When it comes to public procurement, Project Bank Accounts (PBAs) are enjoying increasing support.
A PBA is a ring-fenced bank account that channels payment on construction projects to contractors. It ensures that smaller, which may include local, contractors are paid simultaneously on the contractually agreed dates.
High street banks such as Barclays, Bank of Scotland, Lloyds and HSBC can set up the PBA, under an Account Bank Agreement between the bank, the client and the lead contractor. Under this Agreement, the funds are remitted to the PBA by the client.
A PBA has trust status and so it is held in the names of the trustees, which are usually the client and lead contractor. The money in the bank account can only be paid to named beneficiaries of the trust and thus cannot be accessed by anyone else, including – if it ever came to that - an administrator or liquidator.
The pros of PBAs appear to outweigh the cons for most clients and construction businesses. Once a local authority has deposited money in the PBA, the cash is safe and all the named parties can receive timely payment, even in the event of insolvency. The developer benefits, since the risk of having to pay suppliers again - if a contractor fails to pay and then becomes insolvent, for example - no longer exists.
While PBAs do not appear to present any significant downsides for specialist contractors (such as structural steel or building services) some other businesses higher up the chain tend to be less enthusiastic, mainly because they lose overall control of the project cash, once it has been paid over by the client. This, however, should hardly be of concern to public sector clients, who are likely to be more interested in supporting the existence, and the growth, of local construction firms.
By easing cash flow pressures, PBAs also support closer working within the supply chain. This has long been recognised as boosting the efficiency of construction projects- which can mean project savings. The government estimates that, when properly implemented, PBAs could also deliver up to 2.5% savings on projects. Current pilots suggest that figure may be nearer to 1 per cent, though it is still early days for PBAs and the savings may increase with time.
The adoption of PBAs is part of UK governments’ strategy to ensure best practice approaches to payment throughout the supply chain. Support certainly extends to the devolved nations, who are keen to give PBAs a good run out in the next few years (see box), while leading English projects include Crossrail.
Flintshire, Swansea and Torfaen Councils have identified construction projects to pilot the use of PBAs in Wales, with the help of the Specialist Engineering Contractors’ Group in Wales. Each Council has identified at least one project from their ‘21st Century Schools’ programme, with the possibility of other construction projects trialling the approach.
The option to adopt PBAs also features in the North Wales framework agreement for the delivery of the schools building programme incorporating all six North Wales Local Authorities. The pilots will provide evidence that will inform future Welsh Government policy and guidance.
The ECA is working with SEC Group to support the wider use of PBAs by local authorities, health trusts and other public bodies.
Government guidance can be downloaded via www.cabinetoffice.gov.uk/resource.library/project-bank-accounts
Paul Reeve is director of business services at the Electrical Contractors’ Association
