Construction operations, by their nature, tend to be both high in value and also take place over prolonged periods of time.  For larger projects, they can involve many tiers of contractors and sub-contractors, with each tier lower down the supply chain granting (often significant) payment terms to those higher up.

With the prevalence of insolvency in the construction sector and with the often very fine margins involved in delivering construction works, there can often be a shortage of trust or a requirement for increased due diligence and assurance when it comes to the transaction and ensuring that everyone is going to get paid.

Issues of Trust

These trust issues can arise at every stage of a project's life cycle—from the very earliest consultant fees and enabling costs to the actual building, fit-out and commissioning operations, and on throughout the rectification and warranty periods after completion.

Building Owner ↔ Adjoining Owner: Party Wall

In circumstances where the project is taking place and involves work to a party wall or along a boundary, the adjoining owner (the one not carrying out the works) will be concerned to ensure that if the works stop for whatever reason, or the party wall is damaged, or their property starts to become unstable, they can call upon funds to protect themselves and shore up the building.

Building Owner ↔ Railway/Statutory Undertaker

Where the project abuts a railway, base station or similar infrastructure element, the possible costs of disruption or repair if the construction operations lead to damage or shutdown can be considerable.

Leaseholder ↔ Freeholder: Licence to Alter

Where works are being carried out in a leased premises, subject to a licence to alter, the freeholder might be concerned that the works could cause damage to the public areas or otherwise interfere with the building, its tenants or its neighbours in such a way that might cause the freeholder costs, the freeholder may wish to ensure that it can secure funds to be able to discharge those responsibilities as a condition of granting the licence to alter.

Employer ↔ Contractor: Escrow & Retentions

An Employer's primary concern might be to ensure that the money they give to the Contractor is used only for their own works and not, for example, used by the Contractor to work on other clients' projects.

Where the Contractor is granting the Employer a line of credit to get the works underway, often for many months at a time (with a month of works generally being valued at the end of the month and then taking another 4-6 weeks to be paid-for), however, they may be concerned to ensure that they will get paid for the works carried out.

Equally, if the Contractor is consenting to the Employer holding onto retentions either during or after the works, they will wish to ensure that in the event of the Employer's insolvency (or if the Employer or their assets are based in jurisdictions where it is difficult to get arbitral awards or court orders enforced and the Employer chooses not to repay the retention) they are still able to be paid the retention for works that they have carried out and had certified.

Conversely, an Employer who agrees to pay for works that are not on site (say, where joinery is being build by a sub-contractor at a different location), or to provide advance payments in respect of similar works may wish to ensure that they will get their money back if for whatever reason those off-site items never materialise.

Client ↔ Interior Designer: FF&E Procurement

Where the client is commissioning an interior designer to source, specify and procure furniture, fixtures and equipment ('FF&E'), they might be concerned that the interior designer is mixing their cash with the designer's own, or that the designer is not regulated to carry out payment transactions on their behalf.

Contractor ↔ Sub-Contractor: Escrow & Retentions

Where the Sub-Contractor is granting the Contractor a line of credit to get the works underway, often for many months at a time (with a month of works generally being valued at the end of the month and then taking another 4-6 weeks to be paid-for), they may be concerned to ensure that they will get paid for the works carried out.

Equally, if the Sub-Contractor is consenting to the Contractor holding onto retentions either during or after the works, they will wish to ensure that in the event of the Contractor's insolvency they are still able to be paid the retention for works that they have carried out and had certified.

Conversely, a Contractor who agrees to pay for works that are not on site (say, where joinery is being build by a sub-contractor at a different location), or to provide advance payments in respect of similar works may wish to ensure that they will get their money back if for whatever reason those off-site items never materialise.

The Role of the Escrow Agent

Escrow agents help to bridge these trust gaps by offering a reliable, independent, objective third party to handle the exchange of money and documents in accordance with the parties' wishes and the terms of the escrow agreement, without having to rely solely on trust to ensure the security and success of the transaction.

We offer escrow solutions to address all of the above trust issues and would be delighted to provide you with a quote for your specific requirements. You can also check out our detailed service pages listed above.

Benefits of Escrow over Insurance/Bonds

Some of the trust shortfalls outlined above can be addressed through the purchase of a contract of insurance or a bond. These typically involve the payment of a fee (a "premium"), and in the event of default, the beneficiary under the policy must make a claim from the insurer or bondsman for their loss.

This approach comes with four primary drawbacks:

1. The premium is spent—regardless of whether or not a claim is made, the insurer or bondsman charges the premium as consideration for assuming the risk in the transaction;
2. There is a credit risk on the insurer/bondsman/guarantor—even the largest underwriters carry a credit risk; a policy of insurance is only as useful as the financial capacity of the underwriter to satisfy all of the claims they are underwriting at any one time. In circumstances where an insurer faces many simultaneous (or a few ultra-high-value) claims, they may not be able to fulfil their obligations;
3. It takes time to process a claim—even a successful claim can entail months of paperwork and administration before it is paid out;
4. Every policy or bond is written with very specific wording—it might be that, for unexpected reasons, an anticipated claim is not actually covered by a policy or bond (either because it is specifically excluded or because the wording allows it to be excluded for some other reason).

Cash-backed escrow, by contrast, addresses all of these issues. It is generally cheaper to administer than the cost of a premium; in most cases, there is no credit risk because the funds are segregated and safeguarded by the escrow agent; payouts generally happen within a few days; and there will not be any circumstances in which a payout is excluded—the terms of the escrow agreement will make it very clear what circumstances need to exist to trigger a payment, rather than necessarily the reasons behind those circumstances.

Why choose dospay over a bank or trust company for your escrow?

We are an established, independent escrow agent not affiliated to any bank or trust company.  We're based in London, in a time zone conveniently located for transactions taking place anywhere in the world. As a small team, we're easy to get hold of, responsive and dependable.  

While our processes are systems are rigorous, they are also flexible. We make the effort to understand each transaction and its nuances, meaning that we can provide the perfect solution for the parties.

Funds secured at the Bank of England

Through our technology partners, we are able to open custodial/escrow accounts at the Bank of England with the click of a button. Unlike a bank (who accepts your escrow funds as a "deposit", whereupon it becomes part of their balance sheet and can be loaned to others), our accounts are all segregated (kept separately from our own) and safeguarded (not used for any other purpose). This means we are probably the most secure escrow agent in the United Kingdom.

We simply hold the funds liquid and unencumbered at the Bank of England, ready for use in the transaction. Exactly as escrow should be.

No existing or future banking/trust relationship required

Most banks and trust companies see escrow as a slightly painful service they need to offer in order to justify their moniker of being 'full-service' - it's a service that most clients will wish for, but compared to their lending, advisory and trustee fee revenues, few banks consider escrow to be a profitable exercise.

As a consequence, most will ask for at least one of the parties to be (or to become) a client of the bank or trust company going forward - very few will offer it to entirely unrelated parties with whom they have no opportunity to make money in future.

We're different.  We only exist to provide escrow services, and those are frequently once-in-a-lifetime deals - while we are delighted to enjoy repeat custom, we haven't built our business model on it.

Lower fees

We don't carry the overheads of a large bank or trust corporation, or anything like them. As a small team, we've invested heavily in technology to do the heavy lifting and we have no legacy systems that make life difficult for us - it's all cutting-edge, encrypted, bank-level technology, but without the legacy costs.

We are therefore almost always cheaper, often by a considerable margin  (and, if for any reason we're not, we're always happy to have a commercial conversation).

Fast account opening

Our streamlined systems and processes lend themselves to fast account opening.  Often, the detail of escrow arrangements is left until quite late in the transaction - this isn't a problem for us; indeed, we're used to it - it's what we do.

Our accounts can be opened same-day if we have all of the information, and the vast majority are opened within 3-5 business days (most of which time is taken up with us carrying out our mandatory compliance activities).

Flexible terms

Unlike a bank or trust company that is required to operate on standard terms, with 3-5 day turnaround times for their internal legal teams to sign off any deviations, we can work either on our standard conditions or on the basis of a document agreed between the parties, and we're flexible about what that looks like.

Each transaction is different, so we don't try to shoe-horn them into chapters of legalese - the terms of our participation are clear, concise and flexible.