TEKU AARON YAO

82 Pages·2014·0.9 MB·English

KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY, KUMASI

COLLEGE OF ARCHITECTURE AND PLANNING

DEPARTMENT OF BUILDING TECHNOLOGY

TOPIC:

EFFECTS OF DELAYED PAYMENT ON PROJECTS AND STAKEHOLDERS
A CASE STUDY OF KETA MUNICIPAL ASSEMBLY

BY:

TEKU AARON YAO

NOVEMBER, 2014
EFFECTS OF DELAYED PAYMENT ON PROJECTS AND STAKEHOLDERS
A CASE STUDY OF KETA MUNICIPAL ASSEMBLY

By:
Aaron Yao Teku BSc. (Hons.)

A Thesis submitted to the Department of Building Technology, Kwame Nkrumah
University of Science and Technology in partial fulfillment of the requirement for the
degree of

MASTER OF SCIENCE
Construction Management

September, 2014
DECLARATION
I hereby declare that this submission is my own work towards the Master of Science
Degree and that, to the best of my knowledge, it contains no material previously
published by another person nor material which has been accepted for the award of any
other Degree of the University, except where due acknowledgement has been made in the
text.

Teku Aaron Yao (PG9128713) …………...………… ………………………
(Candidate) Signature Date

Certified by:

Mr. Joe K. Hackman ………………….… ……………………
(Supervisor) Signature Date

Certified by:

Prof. Joshua Ayarkwa …………………… ………………………
(Head of Department) Signature Date

ii
ABSTRACT

Delay payment is endemic in the construction industry and needs to be explicitly
recognized as this problem recurs from project after project. Its’ alarming rate may go out
of hand if measures are not put in place to curtail it. The researcher researched into the
causes and effects of delayed payment on project and stakeholders. The objectives of the
study are to identify the underlying causes of delayed payment that are characterized with
the Keta Sea Defence and Resettlement Housing Units, establish the effects on projects
and stakeholders and to determine effective solutions to mitigate these effects. The target
groups of respondents were contractors with D1K1, D2K2 and D3K3 classifications,
Keta Municipal Assembly and the direct project beneficiaries. The study was limited to
Keta Sea Defense Resettlement Housing Unit projects at Adzido, Vodza and Kedzi. A
deductive methodological approach was adopted for the study using literature review and
surveys. Questionnaires and personal interviews techniques were used to collect data.
Results from this study were analyzed using Statistical Package for Social Science (SPSS
11.0). Findings reveal that the main causes of delays are; poor financial arrangement by
the clients, improper planning of projects, poor contractual relationship between parties,
bureaucracy, political influence and delay in submission of claims by contractors. On the
other hand, cost overrun, time overrun, total abandonment of projects and poor quality of
work are effects on contractors, clients and projects. It was also revealed that, the ripple
effects on projects beneficiaries (end users) includes; decline in economic activities of the
people, poor living condition, insufficient accommodation readily available, denied of
early use of project, fast spread of disease among households which claims lives and poor
iii
health conditions. It was recommended that, since direct beneficiaries of projects will
continue to suffer the consequences of delayed payment in various ways and degrees,
clients’ financial capacity and credit rating be made transparent to facilitate contractors to
assess the employers' ability to pay for projects, projects should be well planned and must
not be politicized. Conditions of contracts must be modified and balanced. Risk should be
allocated evenly to all parties involved and be enforced.
KEYWORDS: Delayed Payment, Causes of Delayed Payment, Effects of Delayed
Payment

iv
TABLE OF CONTENTS
Declaration …………………………………………………..……………………...…… ii
Abstract …………………………………………………………………………...…….. iii
Table of Contents …..……………………………………………………………..……... v
List of Tables ………...………………………………………………………………...... x
Dedication …….……………………………………………………………………….... xi
Acknowledgement ………………………………………………………………..……. xii
CHAPTER ONE - INTRODUCTION
1.1 Background to the Study …………………………………………………………..… 1
1.2 Statement of the Problem ………………………………………………………….... 2
1.3 Research Questions …………………….…………………………………………..... 3
1.4 Aim and Objectives of the Study .………………………………………………...…. 3
1.5 Significance of the Study ..………………………...………………………………… 4
1.6 Scope of the Study ….. ……………………………………………………………… 4
1.7 Methodology ………………………………………………………………………… 5
1.7.1 Structured Interviews …………………………………………………………...…. 5
1.7.2 Internet Sources …………………………………………………………...………. 5
1.7.3 Library Search …………………………………………………………...………… 5
1.7.4 Questionnaires, Surveys and Checklist ……………………………………………. 6
1.7.5 Observations …………………………………………….………………………… 6
1.7.6 Sampling …………………………………………………………………...……… 6
1.8 Structure of Report ……………………………………………………………..……. 6

v
CHAPTER TWO – LITERATURE REVIEW
1.0 Literature Review …………….…...…………………………………………………. 7
2.1 Introduction .……………...….………………………………………………………. 7
2.2 The Construction Industry .……………….....………………………………………. 7
2.2 Major Distinction between the Construction Industry and other Industries ....…….... 8
2.2.1 Size …...…………...………………………………………………………….……. 8
2.2.2 Processes …...………..…………………………………………………………..… 8
2.2.3 Scope ……...……...………...……………………………………..………….….… 8
2.2.4 Limitations ………………………………………………………………………… 8
2.2.5 Product …………………………………………………………………….………. 8
2.3.1 What is Payment …………………………..…………..………..………..……...… 9
2.3.2 Types of Payment ………………………...……………………….....……………. 9
2.3.3 Periodic Schedule during Contract Period ……...………….……….…………..… 9
2.3.4 Phase Payment …………………………………………………………...………. 10
2.3.5 Advance Payment ………………………………………….………………….…. 11
2.4.1 Delayed Payment ………..……………………………………………………….. 11
2.5.1 Identifying Factors Causing Delayed Payment …...……………………………… 15
2.6.1 Effect of Delayed Payment in the Construction Industry ..……………..………... 18
2.6.2 Time Overrun …………………………………………………...………….…….. 20
2.6.3 Cost Overrun …………………………………………………….……………….. 21
2.6.4 Dispute ………………………………..………………………………….………. 21
2.6.5 Arbitration ……………….………………………………………………….……. 21
2.6.6 Litigation …………………………………………………………………………. 22
vi
2.6.7 Total Abandonment ……...……………………………………………….……… 22
2.7.1 Cash Flow in Construction Project ……………………………………………… 24
2.8.1 Potential Solution of Delayed Payment ……………………………………….… 25
CHAPTER THREE – RESEARCH METHODOLOGY
3.0 Research Methodology …………………………………………………………….. 29
3.1 Introduction ………………………………………………………………………… 29
3.2 Approach and Survey Description ………………………………………………..... 30
3.2.1 The research Process …………………………………………………..…………. 31
3.2.2 Research Design ………………………………………………………….………. 31
3.3.1 Determination of Sample Size …………….……………………………………... 33
3.3.2 Sample Size …………………………………………………………………......... 33
3.3.2 Questionnaires Distribution ………………………………………………...……. 34
3.3.3 Analysis of Result ……………………………………………………………...… 34
3.4 Data Processing, Analysis and Analytical Tools …………………………………... 35
3.4.1 Method of Data Analysis ………………………………………………………… 35
3.4.2 Relative Importance Index …………………………………………………...…... 35
3.4.3 Respondents Profile ……………………………………………………..……….. 36
CHAPTER FOUR – DATA ANALYSIS AND DISCUSSION
4.0 Data Presentation, Analysis and Discussion …………………………………..…… 37
4.1 Introduction ………………………………………………………………………… 37
4.2.1 Sources of Funding …...…………………...……………………………………... 37
4.2.2 Respondents’ Background and Experience with Delayed Payment .…………….. 37
4.3 Respondents Ranking of Causes of Delayed Payment ...……………………..……. 39
vii
4.4.1 Effects of Delayed Payment on Employer …………….…………………..……... 39
4.4.2 Delay in Contract Completion by Contractor .…………………………………… 40
4.4.3 Delay in having the expected benefit of property ……………………………..…. 40
4.5 Effects of delayed payment on Consultant ………………………………..…..…… 40
4.6.1 Effect s of delayed payment on Contractors .………………………...……..……. 41
4.6.2 Borrowing from Financial Institutions…………………………………………..... 42
4.6.3 Cash Flow Forecast Problems ………………………………………..…………... 42
4.6.4 Cost Overrun …………………………………………………………….….……. 42
4.6.5 Contractors’ Image Tarnished …………………………………….……………… 43
4.6.6 Temporal Suspension of Work …………………………………………..….…… 43
4.6.7 Bankruptcy or Liquidation …………………………………..…………………… 44
4.7.1 Various Effects of Delayed Payment on Projects .…………………...………..…. 44
4.8.1 Effects of Delayed Payment on Stakeholders (Beneficiaries) …………...…… 44
4.8.2. Decline in economic Activities …………………………………………….……. 45
4.8.3 Poor Living Conditions …………………...……………………………………… 45
4.8.4. Insufficient Accommodation Readily Available …...…………………………… 46
4.8.5 Denied of Early use of the Facility ……………………………………….……… 46
4.8.6 Reduction in Performance of Students ……………………………………..……. 47
4.8.7 Fast Spread of diseases among households .………………………………...…… 47
4.8.7 High Maintenance cost due to Poor Quality Work ………………………….…… 47
4.9 Effective Solutions to Mitigate the effects of Delayed Payment on Projects and
Stakeholders ………………………………………………………….………………… 48
4.9.1 Regular Periodic Payment ……………………………………………………...… 49
viii
4.9.2 Interest on Default Payment ……………………………………………………… 50
4.9.3 Time Frame for Payment ………………………………………………………… 50
4.9.4 Working within Stipulated budget …………………………………………..…… 51
CHAPTER FIVE – CONCLUSION AND RECOMMENDATION
5.0 Summary of Findings, Conclusion and Recommendations ………..………………. 52
5.1 Overview ……………………………………………………………………..…….. 52
5.2 Summary of Findings ………………………………………………………………. 52
5.3 Conclusion ……………………...………………………………………………….. 53
5.4 Recommendations ………………………………………………………….………. 55
5.5 Further Study ………………………………………………………………...…….. 55
REFERENCES ………………...………………………………………………………. 57
APPENDICES …………………………………………………………………….…… 60
APPENDIX A …………………………………………………………………….……. 60
Questionnaires ………………………………………………………………………….. 60

ix