LAW
Project Bank Accounts
In an uncertain economic climate cashflow and the financing of projects is even more important than ever
Martin Collingwood looks at a product which may help ease the concerns.
UNCERTAIN ECONOMY
The uncertainty surrounding the economy leads everyone to consider carefully the security of a project's finances and cashflow. This is more pertinent in larger scale projects where supply chains are stretched and costs to completion high. Project bank accounts offer some sense of security in these troubled times.
WHAT ARE PROJECT BANK ACCOUNTS?
A trust bank account funded by the employer for the payment of certified work to which principal project parties have access.
DO THEYWORK?
Not entirely. They provide a payment mechanism, not full security and may leave a number of questions unanswered for example:
• What about the employer’s insolvency? • What about risk of bank collapse? • Why are they limited to a single project payment and not the whole contract price?
• How do they deal with claims for additional money?
• Will they overcome the “preference” argument in insolvency (liquidation or administration)?
• How do they overcome the pari passu rule in liquidation?
• In what way are they any different to what happens now in terms of certification and payment?
If, following legal advice you are unable to find satisfactory answers to these questions, then you might consider a number of alternatives including:
HOW DO THEYWORK?
The employer commits to a payment period which is linked to the project bank account, the project bank account is established on a trust basis, payments are certified and authorised in the usual way, the employer funds the account and the principal project parties have access to the account to be paid.
WHAT ARE THEY INTENDED TO ACHIEVE?
To provide a secure means of payment to principal project parties and to remove insolvency risk.
• Invoice discounting • Letters of credit • Deposit of the full contract sum • Payment guarantees • Vesting certificates.
Martin Collingwood Andrew Jackson Solicitors
www.andrewjackson.co.uk
e
34
www.windenergynetwork.co.uk
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