Project Bank Accounts Carillion

Published: January 0001

Pages: 3

BESA Product Code: LC 91

The Cabinet Office and Members of the Government Construction Board committed to deliver £4bn worth of construction projects using PBAs by 2014. It is estimated that PBAs deliver an overall 1% saving in the cost of projects and PBAs would mean SMEs no longer have to wait for higher tier contractors to release payment as they would receive it directly through a bank account specific to the project. This could streamline supply chain payments, in an industry where 99% of businesses are SMEs.
The FSB estimate 10% of SME collapses are due to late or non-payment. PBAs are ring-fenced bank accounts (similar to escrow accounts), from which payments are made directly and simultaneously by a client to the various supply chain levels. On public contracts this would include the contractor, sub-contractor, sub-sub-contractor, sub-sub-sub-contractor and supplier.
There was a consensus that PBAs only work on high value projects, due to associated set-up and administrative costs and potential training of staff to the new system. However, this is misinformed and there has been, in Scotland for example, a consistent drop in price as PBAs become normal procurement practice. This means PBAs can be used in lower value projects, where there are numerous suppliers involved, as a way of providing security and speed of payment.