Payment And Delay Issues Construction Industry

Payment And Delay Issues Construction Industry

The construction industry plays an important role in any countrys development process The industry establishes buildings and infrastructure works required for social economic development which contribute to the overall economic growth The success of economic development will further lead to an increase in disposal incomes generating demand for additional construction activities Therefore it is important to make sure the economy growth of construction industry is moving smoothly

Payment is considered as the lifeblood of the construction industry because constructions often involve very large capital outlay and take a considerable time to complete Naseem 2005 In the construction industry payment is the sum of money paid to contractors consultants and suppliers after their works service or materials has been successfully realized or accepted Payments are so important to these parties that it is a constant headache for them as problems in construction would always be revolving around the poor payment practices In cases like this contractors would be directly affected as they are the one who receive and spend the most amounts of monetary sources in a project done A regular disbursement of interim payment is a critical point for a contractor to help them survive in the construction field

Whether it is late payment or not being paid in the amounts certified it all literally means big problems to the contractors as cash flow will be effected Some small construction companies such as Class F contractors would even close business due to late payments Cash flow is critical to the construction industry Even Lord Denning famously said that cash flow is the lifeblood of the construction industry The ease of cash flow is an essential element in delivering a successful project

Many actions have been taken by government to curb the payment problems among contractors Datuk Seri S Samy Vellu in 2008 for instance has proposed to make direct payments to subcontractors handling government projects with immediate effect to ensure that they receive the money on time Government officers that delayed the distribution of payments to contractors will be given surcharge But that does not stop there Recently Datuk Seri Abdullah Ahmad Badawi shows his concerns over complaints from contractors and suppliers about late payments He had instructed that all payments must be made within three weeks of the date of receipts of the bills

Government is very particular about this matter because it was giving a negative perception of the current implementation of the 10th Malaysia Plan that is moving at a slow pace The 10th Malaysia Plan 10MP that runs from 20112015 besides reinforcing the New Economic Model NEM also reinforced the theme of Towards Higher Income with more measures to transform the nation into a highincome economy

Nonetheless there are still cases of delayed payment and nonpayment in arbitration if not in the court Contractors are still facing problems in receiving their payments Arbitration and judicature process not only consumed much time and money but could kill the business as well As a contractor what is the most appropriate action should be taken in securing their payments without effecting their business and cash flow

12 Statement of Problem

The construction industry plays a very important role in generating wealth and improving the quality of life of the people through the provision of social and economic infrastructure like infrastructure like schools hospital houses roads airports ports etc It is linked to the whole spectrum of the economy and has a multiplier effect that enables other industries to prosper alongside Hence it is vital to ensure that construction projects are effectively and efficiently implemented Problems of cash flow due to issues on late under and nonpayment can severely affect the implementation of construction projects and thus the provision of the nations infrastructure and built environment

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