Project Bank Accounts: Improving Cash Flow in UK Construction

20 March 2026 · 4 min read · Contracts

The UK construction industry's payment practices remain its Achilles' heel. Despite Construction Act amendments designed to improve cash flow through the supply chain, late payment, unfair payment terms, and retention losses continue to destroy subcontractors. Project Bank Accounts (PBAs) — a single ring-fenced account from which all project participants are paid directly — offer a proven solution. They're now mandatory on public sector projects over £2 million, and private-sector adoption is accelerating.

How a PBA Works

A Project Bank Account is a ring-fenced trust account, operated by the employer, into which the employer pays all project funds. Named beneficiaries — the main contractor and key subcontractors — are paid directly from the PBA, in parallel, within an agreed timeframe (typically 14 days of valuation). The mechanism is analogous to how escrow accounts operate in other industries.

The key features:

• Ring-fenced — the money in the PBA belongs to the named beneficiaries, not the main contractor. It cannot be used for any other purpose, and it is protected from the main contractor's insolvency.
• Direct payment — each named beneficiary (typically 8–15 key subcontractors plus the main contractor) receives their share of the valuation directly, not through the main contractor's accounts.
• Fast payment — the Construction Act requires payment within 30 days. PBAs typically achieve 14 days or less, dramatically improving supply chain cash flow.
• Transparent — the account statements show exactly who has been paid what and when. Disputes about payment deductions are visible immediately, not buried in the main contractor's accounts.
• Retention can be held within the PBA — if retentions are deducted, the retained sums stay in the ring-fenced account, protected from the holding party's insolvency. This directly addresses the retentions reform agenda.

The insolvency protection is the single biggest benefit. Under traditional payment structures, if the main contractor enters administration between receiving the employer's payment and paying subcontractors, the subcontractors' money is lost in the insolvency estate. With a PBA, the funds never enter the main contractor's accounts — they go directly to the named beneficiaries. Subcontractors are protected.

Benefits for Each Party

For the Employer:

• Reduced risk of subcontractor claims against the employer for unpaid amounts (which can arise under step-in or direct payment provisions).
• Healthier supply chain — subcontractors who are paid quickly are more productive and less likely to abandon the project for better-paying work elsewhere.
• Better financial transparency and audit trail.
• Reduced risk of main contractor cash flow stress affecting project delivery.

For the Main Contractor:

• Reduced administration — the PBA handles payment to named beneficiaries, reducing the contractor's payment processing burden.
• Improved supply chain relationships — faster payment is a competitive advantage in attracting and retaining good subcontractors.
• Reduced working capital requirement — the contractor doesn't need to fund subcontractor payments while waiting for employer drawdown.

For Subcontractors:

• Fast, reliable payment directly from the project account.
• Protection from main contractor insolvency.
• Reduced need for expensive invoice financing to bridge payment delays.
• Greater visibility of the project's financial status.

Setting Up a PBA

The PBA documentation is a tripartite agreement between the employer, the main contractor, and the bank. Key elements:

1. Trust deed — establishes the PBA as a trust account with named beneficiaries. The trust structure is what provides the insolvency protection.
2. Payment authorisation matrix — defines who authorises payments from the account (typically the employer's QS and the main contractor's commercial manager jointly).
3. Named beneficiary list — identifies all parties entitled to payment from the account. Should include all subcontractors above a threshold (typically £50,000+ contract value).
4. Dispute resolution — how disagreements about payment amounts are resolved without holding up unrelated payments.
5. Bank agreement — the bank operates the account on the terms of the trust deed, with no right of set-off against other accounts.

The Cost of a PBA

PBA setup and operating costs are modest — typically £2,000–£5,000 for establishment and £200–£500 per month for operation. These costs are usually shared between the employer and main contractor and are trivial against the cash flow and insolvency protection benefits. Most major UK banks offer PBA facilities specifically designed for construction projects.

Practical Steps

1. Include PBA provisions in the contract — JCT and NEC both have PBA options. Don't leave it to a side agreement.
2. Identify named beneficiaries at tender — subcontractors should know they'll be paid from the PBA when they price their packages.
3. Start early — setting up a PBA after the project has started is complex and disruptive. Establish it at contract execution.
4. Use PBA for retentions — if retentions are being deducted, hold them in the PBA rather than the main contractor's accounts. This addresses both payment speed and insolvency protection.
5. Consider for private sector — PBAs are mandatory on public sector projects over £2m, but they're equally valuable on private development. Funders increasingly look favourably on PBAs as a sign of professional payment management.

Sources: Crown Commercial Service PBA guidance (2024); Construction Act 1996 (as amended); JCT 2024 PBA provisions; NEC4 Project Bank Account Option X6; Infrastructure and Projects Authority PBA mandate (2022); BuildUK PBA best practice guide; RICS payment guidance. This article is for general guidance only.