Understanding Payment Issues In Construction Projects: An Analysis

Table of Article

I started my research from the generation of research tools provided by PPMP20015-Project Management Research. I chose to understand an area of payment issues in the context of architectural projects and search for articles about the CQU library. The article I chose focused on the financial-related reasons for construction projects that caused project delays and delayed payments.

This article focuses on construction projects with delayed payment issues. Delays in a construction project are a general phenomenon as well as a costly issue. This paper discusses economic-related delays in the construction project. It also identifies root cause and carefully reviews the appropriate mitigation action for economic -related projects delay. The Four major elements were also identified in the literature, namely delayed payments, poor cash flows management, insufficient economic resources moreover economic market instability. The article concludes that poor cash flow management is the most important feature leading to project delays, followed by delayed payments, not enough economic resources and economic market instability. The unstable economic background of the contractor, the poor financial furthermore company management of the customer, the difficulty of obtaining loans from the financier and inflation are considered to be the most important root causes. The results of the study show that a customer plays the very significant role in reducing the impacts of economic issues on project delays. Respondents proposed some appropriate mitigation measures.

 I reviewed five articles, and they all raised the issue of understanding payment issues in construction projects.

Roshana Takim, Hamzah Abdul-Rahman or Wong Sze Min authors shared the message of the importance of conducting more in-depth research, with a focus on achieving well-managed cash flow for customers to get timely payment practices in the construction industry (Abdul-Rahman, Takim and Min, 2009).

In addition, Adnan Enshassi and Lina Abuhamra are considering delays in public construction projects from the perspective of subcontractors. They believe that most subcontractors have experienced delayed payments and non-payments from major contractors. Delayed change order payments are considered to be the most common problem faced by subcontractors that cause disputes (Enshassi and Abuhamra, 2015). This article revealed that most of the disputes were resolved through negotiations. The average time to resolve a dispute is less than three months.

The focus of Jasper Mbachu’s research is on paying for risk, which is the major obstacle to adequate cash flow as well as the ability of contractors to successfully finish projects moreover keep viable industry (Mbachu, 2011). Jasper Mbachu said the risk management of the project team, especially how to effectively allocate available resources to address risk factors, in order to achieve more satisfactory results and profitability in the project.

Article Summary

In addition, Raj Kapur Shah is sharing information costs and time overruns as a key issue for any construction project. These problems are having a negative impact on the development of national economic growth and prosperity (Shah, 2016). Raj Kapur Shah concluded that delays from one country to another lead to project delays moreover cost overruns. He concluded that depending on the nature of the delay factor, there are a number of measures that can reduce the impact on construction industry project delays and cost overruns.

Thanuja Ramachandra1 and James Olabode Bamidele Rotimi stated that payment delay, as well as losses in Construction Company; still exist also keep on to be a major concern for business practitioners (Ramachandra and Rotimi, 2015). Thus, this study explores the main reasons for payment delay or losses, with the ultimate goal of seeking a mitigation solution. There is no doubt that paying defaults has a lot to do with project participants and industry because money is at the heart of any economic transaction. Overdue and non-payment will have a direct impact on cash flow, thereby facilitating contractors and final subcontractors to obtain additional funds through overdrafts, trade credits or other means.

I spent four weeks attending PPMP20015; I gained knowledge about research and how to conduct research in any chosen field. So, I started to study the soft skills (especially payment issues) of project management students. I found the most relevant document about its research. I got a lot of payment issues related to the construction project, and my lectures and coaching activities helped me find some sources for that particular topic.

In my opinion, payments can be used as a channel for project revenue and expenses. Therefore, in general, payment risk limits cash inflows while expanding cash outflows. This situation leads to serious working capital problems, which may damage the contractor’s financial situation and the profit level of the project, and imply that he or she is capable of fulfilling the payment obligations to downstream subcontractors, suppliers, creditors and others. The prevalence of payment risk can be demonstrated by the increased incidence of payment-related disputes and litigation in the construction industry. As a result of research on global risk factors affecting construction performance, some of the risks encountered during construction can be attributed to external factors beyond the control of the project team. However, most of the risks come from internal sources that are controllable and associated with key stakeholders, namely employers, consultants, contractors, and suppliers. This problem seems to be widespread, with contractors and subcontractors failing to pay the due amount on time. This can take the type of insufficient payment, not on time and late payment or no payment. Non-payment or non-payment also refers to the situation where the expected payments have never been received and are considered bad, write-off and partial/total loss. On the other hand, the case of delayed or delayed payment is that the general contractor or subcontractor is not paid on time according to the timetable agreed by the parties to the contract.

I think the financial stability of participants is at the heart of the construction industry’s payment problems. Ensure the stability of payments by regularly flowing cash during the work plan and ensure that financial claims of all parties can be settled at maturity. Stable and regular payments appear to be the main mitigation option for payment difficulty in the construction business. The adjustments to contractual terms that guarantee economic stability can include the purchase of certain economic guarantees at beginning of the projects. Therefore, some payment default will be instantly compensated by security provider. The mandatory necessities for prequalifications of the economic status of the major funders of any contract may also be worthwhile.    

Conclusion

My research on these five articles has raised different themes for my topic “Understanding payment issues in the context of construction projects.” These articles all have different ways of thinking, which helps me to completely understand my topic and give me deep overview of problems of payments in construction projects.

References

Abdul-Rahman, H., Takim, R. and Min, W. (2009). Financial-related causes contributing to project delays. Journal of Retail & Leisure Property, 8(3), pp.225-238.

Enshassi, A. and Abuhamra, L. (2015). Delayed Payment Problems in Public Construction Projects: Subcontractors’ Perspectives. [online] Ascelibrary.org. Available at: https://ascelibrary.org/doi/abs/10.1061/9780784479377.065 [Accessed 6 Aug. 2018].

Mbachu, J. (2011). Sources of contractor’s payment risks and cash flow problems in the New Zealand construction industry: project team’s perceptions of the risks and mitigation measures. Construction Management and Economics, 29(10), pp.1027-1041.

Ramachandra, T. and Rotimi, J. (2015). Causes of Payment Problems in the New Zealand Construction Industry. Construction Economics and Building, 15(1), p.43.

Shah, R. (2016). An Exploration of Causes for Delay and Cost Overruns In Construction Projects: Case Study of Australia, Malaysia & Ghana. Journal of Advanced College of Engineering and Management, 2, p.41.