A recent case in the English Technology and Construction Court highlights some of the risks that employers need to be aware of when using (or failing to use) project bank accounts.
On a project involving sub-contractors, payments are most commonly made by the employer to the contractor, who is then responsible for passing these payments down the supply chain. One alternative to this arrangement is a project bank account; this allows the employer to make payments into an account from which the contractor, sub-contractors and suppliers are then paid directly. A project bank account's power to limit disruption in the event of the contractor becoming insolvent can be of great value to employers, since insolvency is less likely to have a domino effect down the supply chain, and the damage to the project can be contained. It is for these reasons that many government-procured building projects in the UK are required to have and to use a project bank account, and why equivalent arrangements (sometimes known as project trust accounts) are required in some states in Australia.
But as the recent judgment in E & TL Jones (Civils) Ltd v Vale of Glamorgan Council [2026] EWHC 2054 (TCC) illustrates, project bank accounts can also pose potential risks for employers who fail to use them when required.
Background
Until it entered administration in September 2024, ISG was one of the largest contractors in the UK. In August 2023, the Vale of Glamorgan Council engaged ISG to build an extension to a school in Penarth, with the main contract being an amended NEC4 Engineering and Construction Contract. Works began in April 2024, and in May 2024, ISG engaged Jones as its groundworks sub-contractor on the project, again under an NEC4 form.
The main contract incorporated the 2017 version of Option Y(UK)1 from the NEC suite, requiring ISG to establish a project bank account and the Council to make payments into it. Those payments would be distributed to ISG, and to any of its sub-contractors who had been added to the trust deed for the purposes of administering the account. While the trust deed was signed by ISG and the Council, Jones was never added to it, and no project bank account was ever established.
In the absence of the project bank account, the Council made a number of payments directly to ISG, with several including amounts related to Jones' works. The last of these did not result in any payment being made to Jones before ISG went into administration. With no prospect of recovering anything from ISG, Jones brought a claim against the Council alleging that, by making payments directly to ISG rather than into a project bank account, the Council was in breach of its obligations under the main contract. Jones claimed as a third party, seeking to rely on the Contracts (Rights of Third Parties) Act 1999 (the "1999 Act"), on the basis that it was a member of a named class on which the main contract purported to confer a benefit.
The High Court's Judgment
The High Court dismissed Jones' claim, because it could not satisfy the eligibility requirements under the 1999 Act. As drafted, the NEC Option Y(UK)1 conferred a benefit only on Named Suppliers, a term defined to mean those sub-contractors who were described as such in the Contract Data or had been added to the trust deed. As Jones met neither of these requirements – it was not a Named Supplier and so not a party on whom the relevant terms conferred any benefit – Jones therefore had no cause of action.
In any event, the judge considered that the Council's obligation to pay into the project bank account could only arise once such an account existed (because, until then, performance by way of payment into such an account would be impossible). Where there was no project bank account, the Council was obliged to make direct payments to ISG to avoid breach of its other payment obligations under the main contract. Notably, it was ISG and not the Council that was responsible under the main contract for setting up the account.
Comment
The inability of Jones as the sub-contractor to rely on the 1999 Act in this case was a consequence of the particular drafting of Option Y(UK)1, in a form that has been superseded by subsequent amendments to the NEC4 suite. NEC Option Y(UK)1 in its current form would, however, be likely to produce the same result.
Nonetheless, with only minor changes to the drafting in this case, the result might have been different: for example, if the class upon whom the benefit had been conferred had included all sub-contractors (not just those who met the definition of "Named Supplier"), and the Council had been responsible (jointly or solely) for setting up the project bank account. It is also not difficult to imagine that where the parties to the main contract fail to establish a project bank account, or where they do establish one but fail to use it as they are obliged to, sub-contractors are likely to be aggrieved parties in the event of an insolvency of the main contractor, and so likely to seek redress.
An employer minded to mitigate this risk might include an express declaration that the project bank account provisions are not enforceable by third parties, thereby excluding the application of the 1999 Act. But its effectiveness will depend on how those provisions are structured, and the agreement in which they appear. For example, in the current JCT suite, the project bank account provisions are to be found in a separate Project Bank Account Agreement. That agreement includes such a declaration, and so will prevent enforcement by sub-contractors who have not been added to it. Once a sub-contractor has been added to the agreement, however, it would be able to enforce its terms directly as a party, rather than needing to rely on the 1999 Act. Notably, those terms include an express obligation on the employer to make payments into the project bank account.
Employers must therefore be alive to the possibility that their obligations in connection with a project bank account might be subject to enforcement, in the right circumstances, by a sub-contractor and not just by the contractor counterparty. Careful drafting of the contract, and careful channelling of payments through any project bank account, are therefore necessary to avoid or limit that possibility.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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