Protecting Cashflow: Why Your Payments Are Being Made Through A Project Bank Account (PBA)
- There is an inherent uncertainty in the cashflow process in the construction industry. Often due payments take a long time working their way along the supply chain from the contracting authority and there is a risk that the cash could be cut-off at any time because of payer insolvency. Project Bank Accounts (PBAs) aim to overcome these problems by ensuring that everyone – lead contractor and supply chain – receives payment at the same time from the same secure “pot”.
- Payment times are reduced for everyone with the result that there should be less reliance on borrowing to obtain working capital. Overheads associated with chasing payments or with securing payments through factoring or other means should also be reduced or eradicated.
- For some years SEC Group has been lobbying for PBAs as the most effective mechanism for ensuring cashflow. In consequence the UK government and the devolved governments of Northern Ireland, Scotland and Wales have either made PBAs a requirement or commenced trialling them with a view to mandating them. This will mean that if you work on public sector projects you are increasingly likely to be asked by the client/main contractor to be paid through a PBA. You should not be concerned about such a request as it is in your interests to receive payment through a PBA.
“To date our firm has been involved in three PBAs. On each occasion we have been paid faster than on other projects; there haven’t been any problems. For our business PBAs have made a real difference.”
Ivor Roberts, Managing Director, Nusteel Structures Ltd.
- If your payments are routed through a PBA you will continue to submit your applications for payment or invoices as you do on other projects. Your lead contractor will bundle these up with his application for payment to the contracting authority. Once the authority has authorised payment the monies must be deposited in the PBA. The PBA bank then makes payment to you electronically. You may need to ensure that your business is set up to receive electronic payments (e.g. by BACs or CHAPs)* and provide the details to your lead contractor at the outset.
“Without doubt this has to be the way forward for our industry if the current payment culture is to be eradicated. PBAs help eliminate the excuses for late or reduced payment, the burdens on overhead costs and the programme delays as a result of disputes and resultant insolvencies, which often result in SMEs being hardest hit.
John M Stevens, Director, Dodd Group.
- The only other change you will notice is that you will be asked to sign a PBA agreement or a trust deed/joining deed. There is nothing sinister about this; the reason for signing these documents is that you will be acknowledging that you are a beneficiary of the PBA and that the PBA monies are ring-fenced by a trust arrangement. This prevents an insolvency practitioner having access to the PBA monies in the event of lead contractor insolvency.
- Below is a checklist of what you should expect if there is a PBA in place:§ you should know the identity of the trustees and the PBA bank;§ you should be informed of what has been paid into the PBA in relation to your application and when;§ you should be informed when payments out will be made.
* The lead contractor and/or employer will have issued instructions to the bank regarding the amounts to be paid to you. If there is a shortfall your lead contractor – as your payer – is still required to make it good.