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Topic: AN ASSESSMENT OF THE CAUSES AND EFFECTS OF DELAYED PAYMENT ON CONSTUCTION PROJECT PERFORMANCE IN OYO STATE.

Ref.Code: UPW-PT-10d47614d3Institution: FEDERAL POLYTECHNICS, EDE

Payment to the contractors is one of the most important factors necessary for success of any project, it is essential for project execution and completion. Therefore, this research study was carried in order to assess the causes and effects of delayed payment on construction project performance with the objectives of: identify and examine the causes of delay payment in the construction industry, access the effect of delayed payment on performance of construction project and investigate strategic actions to be taken to solve delayed payment. The scope of the study was limited to construction companies in Oyo State. The descriptive survey method was used involving qualitative data gathering through the personal distribution of questionnaire. 100 questionnaires were distributed to the respondents Seventy-Six (76) was returned and analyzed. Results from the survey indicated that client’s poor financial management, contractor’s failure to substantiate their claims; unfair contract terms are the major factors that causes delayed payment in construction project. Also the survey showed that disruption of work schedule is the major effect of delayed payment on construction projects. Lastly, the survey revealed that follow-up with clients using formal procedure and direct communications were the major ways to overcome delayed payment problems in the construction industries. It is now recommended that contractors should follow-up with the clients by formal procedure and by direct communication. Also, contractions should see to the enforcement of clauses of late payment in contracts.
TABLE OF CONTENTS
Cover Page i
Title Page ii
Abstract iii
Certification iv
Dedication v
Acknowledgement vi
Table of Content vii
List of Tables viii
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of Research Problem 3
1.3 Research Questions 4
1.4 Aim and Objectives of the study 4
1.5 Justification for the Study 4
1.6 Scope of the study 5
1.7 Definition of Key Terms 5
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction 7
2.2 Construction Industry 7
2.3 Resources in Construction 9
2.4 Cash Flow and Cash Flow Forecasting of Contractors 10
2.5 Factors Affecting Cash Flow Forecasting 13
2.6 Delayed Payment 15
2.7 Causes of Delayed Payment 18
2.7.1 Clients Poor Financial Management 19
2.7.2 Clients Withholding Payment 20
2.7.3 Disagreement on the Valuation of Work done 20
2.7.4 Delay in Certification 20
2.7.5 Conflict Among Parties Involved 21
2.7.6 Local Culture/Attitude 21
2.7.7 Short of Current Year Project Budget 21
2.8 Effect of Delayed Payment 22
2.8.1 Financial Hardship 22
2.8.2 Delay in Completion of Project 22
2.8.3 Bankruptcy or Liquidation 23
2.8.4 Negative Effect on other Parties 23
2.8.5 Results in Dispute 24
2.8.6 Abandonment of Project 24
2.9 Summary 24
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction 26
3.2 Research Design 26
3.3 Research Population 27
3.4 Sample Frame 27
3.5 Sample Size 28
3.6 Sample Techniques 29
3.7 Data Collection Instrument 30
3.8 Method of Data Analysis 30
CHAPTER FOUR: DATA ANALYSIS AND RESULTS
4.1 Introduction 32
4.2 Data Presentation 32
4.3 Data analysis 34
4.3.1 Technical Information of Respondents 35
4.4 Summary of Findings 44
CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction 45
5.2 Conclusions 45
5.3 Recommendations 46
5.4 Areas of Further Study 47
References
Appendices
INTRODUCTION
1.1 Background to the Study
The problem of delays in the construction industry is a global phenomenon and the construction industry in Nigeria is no exception. Projects success is basically to gain the project objectives that are classically defined by the need to complete a project on time, within the budget, and with appropriate quality. The Nigerian construction industry continues to occupy an important position in the nation’s economy even though it contributes less than the manufacturing or other service industries. The contribution of the construction industry to national economic growth necessitates improved efficiency in the industry by means of cost-effectiveness and timelines and would certainly contribute to cost savings for the country as a whole. Aibinu and Jagboro (2002).
A construction project is commonly acknowledged as successful when the aim of the project is achieved in terms of predetermined objectives that are mainly completed the project on time, within budget and specified quality in accordance with the specifications and to stakeholders’ satisfaction. One of the most important problems that may arise in the construction project is delays and the magnitude of these delays varies considerably from project to project (Abedi, Fathi & Mohammad (2011).
According to Construction Industry Payment and Adjudication Act 2012 “Payment” means a payment for work done or services rendered under the express terms of a construction contract; 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 this backdrop, payments to the contractor are one of the most important factors necessary for success of any project. It is essential for project execution and completion.
Delay payments are often associated with other issues such as productivity, non conformance, safety, time, cost overrun and abandonment. In most cases, contractors would blame the clients when there is a delay in their payment.
Moreover, contractors also contribute to these matters. In construction industry, the common procedure for a contractor to receive payment is by making claims after the completion of their work in stage payment or monthly basis. According to JCT (1980), clause 30.1.1 stated that “The Architect shall from time to time as provided in clause 30 issue interim certificates stating the amount due to the contractor from the Employer and the Contractor shall be entitled to payment therefore within 14 days from the date of issue of each interim Certificate”. If the Contractor submits such an application the Quantity Surveyor shall make an interim valuation. If the Quantity Surveyor disagrees with the amount shown in the Contractor’s application, he at the time of making the valuation shall submit to the Contractor a statement, which shall be in similar detail to that given in the application and shall identify the disagreement. Where by these processes are not followed duly, delay payment is bound to happen. The practice of efficient and timely payment in construction projects is a major factor that can contribute to a project’s success. A smooth cash flow brings an effective delivery, on time and within budget so that projects can be completed within the planned time and with acceptance of quality (Danuri & Hanid, 2007).
Furthermore, traditional construction contract has also play a momentum impact on delaying disbursement process as it governs both procedure and duration of each activity is needed in order to assessing the structures or making payment after quantity surveyor has verified the work (Judi & Rashid, 2010). If the owner and the contractor come to an agreement, the owner shall pay interest on overdue accounts. However, if both parties fail to come to an agreement and the contractor is unable to continue his work, the contractor may suspend work and the owner shall bear the liability for breach of contract (Samuel 2011). Contractor wants to be paid regularly and on time. The regularity and timeliness of contractor payments will depend on the system and controls adopted by the project.

1.2 Statement of Research Problem
Construction industry is been faced with a lot of obstacles and problems. Delays, abandonment, payments, health and safety issues are among the list of problems constantly faced. 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 (Judi & Rashid, 2010). Although there are adequate mechanisms provided in many standard forms of construction contracts, yet there remains a chronic problem of late and non-payment issues in the construction industry.
It is anticipated that the protections against the employer’s failure to pay, suspension of works, determination and claim on interest are considered as the major problems associated with late and nonpayment issues. Nonetheless, there are still cases of delayed payment and non-payment 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. Late payment gives bad impacts to contractors, especially contractors with small capital. Not only that, it also creates a negative chain effect within the players in the construction industries such as to suppliers, sub-contractors and end users as well. This study is important in determining the steps contractors could take in ensuring their payment is received on time, without compromising their business.
1.3 Research Questions
What are the causes delayed payment in a construction project?
What effect does delayed payment have on project performance?
What are the strategic actions to be taken to solve delayed payment?

1.4 Aim and Objectives of the Study
The aim of this study is to assess the causes and effect of delayed payment in construction project with the view of minimizing the problems of delayed payment. The specific objectives of the study are to:
Identify the causes of delayed payment in the construction industry
Assess the effect of delayed payment on performance of construction project.
Investigate strategic actions to be taken to solve delayed payment.

1.5 Justification of the Study
There has been a considerable amount of research work to explore the causes and effect of delay payment in construction industry. Samuel (2011) worked on “Causes and Effects of Delayed Payments by Clients on Construction Projects in Ghana”. Siti and Rosli (2010) wrote on “Contractor’s Right Of Action For Late or Non-Payment By The Employer”. “Is Late or Non-Payment A Significant Problem to Malaysian Contractors?” was Munaaim, Dauurl and Abdul-Rahman (2012), Debbie Abrahams (2013) wrote on the effect and prevention on late payment in small and medium enterprise.
From the above, it could be seen that none of these researchers worked in Oyo State.
And also, findings of this study may also assist the government and relevant parties in addressing problems associated to late and non-payment in an effective and timely manner to create a win-win situation for all parties in the construction industry.
The result of this research may be of significance to the introduction of a legislation known as the Construction Payments or Security of Building Payment Act, which are in use in many advanced countries. The outline to this study intends to convey a better perspective on the issue of delay payment.

1.6 Scope of the Study
The proposed study will be conducted in Oyo State, Nigeria. It will focus on construction participants such as construction organizations, consultants and client organisations. Due to time constraint, the methods like case study, pilot study, structure interview and unstructured interview would not be adopted; Questionnaire would be adopted in collecting data for the study.

1.7 Definition of Key Terms
Delay: This is late or non completion of an event at particular set time.
Payment: This is an act of monetary reward made in return for a completed service rendered. Payment is the sum of money paid to contractors, consultants and suppliers after their works, service or materials has been successfully realized or accepted
Delay Payment: This is late or non disbursement of amount due to a particular entity or individual for a service rendered.
Project: This is an endeavor that has a definite start and a completion date.
Construction Project: This is an endeavor that is been undertaking by the construction practitioners in the construction industry in order to produce a unique product.
Construction Industry: This is a sector where all kind of construction works ranging from heavy engineering works, building work, etc. are been carried out by the practitioners or those who gone through the training of doing such works.

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