[ Questions answered: Project banks accounts ]
a contractor’s account must be answered, and the employer can still withhold payment or set off sums that might otherwise be due (PBAs do not interfere with this right). Money can be withheld by the paying party, if the payer has issued a notice to ‘pay less’ before the fi nal date for payment. But since the cash is not in the payer’s pocket, there is no incentive to issue spurious notices as a ploy to hold onto it.
Q: So what are the downsides? A: There are no obvious downsides for sub- contractors. It is fair to say, however, that many main contractors see PBAs as a threat. Main contractors are best placed to explain why this is, but we should note that in a PBA the main contractor does not have control of the project cash. PBAs are still fairly new, which brings a number of
short-term challenges to those trying to change how they work traditionally. In addition, we need more – and more rigorous – case studies to assess what project savings accrue from using PBAs.
Q: But aren’t PBAs hard to set up? A: Not necessarily. They need to be set up carefully though, again, this should become easier with industry experience. The negotiations that set up a PBA include agreeing a bank mandate, and for the bank to carry out customer due diligence. While set-up has an inherent cost, once the PBA is in place it is not inherently diffi cult to operate. They are a big improvement on traditional supply chain payment regimes, which can be diffi cult to set up, run, and even to recover from.
Q: Are PBAs only suited to big projects? A: No, PBA’s are currently thought to be suitable for projects down to around £1m. For example, in 2013 the Northern Ireland government announced that PBAs will be used on public sector projects above £1m.1
Clearly, if the set-up cost is high (for some reason), this can be a deterrent on smaller projects. How can a PBA benefit a client?
Since clients are the source of project cash, PBAs must off er them something meaningful, compared to traditional project payment. With a PBA, a client can have far more visibility and control over supply chain payment, beyond tier one. This can provide four key benefi ts: Increasing compliance with the government’s fair payment policy, designed to protect tiers two and three of the supply chain by accelerating payments due
Reducing the disruption, delay and additional cost of avoidable supply chain failure caused by cash fl ow problems
Reducing the overall cost of project delivery, as tier two and three suppliers refl ect accelerated payment in their price structure
Visibility of the tier two and three supply chain identity, including a monthly analysis of the nature of goods/services provided, and the fi nancial position for each supplier.
About the author
Paul Reeve is director of Business Services at the ECA (
paul.reeve@eca.
co.uk).
Q: Can sub-sub-contractors (that is, tier three contractors) be included in PBAs? A: Yes, and it is happening. For example, the Highways Agency has extended PBA arrangement to sub-sub- contractors.
Q: Do standard contracts have PBA provisions? A: Yes. You will fi nd them in the New Engineering Contract (NEC3), the Project Partnering Agreement (PPC2000), published by the Association of Consultant Architects, and JCT contracts.2
The
contract must make it clear how the PBA is to be set up and funded, and how payments are to be made. If this is not the case, the payment mechanism may break down. PBAs do not cut across the contractual provisions
covering entitlement to, and discharge of, payments. They are essentially a safe receptacle from which money is properly dispersed.
Q: Is there offi cial guidance on PBAs? A: Yes, the government published guidance in May 2012, which sets the minimum standards for the operation of PBAs.3
Q: I’m an ECA member, what should I be doing? A: Use the government’s ‘Mystery Shopper’ service to make (confi dential) complaints about payment practices in the wider public sector. If government hears about late payment problems, it is much more likely to act, and that includes supporting PBAs. Go to:
http://procurement.cabinetoffi
ce.gov.uk/ policy-capability/doing-business-government/ mystery-shopper Also, report any kind of experiences relating
to PBAs, or payment practice more generally, to the ECA. This will be in strict confi dence, and we can use the input to help support our lobbying on achieving prompt and fair payment.
Q: What is ECA doing next on PBAs? A:The next stage is to work with SEC Group to encourage the even wider use of PBAs by local authorities, health trusts and other public bodies. Commercial clients and their agents, when making their own commercial decisions, also need to be armed with the facts about PBAs and, working with SEC Group and others, we aim to ensure they have them to hand.
References: 1
2 3
www.northernireland.gov.uk/news-dfp- 080113-project-bank-accounts
www.jctltd.co.uk/product/project-bank- account
Government guidance on PBAs can be downloaded via:
www.cabinetoffi
ce.gov.uk/ resource.library/project-bank-accounts
54 ECA Today March 2014
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