UK Construction and Law

Subcontractor loses project bank account claim after main contractor's insolvency

By Staff Writer  |  12 August 2026

A groundworks subcontractor owed around £480,000 could not sue the employer over a project bank account that was never opened, because it had never become a Named Supplier.

The claim arose from a school extension in Penarth. The local authority engaged a main contractor in August 2023 under an amended NEC4 Engineering and Construction Contract, Option A, with a total price of just under £20.9m. The contract incorporated secondary Option Y(UK)1, which requires a project bank account.

The account was never set up. The main contractor entered administration owing the groundworks subcontractor money, and the subcontractor had no realistic prospect of recovery in the administration. The employer had by then certified and paid several applications directly to the main contractor.

The subcontractor argued that paying anywhere other than into the project bank account breached the main contract, and that as a member of the protected class it could enforce that term under the Contracts (Rights of Third Parties) Act 1999.

The gate the subcontractor never passed through

Section 1 of the 1999 Act requires a third party to be expressly identified in the contract by name, as a member of a class, or as answering a particular description. The judge held that the class benefiting from the clause was Named Suppliers, a defined status acquired by proposal, acceptance and execution of a joining deed.

The relevant class of third party is Named Suppliers. The claimant was never a Named Supplier.

His Honour Judge Keyser KC

The subcontractor answered that the employer's own breach had removed the pressure on the main contractor to establish the account, and so had caused its exclusion. The judge rejected that: a party outside the contract can only sue if it qualifies under section 1, and it cannot use an alleged breach of the very clause it seeks to enforce to sidestep the statutory requirements.

The judge went further on the merits. The obligation to pay into the account was a positive one that presupposed the account existing. With no account, performance was impossible, the condition precedent had failed, and paying elsewhere was not a breach at all. Reading the clause as a prohibition on any payment would also have collided with the core payment provisions at clause 51.

Where the delay actually came from

On causation the evidence pointed away from the employer. The documents suggested the main contractor was not dragging its feet, and that the hold-up sat with the bank: internal inefficiency at first, then an unwillingness to proceed until a proposed sale of the contractor had concluded. That sale fell through and administration followed.

The judge also recorded that the joining deed process did not require the account to exist first, so the subcontractor could have been added as a Named Supplier before any account was opened. The claim was dismissed.

The practical reading for subcontractors is narrow and hard. A project bank account clause in the main contract protects those who complete the paperwork to join it, not everyone the policy was designed to help. Chase Named Supplier status at the point of appointment, in writing, and treat a missing account or an unexecuted joining deed as a live commercial risk rather than an administrative loose end. By the time the main contractor fails, that document is the difference between a claim and a proof of debt.