ct p28 legal nov2008.qxp 24/10/2008 11:57 Page 28
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Alternative
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UIfastforward As some banks’ lending has ground to a halt, what does it mean for the
industry? By Mike Barlow of MacRoberts.
Those banks still lending money importance of the supply chain. It for setting up
are adopting a stricter approach by comes partly as a result of the the account
scrutinising construction contracts Office of Government Commerce and who pays
more closely to ensure their own (OGC)’s support of the use of bank charges,
interests are fully protected. project bank accounts to promote and it’s also the
Collateral warranties are the usual fair payment practices in the public contractor who
form of funder protection, granted sector. The OGC suggests there is can keep the
by the contractor, consultants and no reason why such accounts interest earned
design sub-contractors and should not be used in the private on the account.
indirectly supported by the sector. Both Barclays
grantors’ professional indemnity Project bank accounts work by Bank and Bank
insurance. allowing the supply chain to receive of Scotland
Other forms of protective payment from one central account have launched
documentation in support of the as opposed to relying on the main project bank
contractor’s obligations include contractor to pay up. Taking account packages and observers Mike Barlow
performance bonds and parent advantage of these accounts suggest project bank accounts will
company guarantees. Although means interim payments are be cost-neutral where the project is
these bonds and guarantees are valued as usual, with an analysis of over £5m. It’s not entirely clear
generally in favour of the the payments that should be made how these accounts would operate
developer, they can be drafted to to each member of the supply in the event of insolvency, but sub-
operate in favour of the lenders if chain. The client then deposits the contractors would still in theory
their ‘step-in rights’ are utilised to correct funds in the project bank benefit as contractors would not
ensure the completion of a project account which are then paid have the option of sitting on the
if the developer faces funding directly to the contractor or sub- money once valuations were made,
problems. contractor concerned. To protect so speeding up the process. The
A further option for those parties project bank accounts from lenders benefit from the greater
who may not want to depend on administrators, they may be set up financial stability of the supply
collateral warranties is latent using a trust deed to try to protect chain as a whole.
defects insurance. This can apply the supply chain if either the It remains to be seen whether
where defects appear in completed contractor or the developer contractors in the private sector
buildings. On the flip side, latent becomes insolvent. To reinforce the will favour project bank accounts,
defects insurance premiums are message, the NEC has released a but developers and funders should
high, and the insurers have to carry new Option Z clause containing consider their use alongside other
out a lot of checks throughout the project bank account provisions for more traditional forms of
project. However a new approach inclusion in the NEC3 Engineering contractual protection.
to payment arrangements may help and
provide lenders with extra comfort, Construction
Mike Barlow is a Partner in MacRoberts’ Construction
in addition to the usual forms of Contract. It
Group, specialising in non-contentious construction
information
contractual protection This is states it’s the
work. For further information, please email:
because a growing number of contractor who
mike.barlow@macroberts.com
lenders are examining the is responsible
28UIbackUIforwardCABLEtalk • November 2008
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