Forging stronger links
As a leading member of SEC Group Scotland, SELECT had long campaigned for the introduction of project bank accounts (PBAs). Now they’re up and running, two industry experts explain how the Scottish Government is increasing its efforts to ensure they benefit every firm in the supply chain
Almost four years ago, the Scottish Government mandated the use of project bank accounts (PBAs) for all public bodies in receipt of government funding, and also advised other bodies such as local authorities to follow suit.
When launching the policy, the Scottish Government was adamant that all sub-contractors and sub-sub-contractors must benefit from the use of PBAs.
All sub-contractors had to be paid through a PBA if the value of their works was at least 1% of the value of the main contract works. Where sub-contractors were excluded, they were still able to request that their payments were made through the PBA. This new policy applied to all building projects more than £4 million but last year this was reduced to£2 million.
Benefits for sub-contractors
PBAs offer sub-contractors two major benefits. The first is faster and regular payments. PBAs avoid the need for payments to cascade down through the different layers of contracting. Instead, everybody is paid simultaneously from the same ‘pot’ within 12-15 days.
The second benefit is that sub-contractors’ monies are ring-fenced, so once they’re in the PBA they’re protected in the event of the main contractor’s insolvency.
Monies are held in trust which means that they can’t be raided by the main contractor’s insolvency practitioner. The monies in the PBA are held by the client and main contractor as joint account holders on behalf of the beneficiary sub-contractors.
Problems with PBAs
To date, the experiences of sub-contractors on PBA projects have been very positive. After Carillion collapsed in January 2018, Highways England, the largest user of PBAs down south, reported that sub-contractors on their projects had not lost any money.
But not all has been plain sailing. Some sub-contractors, while enthusiastic about PBAs, have reported that they don’t receive information about whether a PBA has been set up on their projects. Others are aware but for one reason or another have not been included within the PBA arrangements.
Main contractors have often given the excuse that some or all of their sub-contractors don’t wish to be
a part of the PBA. Even where they are beneficiaries of the PBA, firms are not always made aware when their payments have been deposited in it.
Tightening the rules
The Scottish Government is keen to ensure that the PBA ‘net’ in Scotland is cast as widely as possible to include more small firms, and in August it issued updated guidance for the public sector.
This means that where PBAs are implemented, they must be available to and accessible by all sub-contractors and sub-sub-contractors. All commissioning bodies, i.e. public sector construction procurers, must maintain a record of the PBA status of every sub-contractor and sub-sub-contractor and the reasons for any firm declining to join the PBA.
Furthermore, “the main contractor must include PBA provisions in all invitations to tender for sub-contracted work and require sub-contractors to do likewise in all prospective sub-sub-contracts”.
Main contractors must be able to provide evidence that PBA relevant information has been sent to all sub-contractors on the project.
The Scottish Government’s model PBA contract provisions already require main contractors to give written reasons to clients for excluding a sub-contractor from the PBA. They are also required to obtain a written explanation from sub-contractors declining to join the PBA and to make this available to the client.
A PBA template notice is shown on the right, which clients must now send to main contractors for circulation to all sub-contractors on the project.
Rudi and Len delivered a webinar about PBAs on behalf of the CICV Forum on 15 September. To watch it again, please go to bit.ly/PBA-webinar and download the presentation at cicvforum.co.uk/useful-links
More about PBAs
PBAs aren’t complicated and shouldn’t be feared – they merely offer certainty of payment timing and give you protection in the event of a contractor’s insolvency.
To read more about the process, please visit the Useful Links section of the CICV Forum website where you’ll find a dedicated section on PBAs.
Among the material is a link to a particularly helpful Scottish Government publication, Implementation of Project Bank Accounts – you won’t find clearer guidance anywhere.
About the Authors
Tell us your experiences
Have you been in, or are involved in, a PBA? Have you been on a PBA project where you weren’t invited to join it? If you have been involved in a PBA, did you receive information regarding your payment amounts going into it and the dates when they were deposited? SELECT would like to hear feedback about your experience of PBAs. Please email email@example.com with your feedback.