Project bank accounts
Late payment to lower tiers of the supply chain has been recognised as a long standing issue in the construction sector. This damages supply chain cash flow and in the worst case scenario leads to an increased risk of insolvency. Such inefficiencies present additional risk to the lead client and result in additional costs that flow up the supply chain in the form of additional financing requirements and credit risk insurance. Since the 1990s the UK Government has recognised the need to tackle the issue and various initiatives have been introduced, each having varying degrees of success although none were found to be the panacea.
Following a number of studies recognising that poor payment practices were still endemic, the Government Construction Board decided in 2009 to introduce Project Bank Accounts (PBAs) across Public Sector infrastructure projects ‘unless there are compelling reasons not to do so’. Rather than make payments in a traditional linear fashion (i.e. client pays tier one who pays tier 2 etc.), PBAs are designed to make simultaneous payments to all levels of the supply chain through a specific ring fenced bank account set up for a given scheme. This ensures security and certainty of payment and help drives efficiencies that can ultimately be passed to the client as a result of reduced financing requirements.