Understanding Payment Problems in Construction Projects: A Critical Review

This critical review analyzes five articles on payment issues in construction projects, identifying root causes and mitigation measures. The report raises questions on stakeholder contributions to risk and cash flow issues, reasons for payment problems, and relative frequency and risk profiles. Personal reflections highlight the importance of financial stability and regular payments as mitigation options.

Student Name
University Name
Unit Name
Unit Code
Critical Review
Understanding the problems of payment problems in the
context of construction projects
1

Critical Review
Executive summary
The report provides analysis and assessment of the understanding of construction projects
and payment issues in the context of five articles and is designed to prepare for my assignments1
- rigorous review. The analysis method is to find the article and select an article that is most
relevant to the topic. Here, the report provides Roshana Takim, Hamzah Abdul-Rahman or
Wong Sze Min, which best suit my theme. The report is also investigating other articles on
payment issues in the context of construction projects, with five main articles being the best
research. The research report raised some questions at the end of the report. My personal
thoughts and conclusions are also reflected in this report.
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Critical Review
Contents
Executive summary.........................................................................................................................2
1. Introduction...............................................................................................................................4
2. Table of article..........................................................................................................................4
3. Article Summary.......................................................................................................................5
4. Critical appraisal.......................................................................................................................6
5. Preliminary Research Question................................................................................................7
6. Personal reflection....................................................................................................................8
7. Conclusion................................................................................................................................9
References......................................................................................................................................10
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Critical Review
1. Introduction
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.
2. Table of article
NO. Article Key words Retrieved
from
1. 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.
Delays,
financial-
related
problems,
Malaysian
construction
industry,
payment
problems
CQU
Library
2. 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/10.1061/9780784479377.06
5 [Accessed 6 Aug. 2018].
Payment
delays, cost
overruns,
subcontractors
encountered
delayed
CQU
Library
3. 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
Cash flow,
mitigation
project
management,
risk
management,
measures,
CQU
Library
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Critical Review
Economics, 29(10), pp.1027-1041. payment risks,
4. Ramachandra, T. and Rotimi, J. (2015). Causes of Payment
Problems in the New Zealand Construction
Industry. Construction Economics and Building, 15(1),
p.43.
Payment
problems,
factor analysis,
construction,
causal factors,
CQU
Library
5. 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.
construction
projects, factor
analysis,
construction,
project
management,
risk
CQU
Library
3. Article Summary
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
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Critical Review
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.
4. Critical appraisal
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.
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Critical Review
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.
5. Preliminary Research Question
In the above five articles, I analyse my research topic of understanding the payment
problem in the context of the CQU University construction project. I have some questions about
payment issues related to construction projects.
1) What are the main stakeholder in the construction procedure, consultants, namely
employers, contractors furthermore suppliers, contributing to risk and cash flow issues of
contractors in the construction industry?
2) What are the main reasons for the payment of construction projects?
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Critical Review
3) What are the relative level of occurrence frequency and risk profile attributable to the
impact of the payment problem factors for each stakeholder?
6. Personal reflection
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
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Critical Review
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.
7. 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.
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Critical Review
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.
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