Model of proactive preventive solutions for improving late payment and under-payment issues in the Malaysian construction industry

Abstract

Payment delays and financial difficulties are major factors that indirectly jeopardise construction projects in Malaysia and therefore their overall success. Payment problems are a sensitive issue that must be addressed from their root causes to ascertain completion of projects within stipulated times, cost, and quality. Issues related to payment occur not only in the construction industry, but in other industries too. This study seeks to identify the major factors/dire determinants and causal components that contribute to payment problems, by devising viable preventive solutions for each major factor/determinant for late payment and under-payment issue from further potential disputes. The research questions were addressed by adopting a mixed-method approach, through survey and interview sessions, conducted with the Private Client and G7 Contractor representatives involved in payment claim settlements. Descriptive statistical outcomes formed a basis for the selection of interviewees. Interview sessions were carried out with four clients and four G7 contractor representatives, that were experienced in handling and resolving payments, for the development of a Proactive Preventive Late payment and Under-payment Issues Solutions Model for Payment Settlement in the Malaysian Construction Industry. Seven major factors/dire determinants were identified as main components of the model, which included slow processing and delay in finalizing variation orders, shortage of funds, disagreement of the valuation of work done, delays in valuation and certification, bureaucratic procedures of payment processes, deficiencies in client management capacity and involvement of too many parties in the process of honouring the interim certificate. These major factors/dire determinants were derived from quantitative analysis. Eight causal components were identified from the qualitative analysis of the semi-structured interviews, consisting of lack of trust, contractor’s lack of knowledge in VO's document submission, problems in the provision of claim documents, lack of competent staff, insufficient financial resources, no participation in payment join valuation, problems in selecting the type of contract and hierarchy problems, and were chosen as the main components of the developed model. Next, six proactive preventive solution components i.e., provide quality staff, develop trust between parties, use appropriate contracts, enhance financial management, benchmark from the outside, and improve payment procedures, were derived from the qualitative analysis and were adopted as main components of this research model. The outcomes of this research serve as a basis to develop a Proactive Preventive Late Payment and Under-payment Issues Solutions Model for payment settlement across the Malaysian construction industry. The formulated model was validated by an experienced panel through an online questionnaire survey. The survey attracted positive feedback from most of the experts, who agreed with the practicality offered by the conceptual model initiated in this research. The contribution of this research can be seen in terms of early understanding of the risk of delay in making payments and prevent issues of potential related disputes. This research provides a model for identifying causal components and appropriate proactive preventive solutions for each major factor/dire determinant, which can be incorporated into Client and Contractor standard operational procedures (SOPs).