An Evaluation of the Causes and Effects of Delayed Payments on the Productivity of Construction Companies in Guyana

Abstract

Delayed payments for services rendered by contractors are seen as a key problem in the construction sector. It causes significant cash flow problems, which can obliterate the contractual payment chain. The study was done to determine the causes and effects of delayed payments for works completed in the construction sector in Guyana and to ascertain the actions taken by contractors to overcome these problems. In order to obtain data for the study, a random sample of 180 contractors, consultants, and clients in the construction sector in Region 4 were emailed questionnaires. A total of 65 questionnaires were completed and returned for analysis. The ranking of the findings for the causes of delayed payment were determined using the relative importance index for four categories: contractor-related factors, client-related factors, contract-related factors, and consultant-related factors. Effects of delayed payments on contractors’ productivity and finance and actions taken by contractors to overcome delayed problems were also studied. Some of the causes of delayed payment from the study include contractors’ disagreement on valuation of the work, contractors’ failure to substantiate their claims, delay in certification of work done by architect or contract administrator, delay in valuation of work done by quantity surveyor, client delay in certification unrealistic cash, client failure to agree to the valuation of work. From the study, delayed payments results in delay in project progress and have effects on the materials supply capabilities of contractors, the forecasted profit margin, and the amount of the line of credits provided by materials suppliers and banks. Some of the preferred actions taken by contractors include following up with clients by direct communication, applying interest charge to the overdue payments, and slowing down the construction work at site until payment is received.