Project bank accounts and fair payment

A project bank account is a ring-fenced account, usually held in trust, into which the employer pays and from which the main contractor and named subcontractors are paid simultaneously on the same date.

It has been used extensively on central government and infrastructure work and appears in some standard forms as an option.

What problem it solves

Two, both real.

Insolvency. Money in a trust account is not available to the main contractor’s creditors. If the main contractor fails between being paid and paying down, subcontractors are protected in a way they otherwise are not.

Payment timing. Everyone is paid on the same date. The main contractor cannot hold the chain’s money for an extra fortnight to improve its own position.

What it does not do

It does not decide how much anyone is paid. Valuation, notices and set-off all continue exactly as before. A subcontractor whose application is properly reduced by a pay less notice receives the reduced sum, from the project bank account, on time.

It also does not cover everyone. Only named participants are paid through it, and the tail of smaller suppliers usually sits outside.

The objections

• Administrative cost, particularly the trust deed and the account setup.
• Loss of legitimate working capital that was priced into tenders.
• Complexity where the supply chain changes during the job.
• Limited benefit on projects with a financially strong main contractor.

Where it fits

Larger projects, long durations, substantial supply chains, and clients who care about the health of that chain. On a short contract with three subcontractors it is disproportionate.

What a surveyor needs to know

If a project bank account is in use, the payment mechanism upstream is unchanged: valuation, due date, payment notice, final date. What changes is where the money physically goes and that everyone receives it together.

Certification remains the surveyor’s responsibility and the discipline around notices matters exactly as much as before. The account changes the plumbing, not the obligations.