Implementation of project bank accounts in construction contracts: SPPN 10/2016
This note advises that guidance on the provisions for including a Project Bank Account (PBA) in construction contracts has been published.
Purpose
The purpose of this policy note is to advise that guidance on the provisions for including a Project Bank Account (PBA) in construction contracts has been published.
Key messages
Scottish Government and relevant bodies in scope of the Scottish Public Finance Manual must include a PBA as set out in the Guidance in procurement documents for public works contracts commencing procurement procedures from 31 October 2016 with an estimated award value at least in the following amounts:
- £4,104,394 for building projects
- £10,000,000 for civil engineering projects
Other bodies that can award public contracts, and other organisations providing delivery mechanisms for the construction of public buildings and infrastructure, are asked to implement PBAs and integrate the Guidance into their procedures. A summary of PBA application criteria is noted at Annex A.
Background
The Review of Scottish Public Sector Procurement in Construction noted that the construction sector suffers from endemic late and extended payment terms between businesses. It recommended that the Scottish Government should trial PBAs.
Scottish Procurement coordinated pilot projects, gathered lessons learned and researched wider PBA practice. PBA services have been developed with the banking sector, including the Banking Services Framework Agreement.
Rationale
A PBA allows participating firms ("beneficiaries") to be paid for work done without the money flowing through the main contractor's bank account. Beneficiaries in a PBA project are the main contractor (tier 1) and firms in tiers 2 and 3 which join the PBA. The main contractor retains control of the amount due to beneficiaries but no longer exclusively controls when it is paid. All beneficiaries, including the main contractor, are paid simultaneously. A main contractor, whether solvent or insolvent, cannot withdraw money allocated to other supply chain beneficiaries from the PBA i.e. it is "ring-fenced".
Beneficiaries are paid within five days of the amount certified under the main contract being deposited into the PBA. Money is moved along the supply chain and into the general economy more quickly, amplifying the multiplier effect of infrastructure investment leading to wider economic benefits beyond project delivery.
The overall selection framework seeks to implement PBAs within a manageable initial project throughput. Monetary thresholds for building and civil engineering projects reflect different average contract award values for the sectors.
Consideration of factors including project delivery models and alignment ofpayment cycles recognise the practicalities involved in PBA implementation.
Guidance
The guidance translates learnings into a simplified common approach with standard practices and resources which embody PBA principles. This will enable local implementation of PBAs under a consistent national framework with minimal resource input.
Dissemination
Please bring this SPPN to the attention of all relevant staff within your field of responsibility to whom it may be of interest.
Contact
Any enquiries about this SPPN should be addressed to the PBA mailbox: ProjectBankAccount@gov.scot
Contact
Any enquiries relating to this SPPN should be addressed to Scottish Procurement:
Scottish Procurement
The Scottish Government
5 Atlantic Quay
150 Broomielaw
Glasgow
G2 8LU
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