Strategies to minimise the effects of delayed payments

Abstract

Delayed payments to parties in the construction supply chain are due to cash-flow difficulties of upper-tier parties. The phenomenon is common in the construction industry, and in Sri Lanka most government-funded large-scale projects experience payment delays. This research therefore investigates the effects of delayed payments and possible strategies that could help minimise their effects. A survey approach was adopted where an equal sample (N = 10) of contractors and subcontractors, drawn through purposive sampling, were interviewed. The sample is justified through ‘saturation’, which determines the credibility of research findings in qualitative research. Solicited views were grouped under themes, with NVivo 10 software used to organise the responses. The research found that over 60% of main contractors and subcontractors have experienced the effects of cash-flow difficulties and project delays. They are generally affected by irregular progress payments. Contractors and subcontractors strategise, other than by using contractual provisions, to help maintain their business relationships with upper-tier parties and to survive industry competition. Main contractors (70%) depend on bank loans, while subcontractors (40%) tend to negotiate feasible payment plans and use fund transfer mechanisms in delayed payment situations. The research suggests proactive actions that will ensure the effective implementation of contractual provisions.