One reason disputes turn nasty is that the payee suspects that the payer is coming up with spurious excuses not to pay. Luckily, there’s something we can do about this
Fretting about someone going bust on you? Fretting about bad payers? Fretting about doing the work, sending an account and getting nothing back but excuses? Well now, do something for yourself. Go to the JCT’s website (www.jctltd.co.uk) and vote for “project bank accounts”.
Look, doing work, supplying stuff, is a two-way street. I lay the bricks, design the drains and you pay. It’s a promise. Yet it’s amazing how, a month after beginning the drain laying, the you become stricken by a sudden inability to transfer funds to my account. You have your drains, but I have not a penny piece of your money. What happened to the two-way street? So let’s do a slightly different deal. On the day I begin the drains, you put your money in a project bank account. And on the day we agreed that the interim account should be paid, it gets paid from this account. And if you can’t afford to put a month’s worth of money into a trust account in advance, you can go elsewhere for your drains.
The JCT folk want to know whether you think these project bank accounts are a good idea. You still have to do the work. You still have to do it properly. You still have to answer queries about your account. You still don’t get paid if there is a dispute. But the fuel that drives most disputes is the deep suspicion that your queries about the work I’ve done on your drains is artificial; it is driven by the notion that the payer is on its uppers or is hell bent on getting something for nothing. Come on, admit it: the starting point for many a dispute is a loss of confidence in the other fellow’s ability to pay. But take that suspicion out of the equation and lo! the dispute looks different.
The idea of a project bank account isn’t new. It wasn’t even new when Latham popped up with it as a recommendation in his Constructing the Team report 15 years ago. He called them trust fund accounts and they were to apply to public and private sector work. So, here we are with the JCT again consulting you about getting it going. The JCT, as you might expect, has designed a standard form. It makes an arrangement between the bank, the employer and the main contractor that a certain amount of money will be paid into is a ringfenced trust account. A trust is a uniquely developed branch of English law. It allows ownership to be relinquished by one party for the benefit of another. But the beneficiary only gets the money when a certain event happens. Put another way, the employer puts up the cash, the builder does the work, the QS values it, the architect certifies it and then the bank pays out.
There is no need for the payer to get the collywobbles over any of this. No money will be given away until it is properly payable. Notice the word “properly”. The employer can still withhold or set off from cash otherwise due. The project bank account is only a safe pair of hands holding the money. And if the employer goes broke, the ringfencing protects the main contractor.
What of the subcontractors? The JCT document allows the main contractor to name selected subcontractors as beneficiaries. So, if the curtainwaller or M&E contractor or whoever is worried about its credit risk, that particular subcontractor can be brought into the project bank account agreement. Be clear, however, that it is the commercial background that will determine which subcontractors is so favoured. It’s called having clout.
So, the employer stumps up cash. Then, once there has been a valuation, the money is designated to the main contractor. It all goes out to it unless the JCT bank account deed has a subcontractor or two named as well. Then the bank awaits the main contractor’s direction, or quasi-certificate, indicating what portion of this month’s money is to go directly to the named subcontractors. The ringfencing will be arranged according to the deals done at contracting stage between main contractor and its subcontractors.
Easy? Yes. So, log onto that JCT website and coax them to put the project bank account into use. And if, on the other hand, you would rather keep fretting about credit risk, good luck to you – but tell me why ...
Tony Bingham is a barrister and arbitrator at 3 Paper Buildings Temple