UK Construction and Law
A subcontractor promised the protection of a project bank account recovers nothing, because it never became a Named Supplier
By Staff Writer | 13 August 2026
The Technology and Construction Court in Cardiff has dismissed a claim for more than 480,000 pounds brought against a local authority under the third party rights legislation after the main contractor collapsed without the account ever being opened.
A project bank account exists to put a subcontractor's money beyond the reach of the main contractor's insolvency. The mechanism is a trust: money owed down the chain is paid by the employer into a ring fenced account and held for the people who earned it. It is Welsh Government policy on public schemes that suppliers accounting for at least 1 per cent of the net contract award value must be invited to join one.
None of that helped a groundworks subcontractor on a school extension at Penarth, because the account was never opened and it was never admitted to the class the clause protects.
The protection is not conferred by the promise of a project bank account. It is conferred by becoming a party to it.
What happened on the ground
The council entered a main contract on 23 August 2023 with a contractor that later collapsed. It was an amended NEC4 Engineering and Construction Contract, June 2017 edition with January 2019 amendments, Option A, priced at 20,897,221.77 pounds, and it incorporated the secondary Option dealing with a project bank account. The trust deed was executed on 2 April 2024, but its schedule of Named Suppliers said only "To be confirmed".
The subcontract was entered on 15 May 2024, at 2,950,574.69 pounds, which was 14 per cent of the main contract total. By then the account still did not exist. The judgment records the project manager pressing for confirmation in June 2024 and warning that the authority's finance team would otherwise be likely to ask for payment to be withheld. Internal contractor emails put the delay on the bank named in the Contract Data, first as administrative inefficiency, then as an unwillingness to proceed until a sale of the contractor concluded.
The sale collapsed and the contractor entered administration on 20 September 2024. No supplier had ever been proposed for addition as a Named Supplier, and no joining deed had ever been signed. The council had by then certified and paid seven applications directly to the contractor, the last of them 1,121,427.30 pounds on 5 September 2024, which included the 486,017.67 pounds the contractor owed the subcontractor and never paid.
Why the claim failed
The subcontractor was not a party to the main contract, so it sued under section 1 of the Contracts (Rights of Third Parties) Act 1999, saying the payment clause conferred a benefit on it as a member of a class. The court accepted that the clause confers a benefit on third parties. The difficulty was which third parties.
In those circumstances, it is in my judgment impossible for the claimant to bring itself within section 1(1), because it cannot satisfy the requirement in section 1(3). The relevant class of third party is Named Suppliers. The claimant was never a Named Supplier.
His Honour Judge Keyser KC
The claimant argued in the alternative that it was the council's own breach that stopped it becoming a Named Supplier, because paying the contractor directly removed any incentive to open the account. The judge held that this amounted to saying a party can enforce a contract term without satisfying the statute that gives it the right to do so.
The rest of the analysis was obiter and shows what happens to the other limbs of such a claim. On breach, the judge held that because there were never any Named Suppliers there was nobody to stop the council and the contractor transacting as they liked, so no breach occurred. He also recorded that the obligations to open the account and to propose suppliers were the contractor's, not the council's. On causation, he found the case unsupported by evidence: the delay lay with the bank, and the account could not have been opened in time whatever the council did. On defences, he considered that the contractor waived any breach by requesting and accepting direct payments. The claim was dismissed.
There is a wider point for anyone drafting these arrangements. The judge observed that third party reliance on the payment clause is of little practical use, because any supplier entitled to invoke it is already a party to the trust deed with direct rights, and any supplier not party to it falls outside the class. The statutory route is not a substitute for the joining deed.
For a subcontractor, the question on day one is not whether the main contract provides for a project bank account. It is whether the account exists, whether it has been proposed for addition to it, and whether it has signed. Until all three are true, it is an ordinary unsecured creditor.