Project Bank Accounts
By Colin Judge, Principal Adviser – Construction Procurement Policy – Scottish Government.
A great deal has been written about Project Bank Accounts (PBAs) in the construction sector since the millennium and, particularly, after the Scottish Government published its policy and procedures in 2016. But what are PBAs and, if they’re not binding on registered social landlords (RSLs), why should they use them?
The smaller a businesses is, the greater its cash flow-sensitivity. PBAs provide a practical means for clients, including RSLs, to support both fair treatment and worker protection in such businesses. Instead of money owed to subcontractors reaching them through the main contractor’s bank account – where it can be severely delayed – they get it through the PBA. Each participating firm, main contractor included, receives the amount within the main contract payment that is due to them, all at the same time. Between deposit and disbursement (no more than five days) that money cannot be taken or reduced by their employer, even an insolvent one.
The Scottish Government’s PBA model ensures subcontractors’ payments are prompt and protected, and it also sets out a practice framework, which can be applied by any client and is intended to become the baseline for PBA practice across the Scottish public sector, no matter the project or client. This highlights the other two main characteristics of the Scottish Government’s model i.e. prescribed processes delivering predictable outcomes.
Under the terms of SPPN 10/2016, RSLs are not obliged to use PBAs as the Scottish Public Finance Manual does not apply to them. RSLs are, however, subject to procurement regulations, and it is the case that using a PBA can help contracting authorities, including RSLs, meet prompt supply chain payment obligations, noted in sections 15 and 18 of the Procurement Reform (Scotland) Act.
But this isn’t and shouldn’t be solely about what the rules say. Firms that are paid sooner stay in business longer and remain part of the competitive tendering marketplace from which RSLs draw their contractors. Workers will remain in employment longer and spend wages earned on RSL projects sooner, possibly even in the very communities served by the RSL itself. PBAs can, therefore, help create a virtuous circle for RSLs in which capital investment not only delivers more social housing stock but also drives greater economic resilience and social cohesion into their communities through secondary spending.