Called to account

A model for setting up project bank accounts is one of the winners of this year’s CIOB International Innovation & Research Awards.

Partner Brian Kilgallon and senior project manager Kevin Lee MCIOB of Rider Levett Bucknall developed the model for use on Defence Estates’ Andover North Site Prime Contract.

Since then it has been recommended by the Office of Government Commerce in its fair payment guide and the latest big public project reported to be considering it is the £16bn Crossrail scheme in London.

It had been mooted for use in contracts for the Olympics but was not taken up.

A project bank account is set up by the client, which pays the money due into the account, having received a valuation and breakdown of supply chain payments from the main contractor. The client and contractor then release funds directly to the supply chain. The money is held in trust so that if anything happens to the main contractor, the supply chain’s money is safe.

In 2001, Rider Levett Bucknall, then a £25m turnover company, was acting as the prime contractor on the Andover project, worth £40m over 18 months. Defence Estates wanted the company to pay its supply chain before being paid itself, but it would have been at best highly risky to take on such an onerous contract condition. Another solution was needed.

‘I came up with the idea one morning at 5am,’ recalls Kilgallon. It worked well on the Defence Estates job, was applauded by the National Audit Office and then recommended as best practice by the OGC.

Rider Levett Bucknall worked with two high street banks to launch project bank accounts. The Bank of Scotland launched one in January and Barclays is due to launch its account in April. The NEC and PPC2000 and JCT contracts are also to include them in their forms, and the Strategic Forum has recently included them in its construction commitments.

There is one huge stumbling block, however – the main contractor. OGC’s argument is that if specialist contractors have surety that they will be paid on time, they are able to reduce their costs by between 0-5%. Although the main contractor could take some or all of this benefit, this does not take into account the money that can be made by withholding payment by 60 days and keeping the money in a high interest account.

So we are still waiting to see the next use of project bank accounts.