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Banks back project accounts

Two of the country’s biggest banks have launched project bank account products aimed at the construction industry.

Barclays and Bank of Scotland have both unveiled accounts that will hold all the money on a scheme to be paid to the main contractor and all subcontractors over the course of a project.

The client, main contractor and subcontractors agree a price and a finish time for each section of the works. When the work is completed, the money is paid out automatically by the bank.

In its promotional literature, Bank of Scotland says: “Funds paid by the client are held in trust to ensure that the whole supply chain of contractors and subcontractors are paid fairly and on time.”

The man who proposed the idea to the banks said their involvement is a major boost for the specialists’ groups fight for fair payment.

Brian Kilgallon, a partner with cost consultant Rider Levett Bucknall, said of project bank accounts: “They lead to improved trust and collaboration which results in better value for money, better productivity and fewer disputes.”

Such accounts, which guarantee 30-day payment for subcontractors, are being recommended to all Government departments by the Office of Government Commerce as part of the fair payment charter it launched this month.

The banks and the OGC are also targeting supermarkets and high street retailers, with RLB providing training for clients.

Rudi Klein, chief executive of the Specialist Engineering Contractors Group, said clients would benefit while they held the cash in the bank account, which would pay them interest over the course of any works.

He added: “We’ve got the Government saying we want to use it, the banks saying they’ll provide it, and the contractors and subcontractors saying they’ll work within the model. This is the last piece of the jigsaw.”

The banks’ products will be officially launched at the end of April in the House of Commons.

Analysis: A fairer payment system

By Brian Kilgallon

A project bank account is a fair payment system which ensures the contractor and supply chain receives prompt payment for monies rightfully due through certified interim payments.

The project bank account is the medium through which payments are made. It is not a contractor’s account, it is set up jointly by the client and contractor and is linked to an agreement similar to a trust deed, which provides protection for the whole supply chain.

The Office of Government Commerce guide to best fair payment practices identified project bank accounts as the most comprehensive single solution to the issue of late payment and recommended that “clients should progressively specify their use where practical and cost effective”.

There are several benefits of project bank accounts. These include payment certainty, with all payments made by the bank, reduced tender prices of around 2.5 per cent, in exchange for increase payment certainty and further savings over time in overheads associated with debt chasing and administration.

They also lead to improved trust and collaboration which results in better value for money, better productivity and fewer disputes. This is hard to quantify but likely to be substantial.

The project bank account is simple to set up and operate and is cost effective to use because of the interest paid on credit balances.

Brian Kilgallon is a partner at cost consultant Rider Levett Bucknall