22 JANUARY 2010

PROJECT BANK ACCOUNTS MAY NEED RETHINK

Only five per cent of project participants have any experience of using project bank accounts and only 30 per cent 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 where "practical and cost effective". 

The key results of the JCT consultation were:

- Five per cent 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 per cent, the average being 30 per cent.
- 90 per cent 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 per cent of disputes", "security of contract", "more ethical procurement practices", "payment on time", "quicker payments", "security of payment", "quicker payments" 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."

The new JCT PBA documentation is published by Thomson Reuters Sweet and Maxwell and can be purchased from www.jctcontracts.com or via specialist bookshops such as RICS (www.ricsbooks.com), RIBA (www.ribabookshops.com), the Building Bookshop (www.buildingcentrebookshop.co.uk) or the Institute of Civil Engineers (www.ice.org.uk).

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About JCT

The Joint Contracts Tribunal was established in 1931 and has for 78 years produced standard forms of contracts, guidance notes and other standard documentation for use in the construction industry.

The Joint Contracts Tribunal is an independent organisation representing all parts of the construction industry and is the leading provider of standard forms of building contract.  The following are Members of JCT:

British Property Federation Limited
Contractors Legal Grp Limited
Local Government Association
National Specialist Contractors Council Limited
Royal Institute of British Architects
The Royal Institution of Chartered Surveyors
Scottish Building Contract Committee Limited

and JCT Council is comprised of five Colleges representing:

employers/clients (including local authorities)
consultants
contractors
specialists and sub-contractors
Scottish building industry interests