Public Procurement and Property
Project Bank Accounts – three reasons why
Since the turn of the year there has been an increasing focus on Project Bank Accounts (PBAs) as a way of making sure subcontractors in the construction sector get paid quickly, including in situations where an upstream firm becomes insolvent. Here are three reasons why:
1. Prompt payments and assured cashflow
In a PBA, a trust agreement sits alongside the construction contract. By signing up to be a beneficiary of the trust, a subcontractor ring-fences their allocation in the client’s interim payment to the main contractor. The main contractor can still challenge the amount of a subcontractor’s application but, once the resultant amount is deposited into the PBA, the main contractor cannot reduce or withhold it – even if he becomes insolvent.
Subcontractors’ cashflow is a finely-tuned balance between money they spend in advance of payment on labour, plant, materials and overheads on a range of projects, and the subsequent income from contract interim payments. A PBA protects the part of a subcontractor’s overall cashflow that comes from a public works contract.
2. Stable employment – personal confidence
Cashflow assurance can help underpin corporate stability and lead to more continuous staff employment. For individuals, this helps support their personal aspirations. For clients, it drives competition in the sector and delivers better commercial outcomes.
3. PBAs are good for local economy
Prompt and predictable cashflow can also create a positive cycle where wages earned on delivering public contracts are spent locally on goods and services – multiplying the impact of infrastructure investment beyond the construction project itself.
- Public bodies covered by our PBA policy expect to award a number of construction contracts containing a PBA this year and into 2019. The total estimate is currently around £550m.
- We are also promoting the benefits of PBAs in public works contracts. This has included speaking at the Scottish Building Contract Committee’s annual conference and at the Royal Bank of Scotland’s recent public sector conference. Both events provided valuable opportunities to engage directly with a variety of interests and a range of organisations in both the public and private sectors.
- Our PBA website has been enhanced to feature communications from all platforms including articles, blogs and tweets. This means the content is now accessible from our website when convenient as well as when initially published. Our mailbox is still the same (firstname.lastname@example.org), as is our Twitter account (@ScotProcurement) and hashtag (#ProjectBankAccounts).