Construction Futures Wales - Project Bank Accounts - an overview of PBAs and their application on construction projects

1. Project Bank Accounts
Paul Wintle – Programme Manager,
Construction Futures Wales

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✉ paul.wintle@citb.co.uk ☎ 07919304567
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Construction Futures Wales

4. Project Bank Accounts (PBA)
Policy
Brendan Burke
Value Wales – Procurement Policy
Welsh Government

5. What are Project Bank Accounts?
• A PBA is a bank account that may or may not be interesting bearing, set up under a Trust
Deed arrangement that ensures that payments from the client to the lead contractor and
the supply chain are made promptly.
• This ensures money is not held up as it makes its way down the supply chain and
removes the opportunity for payment abuse e.g. extended payment terms being applied
by the main contractor; protracted payment procedures being applied.

6. What are Project Bank Accounts?
• A PBA is a bank account that may or may not be interesting bearing, set up under a Trust
Deed arrangement that ensures that payments from the client to the lead contractor and
the supply chain are made promptly.
• This ensures money is not held up as it makes its way down the supply chain and
removes the opportunity for payment abuse e.g. extended payment terms being applied
by the main contractor; protracted payment procedures being applied.
• Once monies are paid into the account they are only accessible to the parties to the
trust deed.
• Safeguards supply chain parties in the event of insolvency of main contractor.

7. • The Welsh Government is committed to using procurement as a lever for driving
economic, social and environmental benefits and supporting jobs and growth.
• Public procurement should help promote Wales as a good place for doing business and
should provide mechanisms that allow suppliers of all sizes to flourish.
Policy drivers?

8. • The Welsh Government is committed to using procurement as a lever for driving
economic, social and environmental benefits and supporting jobs and growth.
• Public procurement should help promote Wales as a good place for doing business and
should provide mechanisms that allow suppliers of all sizes to flourish.
Policy drivers?
What is the problem, why are PBAs needed?
“Historically, it is has not been unusual for lower tier supply chain members to have to
wait for up to 100 days to receive payment, which damages their cash flow and can harm
their business.”
2012 UK Govt. Cabinet Office PBA Briefing Document

9. • The Welsh Government is committed to using procurement as a lever for driving
economic, social and environmental benefits and supporting jobs and growth.
• Public procurement should help promote Wales as a good place for doing business and
should provide mechanisms that allow suppliers of all sizes to flourish.
Policy drivers?
What is the problem, why are PBAs needed?
“Historically, it is has not been unusual for lower tier supply chain members to have to
wait for up to 100 days to receive payment, which damages their cash flow and can harm
their business.”
2012 UK Govt. Cabinet Office PBA Briefing Document
• 58% of respondents had experienced payment periods in excess of 30 days where
they were main contractors to public sector clients.
• 72% of respondents reported payment periods in excess of 30 days where they
were sub-contractors on public sector projects.
2017 Specialist Engineering Contractors Group (SEC Group) survey Nov’16 – Jan’17

10. Main features of the Welsh Government PBA Policy
1. PBA Policy effective from 1st Jan 2018 to:
2. All Welsh Government (WG) contracts valued at £2m* or more where:
a) WG is the client (Delivered directly by or on behalf of WG Departments)
b) WG can apply conditions of funding (Part or Grant funded by WG e.g. 21st CS)
c) UNLESS there are compelling reasons not to do so. Where compelling reasons are identified, a
decision report detailing those reasons must be completed and filed to allow for audit.
* EXEMPTIONS to the £2m threshold are
a) Projects / Contracts shorter than 6 months
b) If the successful bidder (i.e. tier 1) gives a firm undertaking to self-deliver and/or to use
subcontractors from within the parent company to which the tier 1 also belongs, such that either
one or a combination the above conditions covers over 75% of the main contract award value.

11. IN ALL CASES WERE A PBA IS APPLIED Tier 2 or lower tier suppliers will be engaged as follows:
a) Tier 2 or lower tier suppliers who account for at least 1% of the main contract award value must
join the PBA;
b) Tier 2 or lower tier suppliers who account for less than 1% of the main contract award value,
should be allowed to request to join the PBA.
c) Acceptance of such a request to join the PBA will be subject to the agreement of the trustees and
the main contractor.
Main features of the PBA Policy

12. • The Public Sector will be encouraged to follow PBA policy as fair and prompt payment ‘good
practice’.
• Helps meet Principle 5 of the Code of Practice - Ethical Employment in Supply Chains,
‘…our organisations will…
5. Ensure that the way in which we work with our suppliers does not contribute to the use of
illegal or unethical employment practices within the supply chain. We will:
5.2 Ensure that our suppliers are paid on time – within 30 days of receipt of a valid invoice.
How Does the PBA policy apply to the wider public sector in Wales?

13. Cost Benefit analysis of PBAs*
‘…analysis suggested that the benefits of introducing PBAs would outweigh
the costs of doing so.’ *
Cost-Benefit Analysis (CBA) compares the costs and benefits of a proposed
action to a base case or ‘do nothing’ alternative.
*Analysis of security of payment reform for the building and
construction industry – addendum report - Prepared for the Queensland
Department of Housing and Public Works (Delloitte July 2017)

14. Cost Benefit analysis of PBAs*
‘…analysis suggested that the benefits of introducing PBAs would outweigh
the costs of doing so.’
Cost-Benefit Analysis (CBA) compares the costs and benefits of a proposed
action to a base case or ‘do nothing’ alternative.
Due to a reduction in project costs from reduced
subcontractor pricing to reflect the reduced risk of delayed or
non-payment.
*Analysis of security of payment reform for the building and
construction industry – addendum report - Prepared for the Queensland
Department of Housing and Public Works (Delloitte July 2017)
Due to better cash flow and avoidance of bridging
finance costs; Reduced costs from payment
disputes
Due to a reduction in working capital from not
holding monies due to supplier chain members, but
benefits from reduced payment dispute resolution
costs.

15. The cost-benefit analysis identified the following significant benefits
• A reduction in project costs...due to subcontractors reduced pricing to reflect a reduced risk of delayed
or non-payment, which led to a reduction in overall project costs.
• Compared to traditional payment regimes PBAs can deliver savings of around 1% of the contract value.
*
• An improvement in working capital for subcontractors. This is a result of improving speed of payment to
subcontractors under a PBA scheme. Puts money to work in the economy previously tied up pending
payment.
• Certainty over how much and when payment will be made builds trust between supply team members
and underpins collaborative working to achieve value for money projects for clients
*Research by the UK Fair Payment Working Group

16. • Better legal compliance for clients inc. the public sector
•
• Late Payment of Commercial Debts (Interest) Act 1998,
allows businesses of any size including public
bodies to charge or be charged statutory interest on late payment of
undisputed invoices within 30 days.
•
• The cost-benefit analysis identified the following significant costs
• A reduction in working capital for Tier 1 / Main contractors.
• Additional costs to the Public sector in on-going administration and
compliance costs - client in acting as trustees for PBAs.

17. Project Bank Accounts (PBA) Policy
Thank you for listening,
any questions?
Diolch ichi am wrando,
unrhyw gwestiynau?

18. Operation of Project Bank
Accounts at Highways England
Saroj Bhatoa

19. Our Approach to PBAs
• Use of PBAs are compulsory across all contracts awarded in
HE. (‘unless compelling reasons not to do so’).
• HE operate the Single Authority Model
• Use standard NEC3 ECC Option Y clauses in our contracts
• Policy is to pay down to Tier 3 level
• Contractor free to decide upon project bank as long as it
meets minimum requirements
• HE - PBA agreed/signed RACI in place

20. Payment Route

21. PBA payment
days mechanism
Future Government departments will specify the
following contractual last dates for payment
(from the assessment date) across the supply
chain:
• Employer to tier 1-14 days ( i.e. Tier 1
Contractor Costain)
• Tier 1 to Tier 2 and 3 - 7 days (i.e. Tier 2 P & D,
Tier 3 Safe lanes ) M1 J19-16

22. What are the benefits?
• Protects funds in the event of lead contractor
insolvency
• Visibility/transparency of supply chain-identity, nature
of sub contracts and cash flows down the lower tiers
• Ease of compliance with the Government Fair Payment
Charter principles
• Drive efficiencies
• Reduce cash flow issues down the supply chain (SMEs)
to enable effective delivery of the Roads programme
• Reduce the harm due to late payment practices on
“mental health” wellbeing on SMEs

23. What are the benefits?
• Reduction in disputes within supply chain
• Future investment opportunities for SMEs
• Integrated Supply Chain
• Easier measurement of payment timescales
across supply chain
• Provides security and certainty of payment
and minimise unnecessary costs such as
financing charges

25. Contractors
responsibilities
• The Contractor nominates a preferred PBA bank
supplier
• Set up PBA and notify details to Highways England
• Prepare and sign Deed of Trust and Joining Deeds
and forward to Commercial team
• Notify bank of agreed named supplier details
• Propose PBA named suppliers expectations for HE
consideration
• Prepare monthly assessments and supporting
breakdown

26. Contractors
responsibilities
• Instruct bank to pay in accordance with details
agreed with HE
• Facilitates HE having ‘view only’ access to PBA
• Provide PBA management information
required by HE
• Ensures that 80% of the Sub Contract value
paid directly via PBA
• Comply with agreed PBA processes

27. Success story M4/M5
• Delivery Partner- Balfour Beatty
• One of the earlier scheme to use PBA
• BB signed up 32 suppliers to the PBA,
representing 86 per cent of its supply chain.
• Overcame a number of challenges
• Use of PBA been praised
• Continue to build on the success in other
schemes awarded to BB

28. Feedback Received from
the Supply Chain
“We have been very impressed with the seamless and timely payments. We receive clear
notification of money due on a monthly basis and this assists us greatly with cash flow
forecasting. We believe that Project Bank Accounts have worked well for the supply
chain.”
Supplier A
“The PBA enables us to manage our business more effectively from a cash flow
perspective and enables us to pay our suppliers on a similar basis reducing their cash flow
borrowing and associated costs.”
Supplier B
“The Project Bank Account worked very well and we were very pleased with the way it
was administered. Once an application has been certified payments were always made in
line with the agreed schedule. We were also able to pass on these positive aspects of the
Project Bank Account to our supply chain who also benefited from it.”
Supplier C

29. Success story
M6 J10a to13
• Delivery Partner- Carillion
• Carillion signed up 53 suppliers to the PBA,
representing 96 per cent of its supply chain
over the last 9 months.
• Lesson Learnt meeting took place after
scheme was final account

30. PBA Statics &
Performance
• Latest figures declared £15.0 billion (delivered by
2020)
• Q4 17/18 figures 27% (SMEs)
• Highways England represents 89% of all PBAs in
operation
• Positive feedback received -Praised by SEC Group
• World leaders – best in class in prompt payment

31. HE Progress
• Chaired the Fair Payment Working Group that
sits below GCB
• Working closely with DPs to get Tier 3 signed
up to PBAs
• Production of supplier intelligence
• Routes to Market
• Continue working closely with Cabinet Office
• Audit

32. PBA Dashboards
22%
24%
26%
28%
30%
32%
34%
Percentage
SME % Spend Chart 2013-2016
SME spend
via PBA
Current
Baseline
Governem
ent
Baseline
2020
£0
£5
£10
£15
£20
£25
£30
£35
£40
Millions
PBA Remaining Balances
Total
remaining
balance
per month

33. Communications/
Stakeholder Management
• Advised other departments e.g. Queensland
State Government, Wales and Scotland
• Attended and presented at the Constructing
Excellence Members Forum with Environmental
Agency
• Engagement with Tier 2 supply chain
• Training sessions and awareness of PBA with
main contractors and individual schemes teams
• One to one awareness of the process
• Various press articles

34. Liquidation – case study
• PBA was an untested initiative
• Positive recognition received from Rudi Klein
• Provided advise and support to Network Rail
in implementing PBAs within there
organisation.
• Working with HS2 to help them administer the
use of PBAs

35. In the Press…

36. Further Reading…
• Review undertaken in June 2015 of
Highways England progress to date
• Report available on SEC website. See
Implementation of PBAs Across Highways
England
• Contains further detail about how PBAs
were set up, performance, efficiency
savings etc.
• Published guidance (2012) on gov.uk by
Cabinet Office
• https://www.gov.uk/government/publicati
ons/project-bank-accounts
Implementation of Project Bank Accounts across Highways England
Abstract
Across the construction industry it has not been unusual for lower tiers of the supply chain to wait up to
100 days to receive payment. Such inefficient payment practices damage supply chain cash flow and
results in additional financing requirements that the client has to ultimately pay. In 2009 the Government
Construction Board decided to introduce Project Bank Accounts (PBAs) as a means to address these
concerns unless there are compelling reasons not to do so. PBAs are designed to ensure security and
certainty of payment to the supply chain down to Tier 3 level and involve making payments through a
specific ring fenced bank account set up for a particular scheme. They also ensure speed of payment
and drive efficiencies that can be passed onto the client as a result of reduced financing requirements.
The paper discusses the reasons for introducing PBAs across Highways England schemes and the
benefits they have brought to both the client and supply chain.
Lloyd Biddell
Cost Intelligence Team Leader
Commercial & Procurement Directorate
Highways England
The Cube
199 Wharfside Street
Birmingham
B1 1RN
United Kingdom
Email: lloyd.biddell@highwaysengland.co.uk
Telephone: 07789 746 119

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38. Project Bank
Accounts Event
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