A Study on the Difficulties Faced by the Contractors due to the Payment Related Issues in Sri Lankan Construction Industry

Delay of due payments from the client to the main contractor and the subcontractors have been a significant concern in the building and other construction industry. Main contractor’s payment is always set out from the client’s account, whereas subcontractors’ payment goes through the main contractors. In any evet the time taken to make the payment and the amount of the payment can be affected by the up-stream payment practices by all the related parties in a contract. This research aims to study, investigate, the issues related to payments with the main focus of identifying the avenues to minimize the consequences faced by the contractors and others on the downstream in Sri Lankan construction Industry. The data collection to the report was done by a survey approach using a semi structured interviews with the industry related personal. 30 Number of people were interviewed and sought their views on nature, effects, problems faces by the related people due to the delay and non-payment to the contractors. The research findings exhibit that government funded projects are highly exposed to delay in payments when comparing to foreign funded or privately funded projects. At the time of the final payment to the main contractor the payment is always delayed more than obtaining the retention and the interim payments. While there were less issues when obtaining the advance payments. It is also noticed that the main factor to delay the final payment is the problems and disputes arising due to the variations and extra work not being evaluated properly during the interim payment application. The research also revealed the three main reasons for the payment delays are the paymaster’s poor financial management, delays of certification of the bills by the consultants, and the improper bills and documents from the contractors. Due to these delays contractors and sub-contractors face difficulties in managing their cash flows which has a significant impact to the payment chain. Eventually ending with poor quality construction and delay in the completion of the project. Research further evaluate and investigate the strategies adopted by the contractors to mitigate the problems stated above by way of adopting contractual bindings and provisions such as claiming interests to the delayed payments and reducing the speed of the construction to reduce the cash outflows during the delay payment periods. It was also revealed that other than the contractual bindings, contractors use their own strategies such as obtaining bank loans, infuse more equity funding and requesting on account payments from the clients in order to minimize the problems. The research there for recommend that each party in the chain of construction need to procure necessary security for the payments from each higher tier, and a separate form of a binging contract to all subcontractors and construction contracts law. This will ensure the contractors will get paid on time