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Project bank accounts afford protection from recession

01 April 2009

Developers and contractors feeling threatened by the recession should seek innovative ways to protect themselves.

Shoosmiths is suggesting they set up project bank accounts (PBAs).

Andrew Mason, partner and construction specialist at the national law firm, said: “It’s no surprise in the midst of a recession to find developers and contractors seeking some protection.

 “Traditionally, they obtain security through bonds, parent company guarantees and retentions.

“But increasingly we’re seeing contractors and developers using project bank accounts (PBAs), which are set up between a client and a contractor, and governed by a trust deed.”

Once set up, a contractor would prepare an interim request for payment in the usual way, which would be issued to the client and the bank simultaneously. The developer then deposits the certified amount into the PBA, and authorises the bank to make payment.

“There are advantages to the developer and contractor having increased certainty over payment timing and amounts,” said Mason.

“It can be the case, where a contractor gets into financial difficulty, that payments under the contract will not be used for payment of sub-contractors or materials where the contractor is trying to avoid becoming insolvent, and the PBA may give the client an opportunity to control this.

“Contractors will see more security in relation to payments being made on time once the PBA is in place.”

The Office of Government Commerce strongly recommends PBAs, and has identified considerable savings for the public sector in the region of an estimated £200m rising to £750m.

These are achieved because contractors have more certainly and security over payment, so do not need to build in a cost for this risk when pricing. Private sector clients are expected to embrace PBAs for the same reason. 

 

For further information please contact:
Name: Alastair Gray
Phone: 03700 864096
Email: Alastair.Gray@shoosmiths.co.uk

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