[ Questions answered: Project banks accounts ]
(most likely the client and lead contractor), but the money in the PBA can only be paid to named benefi ciaries of the trust. The client usually names the trades it wishes to benefi t through the PBA, and the money is eff ectively ‘owned’ by the benefi ciaries. So, in the crisis scenario of top-tier insolvency, an administrator or liquidator cannot simply access the money in the PBA, thereby keeping it from the benefi ciaries.
Q: What should I expect if I am in a PBA project? A: At the very least, you should be a named benefi ciary under the trust deed that ring-fences the PBA. Furthermore you should know: The essential details of the PBA Who the trustees are About the respective amounts to be paid into the PBA, and when.
Q: How does a PBA work? A: Once the lead contractor has agreed its 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 also signs off the authority. All payments in and out of the account are made electronically, and the monies should not be in the account for more than fi ve days. If, for whatever reason, there is a shortfall in the
account, the lead contractor is still bound to pay what is due to supply chain members.
Q: Who gets interest while the funds are in the PBA? A: This is for agreement between the client, lead contractor and the supply chain. In practice, it is likely that interest will help with the administrative cost of the PBA.
Q: Are the commercial banks supportive? A: Yes. For example, Barclays, Lloyds, Bank of Scotland and HSBC off er standard packages. The banks set up the account at the request of the client and/or lead contractor. The operation of the account is governed by an account bank agreement between the bank, client and lead contractor. Under this agreement, funds are remitted to the PBA by the client.
Q: So what are the benefi ts? A: Once a client has deposited money in the PBA, the supply chain’s cash is safely ring-fenced. The supply chain can still receive timely payment, even if there is a problem up the supply chain. We should bear in mind, however, that the PBA does not necessarily guarantee the entire project, but that the monies already in the account are secure.
The aim of a PBA is to ensure that payments to contractors and others in the supply chain are made on the contractually agreed dates
Payments out of the PBA are made simultaneously to everyone who is named; cash fl ow management is more transparent. Sub- contractors do not have to ‘trade on credit’
There is less risk to clients from disruption, as a result of the supply chain suspending work for non-payment
PBAs can increase collaboration – the delivery team can concentrate on working together without the tension and distraction of payment confl icts.
Q: Do PBAs actually save money on a project? A: The government estimates that – if they are properly implemented – PBAs can deliver up to 2.5 per cent in savings on construction projects. More PBA case studies are needed, but currently PBAs seem to be delivering savings more akin to one per cent. The savings are likely to increase if PBAs become more common, and we should remember that the main aim of PBAs is to ensure payment along the supply chain. So savings are a big driver, but they are a bonus. A key question is: ‘Who gets the savings?’ Expect one benefi ciary to be the client – although time and experience will show the true picture. Pilot studies – such as the Highways Agency and Sheffi eld Park Project – have pointed to overall savings.
Q: Do they eradicate payment abuse? A: Well, since the lead contractor doesn’t have access to the supply chain’s cash, the opportunity to hold it back for bogus reasons is not there. This also applies to the position between tier two and tier three contractors (see table below).
30-day payments often end up being 90 days (sometimes much more) at the end of the supply chain
Traditional contracting Days
Client to contractor
(Risk of abuse)
Contractor to sub-contractor (Risk of abuse)
Sub-contractor to sub-subcontractor or supplier
(Risk of abuse) Total :
30*
Project bank account Days
Client to PBA
Contractor and sub-contractors
30* Total: 30* 90 days-plus [*Often much more]
[* This is the maximum length of time for the money to be in the PBA]
Though a PBA outfl anks a potentially abusive
and hierarchical payment structure, it does not guarantee that correct payments will be made, or eliminate payment disputes. The usual procedures for making payment must be followed, queries about
March 2014 ECA Today 53 30 5* 35 days
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