Abstract
Recent statistics reveal substantial increase in late payments cases from 18% to 27%; with over £30 billion unpaid invoices to UK contractors. Furthermore, 82% of overdue invoices are monies owed to subcontractor by tier-1 main contractors. Indeed, tier-1 contractors are deemed to be the main elephant in the room despite various contractual, government and private initiatives designed to curb late payment menace. Yet, there is little research concerning use of Alternative Payment Method (APM) to leverage tier-1 contractors paying subcontractors’ invoices promptly. The aim of this study is to assess the use APM to enhance pragmatic and sustainable payment practices between tier-1 contractors and subbies. The research question is: what are the industry specific factors that influences unfair payment practices and how can alternative payment method help to leverage fair payments to subbies? The study adopted sequential exploratory design type of mixed method supported by questionnaire and structured interviews. The study population are drawn from experienced industry stakeholders including clients, contractors, designers, professionals in addition to use of computer simulation to validate proposed APM model. Initial findings reveal an optimism bias tendency of most subcontractors agreeing to lengthened and unfair payments terms induced by Tier 1 contractors. The study identified over five industry and business specific influential factors that encourages tier-1 contractors to clinch to unpropitious late payment practices. In specific terms, there are overwhelming evidences that APM has significant potential to minimize late payment in the UK construction industry if there is political, business and legislative will to implement the model.
Highlights
Unfair payment practices such as late payment to contractors, “pay when paid”, disparaging rate of items, exclusion of provisional items, imposition of rates and unpaid retentions remains a reoccurring problem in the construction industry
The study literature was grossly limited in terms of scale, extent and industry specific factors that influences unfair payment practices in construction
The study acknowledged that undue commercial interest of main contractors and widespread use of adhesion contracts or “back-to-back” types of contractual agreement between Tier 2 contractors and subcontractors as the foremost factors that influences unfair payment in the construction industry
Summary
Unfair payment practices such as late payment to contractors, “pay when paid”, disparaging rate of items, exclusion of provisional items, imposition of rates and unpaid retentions remains a reoccurring problem in the construction industry. Claims that “in the last five years, two-third of subcontractors in UK construction industry experienced longer payments period of over six weeks”. The Euler (2015) report assert that there has been substantial increase in unfair payment cases from 18% to 27%; with over £30 billion unpaid invoices and £7 billion of unremitted retention monies over the past five years. 82% of total unpaid invoices are monies owed to subcontractors by Tier-1 contractors. Construction Payment report (2018) claimed that the industry is in dire need of Alternative Payment Method (APM) that will synchronize and deliver fair payments to construction supply chain. There is little research that clearly identifies business and industry specific factors that influences unfair payment practices, and the use of APM to enhance prompt payment of invoices by tier-1 contractors to subbies
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