Project Bank Account - practical considerations and NEC4 update

 A Project Bank Account (PBA) is a ring-fenced account from which payments are made directly and simultaneously by an employer to all the members of the supply chain on the contractually agreed dates. It therefore protects the sub-contractors and suppliers against non-payment or a potential insolvency of the contractor.

Generally, a PBA is either set up in the contractor’s name or in the joint names of the client and the contractor. In operation, the building contract will include a process by which the employer will have to fund the PBA in advance and as soon as the payment date is reached, the PBA discharges the amounts due to all member of the supply chain.

It is important to note the trust status of the PBA which protects the funds from the employer’s insolvency. Although there is no case law on this matter, the general view is that the funds will not be assimilated with the other assets.

Therefore, there are a number of advantages for setting up a PBA:

  •  it provides an effective mitigating measure for any delays within the supply chain;
  •  it offers greater transparency over the supply chain’s expenditures; and
  •  it acts as a security of payment which is particularly helpful for those lower on the supply chain.

On the flip side:

  •  it can be expensive to set up and run;
  •  it increases administration which can be problematic for smaller suppliers; and
  •  it reduces the funder/employer’s control over the project given the stagnant nature of the funds in the PBA.

Noteworthy is the NEC4 new set of amendments published in October 2020 which includes an updated Secondary Option Y(UK)1 – Project Bank Account provision. The amendments cover:

  • the option for the employer to choose the level of involvement in the PBA’s administration;
  • an updated overall procedure, taking into account electronic banking;
  • a new Payment Schedule, replacing the Authorisation document, which details the payments and their recipients; and
  • a new Project Bank Account Tracker which details the timeframe of the payments.

More details generally on the new NEC4 set of amendments can be found in my colleague, Patrick Wisheu’s blog.

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