Introduction to project bank accounts
Introduction to project bank accounts

The following Construction practice note provides comprehensive and up to date legal information covering:

  • Introduction to project bank accounts
  • What are project bank accounts?
  • Key features
  • Held on trust
  • Setting up the account
  • Provisions in the underlying contract
  • Who will be paid from the project bank account?
  • Payments into the project bank account
  • Payments out of the project bank account
  • Advantages of project bank accounts
  • More...

Introduction to project bank accounts

What are project bank accounts?

Project bank accounts are ring-fenced bank accounts set up for construction projects, where the purpose of the account is to make payments directly to the contractor, sub-contractors, key members of the team and supply chain (which may include consultants) on contractually agreed dates. The parties further down the construction chain do not have to wait for the contractor or other party above them in the contractual chain to pass on payment to them—payment is made directly by the bank at the same time as payment is made to the contractor. These arrangements offer the supply chain security that payments will be made without delay, and that payments properly due will be protected if the main contractor becomes insolvent.

Project bank accounts are more likely to be used in higher value projects—given the set-up and administrative costs, and potential need to train the team who are unfamiliar with such arrangements, parties may see them as inappropriate for smaller projects (a review by one large contractor in 2014 confirmed this, suggesting that they were only suitable for projects with a value of at least £50m). However, project bank accounts could also be attractive to parties engaged in lower value projects where there are numerous suppliers involved.

Several high street banks now offer construction specific accounts to be used for this

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