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Abstract

Payment is the lifeblood of construction businesses because performance in any construction activity is dependent on an uninterrupted funds flow. However, steady funds flow is rare, and businesses suffer with the worst cases resulting in litigations. The study of litigations, 40 construction payment dispute cases filed in the High Court in New Zealand, within the current study gives an indication of the nature of the payment problem in the construction industry. Disputes over payment arise between contractors and principals in most (80%) of the instances investigated, with progress and final payments being often disputed in construction projects. However, only in limited situations do contractors and subcontractors achieve success with their claims and are able to recover their payments fully. Through the analysis of payment disputes, the study suggests means by which payment problems could be mitigated. Placing charging orders, caveat registration over built properties, and issuance of bankruptcy and liquidation notices have been the means of mitigating payment disputes. In spite of these measures, payment problem is prevalent within the industry. This study therefore suggests that the rational starting point for real solutions to the payment problem is a change in attitude of upstream construction parties, followed by adherence to provisions within payment-related legislation and contract forms.
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... Various construction contracts often reflect the payment methods between the major project actors, and obligations such as the expected quality of works and specification for payment (Rodriguez, 2017). Despite compliance with the stated rule of payment in the condition of a contract, untimely payment due to cash flow problems has been a topical issue (Ramachandra and Rotimi, 2015). According to Motawa and Kaka (2009), enhancement of cash flow through the analysis of payment mechanisms from a supply chain perspective has not been fully addressed. ...
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Payment for work executed or service rendered on construction projects are indispensable. Most times, the payment arrangement between the main contractor and the client are often well spelt out, while domestic subcontractors most times are not paid as at when due. Interestingly, the payment for works executed by nominated subcontractor does not often generate argument compared to the domestic subcontractor. Meanwhile, the non-payment of domestic subcontractor can lead to disputes, litigation, disruptions to the progress of the work, project abandonment, and shoddy jobs on construction projects. To understand the problem confronting the payment of domestic subcontractors, this study assessed the determinants of payment system for domestic subcontractor works with survey of 132 construction professionals in Lagos State, Nigeria. The data collected were analysed with factor analysis to group the determinants variables into manageable size. The result of the analysis indicates that the determinants of payment system for domestic subcontractor can be classified into contract conditions, capital management and outcome factor. Based on the findings, timely payment for work executed by subcontractors, compliance to the contract documents and good management of project fund by the main contractor are recommended. This would help to avoid disputes, project delay and ultimately project abandonment. In conclusion, timely payment of domestic subcontractor works is essential to achieve project performance and other construction outcomes.
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... Today, people are tired of corruption and insecurity; hence, they have turned to highly transparent decentralized systems, which these systems will eventually alter the way goods and services are traded worldwide. For instance, interim payment provisions in construction projects are sometimes accompanied by unfair payment methods (Ramachandra & Rotimi 2015). Countermeasures, such as project laws, legal statements, and Project Banking Accounts (PBA), are available to reduce dishonest behaviors. ...
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... As a result, Table 2 incompatibilities 3-6 are expected. (Skitmore et al., 2006) Uncertainty of the market resulting from more and willing construction contractors than the available and able project owners (Chang and Ive, 2007b) D2 Adverse selection of the owner Opaque financing arrangements (Xiang et al., 2015) Situations where contractors are selected on the hidden basis that they can survive owner financing deficiencies (Xiang et al., 2015) D3 Process specificity (progress interdependence) Work-first get paid later and disputed payments (Peters et al., 2019) Contractor vulnerability to progress underperformance breach whose magnitude corresponds to unpaid sums (Chang and Ive, 2007a) D4 Power asymmetry Acceptance of unfair contractual terms by contractors (Abdul-Malak et al., 2019) Practices that involve determination of own procurement rules, hence leading to greater control of the production process than that of contractors (Zhu and Cheung, 2020) D5 Hold-up Unfair or termination threats (Ramachandra and Rotimi, 2015) Contractor vulnerability to contractual breach due to cash flow difficulties related to disagreements over the value of work done aimed at the concession for less payments (Chang and Ive, 2007a) D6 Site asset specificity Ineffective payment remedies (Abdul-Malak et al., 2019) Effects of the inseparability of site ownership from its end product hence exposure of contractors to payment risks (Chang and Ive, 2007b) D7 Moral hazard of the (Chang and Ive, 2007a) Source: Synthesized from the indicated sources. ...
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