It is now 21 years since the first project bank account (PBA) was set up in the UK. This was on a project procured by the Ministry of Defence involving the building of a logistics headquarters. Since then PBAs have become well-established.
They are now mandated by the devolved governments of Wales, Scotland and Northern Ireland for public-sector projects over £2 million. They have been required in England since 2010, and all UK government departments and agencies must use PBAs unless there are ‘compelling reasons’ not to do so.
Users’ Group members lead the way
England’s Environment Agency, an NEC Users’ Group member, is currently using PBAs on almost 120 projects. It is expected that Highways England, also a member of the Users’ Group, will have paid for £20 billion worth of work through PBAs by the end of this year.
It is particularly pleasing that another major member, High Speed Two (HS2) Ltd, declared its willingness in July 2020 to use PBAs on existing and future contracts for the new high-speed railway from London to Birmingham. This will apply to an estimated 400,000 contracts, two thirds of which are likely to be let to small- to medium-sized enterprises.
Andy Cross, HS2 rail systems procurement director, said, ‘I am thrilled that we have taken this crucial step to further strengthen our fair payment policies and in so doing, support companies at all levels of the supply chain through the use of PBAs’.
Supporting collaborative working
The NEC PBA supplement, now Y(UK)1, was the first standard PBA document to be published and is now used by most of the public-sector bodies that have implemented PBAs. I have always believed that PBAs support and underpin the collaborative intent behind NEC contracts.
Indeed, there is now growing evidence that they encourage collaborative working and help to improve supply chain performance. I would encourage all NEC clients to implement PBAs if they have not done so already.
PBAs are also helping to reduce project costs since firms do not have to price the risk of not being paid, although they do not remove the possibility of disputes over the amount which is due. Where retentions are required, they can be kept in the PBA until due for release. NEC clients should use contract data part one to stipulate the beneficiaries either by name or trade. The aim should be to include as many firms in the supply chain as is possible.
To date PBAs have been used mainly in the public sector, but I would like to have examples of their use in the private sector (please email me at rudi.klein@sec.group.org.uk). It is interesting to note that the State of Queensland in Australia has just introduced legislation to compel the use of PBAs for all construction projects over £640,000 by June 2022.
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- Rudi Klein
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