AN INVESTIGATION INTO THE EFFECTS OF DELAYED PAYMENTS TO CONTRACTORS IN THE KENYAN CONSTRUCTION INDUSTRY

ABSTRACT
As in any business, cash flow is important for a construction firm to survive. Contractors hugely rely on regular and timely payment for their survival; payment is their lifeblood. The importance of proper payment practices are heightened by the nature of the construction industry- payments are made for work done, the activities take a long time and it is expensive. Contractors are therefore prone to high business risk due to payment. In view of this therefore, this study sought to find the effects of delayed payment to contractors in the Kenyan construction industry.
The objectives were to identify and rank the causes of delayed payment, to determine the extent of delayed payment in the Kenyan construction industry, to identify the consequences of delayed payment and to find out how contractors enforce payment provisions.
In order to acquire primary data which would supplement the secondary data obtained and stated in the literature review, survey research design was adopted. Questionnaires were administered to contractors so as to obtain the data. In order to get a proper ratio of contractors in each NCA category, as per the population of each NCA category, stratified random sampling technique was used. The data was analysed using SPSS.
The research study found that the problem of delayed payment was mainly employer-based. The leading cause was found to be client’s lack of funding during the course of the project, followed by client’s poor financial planning. The third cause was poor payment culture in the construction industry. The factor which contributed least to payment delay was found to be the Standard Form of Contract in use.
The study also established that more than 90% of contractors had experienced delayed payment in their projects. The delay was mostly experienced in release of retention and final payments. The study also established that the client-type projects which experienced delayed payments the most were those owned by the government.
Delay in project completion, cash flow hardships, cost overruns, reduced on-site productivity, disputes, delays in paying suppliers and subcontractors were found to be the highest rated effects of delayed payment. The study found that project suspension, abandonment or contract termination were rare as a result of delayed payment.
The study established that the payment provisions available were limited in reducing the risk of non-payment. The provisions for the employer to take a payment bond was found to be
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least helpful due to its cancellation by the employer. The provision to open a joint trust account for retention money was also unhelpful due to failure by the parties to adhere to it. The provisions for earning interest on the delayed amount, provision to suspend and to terminate the contract were found to be most helpful and the contractors’ only security of payment.
The study established the dire consequences of delayed payment. There is need therefore to come up with more stringent provisions which will ensure that contractors are paid promptly. One such option is the enactment of prompt payment legislation so as to supplement the SFCs and ensure that payment problems in the Kenyan construction industry are reduced.

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