DELAYED PAYMENTS IMPACTS ON PLANNED CASH FLOW OF SMALL AND MEDIUM CONTRACTORS FOR A SPECIAL PURPOSE COMPANY

Abstract

The FIDIC suite standard forms of contracts used for executing projects in Special Purpose Companies contain contractual and administrative provisions regarding payments. However, payment delays continue to plague the construction industry to date. Delay payments generally have an adverse effect on a company’s cash flow, leading to extensions on overdraft facilities, ultimately increasing their borrowing. Late payment of commercial debt adversely affects the liquidity of contracting companies sometimes leading to insolvency. This study examined the impact of the contractual payment period and payment process on the cash flow of contractors executing projects for the Special Purpose Company (SPC) E. The sample population chosen for this research consisted of 100 small and medium contractors within the SPC-E to illustrate the varying effects of the payment delays on the contractors mostly affected. A review of previously published literature along with a questionnaire survey distributed, determined the objectives of the paper. Statistical analysis using IBM SPSS software further analyzed the data collected using Cumulative Means, Relative Importance Index, Spearman’s Rank Correlation and Analysis of Variance (ANOVA) to test the hypothesis. The complicated bureaucratic payment process utilized by the SPC-E resulted in the cascading adverse effects on the contractor’s cash flow. The findings also indicated that there has been no significant improvement to the delayed payment issue over the past decade. The implementation of Prompt payment legislation or statutory adjudication is recommended to ensure the sustainability of small and medium contractors.