Solutions to delayed Payments

The results of the analysis of all responses taken in totality for all respondents depicted in Graph 11 below, reveal a positive affirmation to the assertions of solutions to delayed payments included in the research questionnaire in Appendix 1.

The assertions made in the questionnaire to solve the problem of delayed payments are listed below:

 Charging interest payments on delayed payments

 Legal action for delayed certificates

 Cash flow planning by client

 Reducing bureaucracy in the payment certificates

 Adopting e-payment system

 Enforcing an ethical culture in the payment system

 Right to suspend work by the contractor

 Improving coordination by all the contracting parties; consultants, contractors and client

 Improving capacity of contractor in preparing certificate claims

Very Low Low Medium High Very High

0% 10% 20% 30% 40% 50% 60%

Solutions to Delayed Payements - All respondents

P er ce n ta ge R es p o n se s

The responses from the four categories of respondents largely ranged between high and very high with the totals for the ranges at 85% for road contractors, 88% for consultants, 73% for RFA and 83% for Roads Authority.

4.2.3.1 Summary of findings of the solutions to delayed payments

The following subheading explains the solutions to the problem of delayed payments aided by the comments provided by respondents in the questionnaires and interviews

1. Charging interest payments on delayed payments

All the respondents agreed that charging interest on delayed payments is amongst the most viable solutions to ensure payments are made timely by the client. Charging interest acts as punishment to the client, and compensation to the contractor for delayed payments. Currently, the provisions of the contract include a clause on charging interest for late payments. See Appendix 3, excerpts of interview with HoF, RFA.

2. Legal action for delayed certificates

Where certificates are delayed beyond reasonable time and due to factors perceived to be related to poor relationships or political, some of the respondents suggested a legal suit should be the remedy to the contractors in order to be paid timely. Some contractors had reservations on the use of legal remedy to avoid breaking relationships and compromising opportunities for future contracts with the client.

3. Cash flow planning by client

All respondents pointed to the need for cashflow planning by client when starting projects and engaging a contractor. It was suggested that proper feasibility studies into availability of funds to undertake projects should be made. It was also suggested that politicians should avoid starting projects for the sake of gaining political mileage, without caring whether resources are available. Refer to Appendix 3: Excerpts of Interview with Head of Finance for RFA

The respondents made suggestions that there should be reduction in duplication of work in the payment process, more especially at the checking of certificate. There is so much duplication of work between Roads Authority and Roads Fund administration, and reducing this should help to mitigate payment delays. Refer to Appendix 2 and Appendix 3.

5. Adopting e-payment system

The respondents attributed payment delays to over use of manual processing of payment in the construction sector. Adoption of e-payment system, where a contractor can electronically log a certificate and all processes are done via computer, should go a long way to mitigate payment delays. See Appendix 2.

6. Enforcing an ethical culture in the payment system

Most of the respondents suggested that there is need for professionalism in the construction sector and a code of ethics for the industry needs to be enforced by the NCIC. All the other organisations should also develop codes of ethics to curb malpractices such a graft. Refer to Appendix 3: Excerpts of Interview with Head of Finance for RFA

7. Right to suspend work by the contractor

The respondents suggested that the contractor should have the right to suspend work where non-payment or delayed payments are being experienced from the client. Currently, the conditions of contracts for road projects do not include delayed payments as one which can lead to termination of contract.

8. Improving coordination by all the contracting parties

All parties should work in tandem and should own the contract as their own. There should be constant flow of information amongst all the parties to timely make decision which affect payments. For example, Roads Fund should send timely information to road contractors on impending holidays or activities which can affect payments and require them to expedite preparation of certificates. Refer to appendix 2 and 3.

9. Improving capacity of contractor in preparing certificate claims

The respondents agreed that one step towards curbing delayed payments is to train contractors on how to raise a certificate as most contractors have problems with the task and results in preparing incorrect certificates which often times are sent back for correction, resulting into delays. Refer to appendix 2 and 3.

CHAPTER FIVE – CONCLUSION AND RECOMMENDATIONS

This chapter summarises the findings from the last chapter and draws conclusions from the same.

This research paper has investigated the causes and effects of delayed payments to road contractors in Malawi for publicly funded road projects. From the results of the study drawn from the primary research and supported by the literature reviewed, it can be concluded that payments are a lifeline of the construction industry. Delays in payments have disastrous consequences to contractors and the entire industry. It is therefore imperative that critical importance should be put to payments to contractors to avoid delays.

From the results of the research, it can also be concluded that the assertions in the research questionnaire drawn from the literature review as to the causes and effects of delayed payments have been confirmed by the primary research.

Further, the research identified solutions to resolve the problem of delayed payments. Various recommendations have been suggested by the research respondents including cashflow planning, reduced bureaucracy, charging interest on delayed payments, adoption of e-payment, enforcement of ethical culture, improving coordination, and improving capacity of contractor in certificate preparations. To ensure successful integration of these recommendations, further recommendations have been proposed. There is need for the Roads Fund Administration to increase its revenue base. Other than relying on fuel levy and government appropriations, effort should be made to carry out research on other potential revenue sources to ensure that there are adequate funds for road projects which will ensure timely payments to contractors.

There is a need for collaborative partnership between Roads Fund Administration and Roads Authority to ensure enhanced coordination to eradicate delayed payments to road contractors. This can be achieved by constant communication and removal of any

rivalry in how they work and start seeing themselves as part of the contract. According to HoF, RFA, the relationship between RFA and RA has left many contractors suffering due to poor coordination and this has led to delayed payments. See Appendix 3: Excerpts of Interview with Head of Finance for RFA. This is supported by Donkor, (2011) whp recommends that Clients, Consultants and Contractors should consider the project as their own and should coordinate effectively to ensure smooth flow of communication among the contracting parties.

There is also a need for refinement of roles performed by Roads Fund administration and Roads Authority to remove duplications and inefficiencies which contribute to delayed payments such as physical verification of work by both organisations. A functional review exercise of the roles of the two organisations should be carried out to identify conflicting and duplicated roles in the payments process and streamline activities to reduce bureaucracy. To effectively embrace the changes proposed by the functional review, change management strategy should be incorporated in the two client organisations, RA/RFA. In every organisation, people have an inherent fear of embracing change for various reasons including fear of the unknown, fear of losing status and position, fear of job loss etc. It is imperative that change management techniques are employed in all organizations in the payment process.

It is also imperative that Continuous Improvement is employed in the road sector to ensure that problems are continually addressed and strive to reach a stage of 100% non-delayed payments by the Malawian road sector. This includes contractors improving their certificate preparation skills.

Appendices

Appendix 1– Sample Research Questionnaire RESEARCH QUESTIONNAIRE

Dear Participant

I am Joseph Chembezi, collecting data from you which will be used in my dissertation as part of my Masters in Project Management with the University of Bolton. The aim of the research is to investigate the causes and effects of delayed payments to Road Contractors in Malawi for public funded road projects, and to suggest solutions to resolve the problem. The information you will be asked to provide will be used to help to provide insights to achieve these objectives.

The questionnaire should take you about 15 minutes to complete. The information provided will be treated in the strictest confidence as you will notice that you are not asked to include your name and address anywhere on the questionnaire. The findings from your questionnaire and others will be used as the main data set for my dissertation for my masters’ course in Project Management at the University of Bolton. I hope you will find completing the questionnaire enjoyable.

If you have any queries or would like further information, please feel free to contact me on 0999 930 189/0888 859 356 or email me on [email protected]

1) Which area in the construction industry supply chain are you in?

☐Contractor ☐Consultant ☐RA ☐RFA

2) How long have you been in the construction industry?

☐0-5 years ☐6-10 Years ☐11-20years ☐21years and above 3) Are you familiar with payment certificates for road projects?

☐Yes ☐No

4) Have you ever participated in any capacity in the processing/certification or any issues of payment for road projects?

☐Yes ☐No

5) Are you aware or experienced any instance of a certificate for road project being delayed for payment?

6) The following table lists down various factors which contribute to delayed payments to road contractors for work done. Please rank these variables by significance by ticking the relevant field.

Item Factor Very

Low

Low Medium High Very High

1. Corruption in the system ☐ ☐ ☐ ☐ ☐

2. Lack of adequate funds on the part of client

☐ ☐ ☐ ☐ ☐

3. Bureaucracy and Red Tape in the system

☐ ☐ ☐ ☐ ☐

4. Variations in the original contract ☐ ☐ ☐ ☐ ☐

5. Poor relationship between contractor and the client

☐ ☐ ☐ ☐ ☐

6. Inaccurate bills of quantities and/or Disagreement on the valuation of works done

☐ ☐ ☐ ☐ ☐

7. Political affiliation of contractor ☐ ☐ ☐ ☐ ☐

8. Use of manual payment system ☐ ☐ ☐ ☐ ☐

9. Delay in submitting contractor’s payment claim

☐ ☐ ☐ ☐ ☐

7) Any other factors which cause payment delays you wish to include:

I. ……………

II. ……………… ……

8) The following table lists down the impacts on contractors brought about as a result of delayed payments. Please rank these variables by significance by ticking the relevant field.

Item Factor Very

Low

Low Medium High Very

High 1. Delays in completing

projects

☐ ☐ ☐ ☐ ☐

2. Reduced project profitability to the contractor due to cost overruns

☐ ☐ ☐ ☐ ☐

3. Cashflow problems for the contractor

☐ ☐ ☐ ☐ ☐

4. Leads to bankruptcy or liquidation

☐ ☐ ☐ ☐ ☐

5. Creates a chain reaction on other parties in the supply chain

☐ ☐ ☐ ☐ ☐

6. Leads to suspension and/or abandonment of works by the contractor

☐ ☐ ☐ ☐ ☐

7. Poor relationship with client resulting in loss of future business opportunities

☐ ☐ ☐ ☐ ☐

8. Loss of potential business due to spending a lot of time with one client

☐ ☐ ☐ ☐ ☐

9. Results in negative social impacts due to delayed completion of projects

10. Tarnishes the image of the contractor

☐ ☐ ☐ ☐ ☐

9) Any other impacts of delayed payments to contractors you wish to include:

I. ……… ……… II. ……… ……… III. ……… ………

10)The following table lists down mitigations to the problem of delayed payments. Rank these solutions in terms of relevance.

Ite m

Solution Very Low Low Medium High Very

High 1 Charging interest

payments on

delayed payments

☐ ☐ ☐ ☐ ☐

2 Legal action for delayed certificates

☐ ☐ ☐ ☐ ☐

3 Cash flow planning by client ☐ ☐ ☐ ☐ ☐ 4 Reducing bureaucracy in the payment certificates ☐ ☐ ☐ ☐ ☐ 5 Adopting e-payment system ☐ ☐ ☐ ☐ ☐ 6 Enforcing an ethical culture in the payment system ☐ ☐ ☐ ☐ ☐ 7 Right to suspend work by the contractor ☐ ☐ ☐ ☐ ☐ 8 Improving coordination by all the contracting parties; consultants, contractors and client ☐ ☐ ☐ ☐ ☐ 9 Improving capacity ☐ ☐ ☐ ☐ ☐

of contractor in preparing certificate claims

11)Any other solutions to the problem of delayed payments to contractors you wish to add: I. ………. ……… II. ………. ……… III. ……… ……

Appendix 2: Excerpts of Interview with Roads Authority Senior Engineer