-businessgovernment/mystery-shopper


20.
Encourage end-user clients to use PBAs.
Report any experiences of PBAs back to AIS whether good or bad.
Where do we go from here?
For some years ECA and its umbrella body, the Specialist Engineering
Contractors’ Group, have been campaigning for the use of PBAs. We
are now making significant progress. The next stage is to encourage
their use by local authorities and health trusts.
Word count: 1,323
5