BUSINESS AND TRAINING 23
• Operating an Escrow Account requires the deposit of an appropriate sum of money .
• The bank is then instructed by the purchaser or an authorised agent to release the tender or certified amount by electronic payment into the beneficiary ’ s account – payment is made by electronic funds transfer ( EFT ) at a specified time on business days .
• The account :
○ is secured on separate fraud protection platform .
○ earns no interest ; and
○ attracts a service charge on a sliding scale paid by either party or shared by agreement , said to be competitive with those charged by commercial providers of guarantees .
• Some banks provide a ten-day dispute resolution service for related issues , failing which a dispute is referred to the small claims court or to arbitration .
• Payment to a service provider is protected , is simpler to initiate and operate than lodging financial guarantees and permits almost instantaneous payment .
In the typical building industry scenario where late , partial or non-payment of a certified amount is not unusual , the contractor , subcontractor or a supplier must spend much time making many phone calls and issue contractual notices to secure a due payment – often without success .
Where the parties agree at the commencement of a contract to use the Escrow facility , payment to a service provider is certain for the project as a whole or per payment cycle provided the employer tops up the credit balance in the project escrow account . Employers may prefer this option as such funds do not earn interest .
Thus , the principal advantage to the industry is a protected cashflow and protection in the event of liquidation of the employer . Also , the financial institutions can ‘ automatically ’ provide an auditable record of all transactions including ‘ proof of payment ’ of the amount and the date .
The ‘ disadvantages ’ include the charges imposed by a financial institution for such service and the additional layer of paperwork that the principal agent , as the agent for the employer , must provide to issue a ‘ payment release certificate ’ after authorisation from the employer in addition to the regular payment certificate for the institution to release payment to a service provider . The due date for payment is recorded in the contract data – and the parties must agree the dates to claim certify and make payment not to delay or hinder the implementation of an escrow service .
The bank charges are negotiable to an extent however , this may depend on the customer ’ s relationship with the institution . Interest is , typically about one percent of the value of a transaction , which is not cheap , but it ’ s less than legal fees to recover unpaid debts . Before commencement of the contract , the parties must agree to share the costs and which party is responsible for payment of the escrow account fees – and ensure sufficient funds are maintained in the account .
The works and / or the materials ( product ) must be insured in accordance with the SfC used .
The institutions generally provide a dispute resolution service in addition the provisions in the SfC , to refer a dispute to the Small Claims Court or to arbitration .
About the author : Uwe Putlitz was born in Johannesburg , qualified as an architect at the University of the Witwatersrand and subsequently was awarded the first M . Sc in ‘ Building ’. He practiced as an architect and / or as a project manager for various firms and as managing member of Building Strategy Network until 2010 , when he was appointed as CEO of the Joint Building Contacts Committee until his retirement in 2019 . Uwe is a visiting lecturer at the University of the Witwatersrand , and the RICS , regularly contributing articles to various industry journals about ‘ dispute avoidance ’ when using Standard-form Contracts as well as involved with the review of applications for registration by the SA Council for Project and Construction Management Professions . uwe @ buildstrat . co . za PA
“ The bank charges are negotiable to an extent .”
January 2022 Volume 27 I Number 11 www . plumbingafrica . co . za