Y(UK)1: Project Bank Account

NEC Y(UK)1 sets up a Project Bank Account, so that the Client's payment goes into a ring-fenced account and the Contractor and Named Suppliers are paid from it at about the same time. The money is held in trust for those due to receive it, so suppliers don't have to wait for the Contractor to pay them or carry as much insolvency risk.

The Option exists in both NEC3 and NEC4. The clause numbers below are from the NEC3 ECC, and NEC4 numbering and some details differ, so check your own form. It's a UK-specific Option among the NEC secondary Options.

The key pieces

Item	What it is	NEC3 ECC clause
Project Bank Account	The account the Contractor opens; NEC3 gives it three weeks from the Contract Date	Y1.1, Y1.2
Banking arrangements	Details submitted to the Project Manager for acceptance	Y1.4
Named Suppliers	Suppliers named at the start, plus others who sign the Joining Deed	Y1.1
Trust Deed	Holds the sums in trust; signed before the first assessment date	Y1.13
Joining Deed	How a later Supplier joins	Y1.6
Authorisation	The signed instruction to the bank saying who gets what	Y1.9

A payment cycle, step by step

This follows the NEC3 ECC sequence:

1. By the assessment date, the Contractor applies for payment, showing what's due to each Named Supplier (Y1.7).
2. The Project Manager assesses and certifies in the normal way.
3. The Contractor drafts and signs the Authorisation, listing each Named Supplier's sum and the balance for itself. The Project Manager needs it at least four days ahead of the final date for payment (Y1.9).
4. The Employer countersigns and passes it to the bank at least a day ahead of that final date.
5. The Employer pays into the account within the time the banking arrangements allow, and the Contractor pays in any sum the Employer has said it will withhold that's needed for Named Suppliers (Y1.8).
6. The bank pays everyone on the Authorisation as soon as practicable after receiving the money (Y1.10).

In the NEC4 subcontract text, where a subcontractor is a Named Supplier, the Contractor prepares the Authorisation, and the subcontractor is told the sums due to it and its own suppliers (Y1.5 of that form).

A worked example

Illustrative figures on a fictional schools project. The certified amount for the month is £800,000.

Recipient	Amount on the Authorisation
Steel frame Named Supplier	£210,000
Mechanical Named Supplier	£140,000
Contractor, the balance	£450,000
Total paid in by the Employer	£800,000

The steel supplier's contract is assessed by the Contractor, which decides its £210,000, so any dispute about that sum stays between them. The account changes who holds the money and how it travels, but it doesn't change what each contract says is due.

Practical points

• Getting set up. Bank account opening and signing deeds both take time. Start before the Contract Date. A late deed can hold up the first payment.
• Your own delays. In NEC3, a payment delay caused by the Contractor not following these steps isn't treated as late payment (Y1.12). So a late Authorisation hits the Contractor.
• Charges and interest. In NEC3, the Contractor pays bank charges and receives any interest, and neither counts as Defined Cost, unless the Contract Data says otherwise (Y1.3).
• Adding a Supplier. A new Supplier is proposed to the Project Manager for acceptance, and the reason for refusing is that the addition doesn't comply with the Scope. Everyone then signs the Joining Deed.
• Money coming the other way. Payments due from the Contractor to the Client don't go through the account (Y1.11).
• Termination. Once a termination certificate is issued, no more goes into the account (Y1.14). Take advice on what happens to any balance.

What people get wrong

A frequent error is to assume that Y(UK)1 replaces Option Y(UK)2. It doesn't: the dates for payment and any pay less notice still come from the contract and the Construction Act. Another is to forget that suppliers lower down the chain need a contract that fits. The Contractor has to write the account's arrangements into each Named Supplier's contract (Y1.5). Finally, a Project Bank Account is not an audit tool. Read the subcontractor payment guide for the assessment side.

Related guides

• NEC Secondary Options: X, Y, W and Z Clauses Explained
• Y(UK)2: The Construction Act
• Y(UK)3: Third Party Rights
• W1: Dispute Resolution Where the Act Does Not Apply
• X22: Early Contractor Involvement
• Early Contractor Involvement Under NEC

This guide is general information in our own words, not legal advice. Your contract and its Contract Data always govern. NEC, NEC3 and NEC4 are trade marks of Thomas Telford Ltd; Contract Status is not affiliated with or endorsed by NEC.