Payment Security and PBAs: Protection in Principle, Risk in Practice

Project Bank Accounts (PBAs) were designed to safeguard the supply chain against main contractor insolvency and to improve payment security, yet recent events demonstrate that their effectiveness depends entirely on how rigorously they are drafted, funded, and administered in practice.  Recent examples that arose on the prison upgrade projects where there has been a reported £20 million shortfall to subcontractors following the collapse of ISG has brought this topic into greater focus.

What PBAs Are Meant to Achieve

A Project Bank Account is a ring‑fenced trust account used to make direct payments to the main contractor and subcontractors. Once funds enter the PBA, they are held on trust, meaning they do not form part of the employer’s or contractor’s insolvency estate. When properly managed, PBAs provide:

• protection against upstream insolvency
• faster and more reliable payments
• transparent cash flow
• fewer disputes arising from withheld or delayed payments

Government policy has supported PBAs for more than a decade. The 2011 Government Construction Strategy, 2012 Cabinet Office guidance, and the 2020 Construction Playbook all recognised PBAs as a key mechanism for prompt and protected payment.

Where PBAs Fail

PBAs only work if they are properly funded and continually monitored. Reports suggest that the PBAs on the prison upgrade projects held only nominal sums when administrators were appointed. In such cases, the mechanism exists in name only. A PBA without proper governance offers no real protection.

This is not a flaw in PBAs themselves but in how they are administered. Without:

• clear contractual drafting
• robust trustee arrangements
• transparency and reporting
• ongoing oversight of deposits and withdrawals

a PBA risks becoming a theoretical concept rather than a practical safeguard.

Key Considerations for Contract Administrators

To ensure PBAs function as intended, parties should focus on:

1. Clear contractual foundations

Contracts must specify how the PBA is established, how it operates, and who holds trusteeship responsibilities.

2. Oversight and verification

Funding levels and payment flows should be monitored and independently checked.

3. Transparency for the supply chain

Subcontractors need visibility of the account structure and administration.

4. Integration with fair payment practice

PBAs complement, not replace, proper valuation, certification and communication.

5. Defined responsibilities

Clear accountability prevents dilution of trust status and ensures the system is effective.

Looking Ahead

The industry carries greater responsibility for ensuring PBAs are implemented correctly. They remain one of the most effective tools for ensuring secure, prompt and insolvency‑proof payments, but their success ultimately depends on commercial discipline and transparent administration.

Effective contract administration, fair recognition of entitlements and clear communication remain essential to safeguarding cash flow.

If you would like support in strengthening payment security on your projects, whether through PBAs, contract review or dispute management, our team can help.

Contact us for a free initial consultation.