Project bank accounts may need a rethink
Only 5% of project participants have any experience of using project bank accounts and only 30% of projects are likely to use them. These are the headline findings of an industry-wide consultation on the use of project bank accounts (PBAs) conducted by the Joint Contracts Tribunal (JCT).
The consultation coincided with the publication of new documentation enabling PBAs to be used in conjunction with any JCT main standard contract forms.
Professor Peter Hibberd, JCT Chairman, said: “JCT has always provided for fair payment terms within its contracts, but poor payment practices have been an issue in the industry for some time. Although the introduction of PBAs for public sector projects is a laudable approach in principle, the construction industry does not appear enthusiastic about their use.
“As the only consensual contract drafting body, we were keen to get feedback on our PBA provisions. We also wanted to gauge industry views of PBAs, get a feel of what the take-up is likely to be, and any suggested improvements or alternatives that there are.”
Tony Bingham, a leading construction barrister, said: “Sir Michael Latham first suggested this approach in the 90s, although they were referred to as trusts then. The idea was simple, and the approach logical, but contractors in general have been reluctant to see their introduction.
“It was particularly disappointing considering that PBAs are one of the central themes of the Office for Government Commerce’s drive to promote fair payment practices, that PBAs have not been used on the Olympic site.”
The Latham Report (1994) identified poor payment practices as being a key issue in the industry that needed to be addressed. The subsequent Construction Act 1996 attempted to make some progress, but with only limited success. The mantle was taken up by the Office for Government Commerce (OGC) which produced a guide to best fair payment practices advocating a fair payment charter, payment of the supply chain within 30 days, revised payment milestones and, the main recommendation, the progressive take-up of project bank accounts were practical and cost effective.
The key results of the JCT consultation were:
- 5% of respondents had been involved in a project using a PBA.
- Estimates of the number of projects likely to use PBAs ranged from zero to 100%, the average being 30%.
- 90% of respondents thought the JCT PBA provisions were suitable for their purpose.
Comments made on the main advantages of PBAs included: fewer defaults, more certainty, less vulnerability to non-payment, will increase trust and avoid 80% of disputes, security of contract, more ethical procurement practices, payment on time, quicker payments, security of payment and increased trust.
Comments on disadvantages included: who holds the account? familiarity with new system, set up costs, employer won’t agree to tying-up his money and client/contractor will not wish to relinquish this control.
Other comments and suggestions included making PBAs mandatory, especially for projects under £50 million, not to make the provisions too formal, making the certifying professional independent, holding all retentions in PBAs, and extending PBAs to include funders and co-funders.
Peter Hibberd continued: “As four out of five building projects use a JCT form of contract, how we deal with PBAs is important to the industry.
“The comments and suggestions received were interesting, and we will be considering them all in detail and whether any changes might lead to the PBAs becoming more attractive to the industry.”
Tony Bingham added: “The idea for PBAs is sound, but the execution is currently not right. Attitudes within the industry need to change for PBAs to become more accepted and for one of the industry’s major bugbears, and the cause of most conflict, to begin to be addressed.”