Sources of contractor’s payment risks and cash flow problems in the New Zealand construction industry: project team’s perceptions of the risks and mitigation measures

Abstract

Little research is focused on payment risks which constitute the biggest obstacle to adequate cash flow and the contractor’s ability to successfully complete a project and maintain a viable business. To minimize risks and improve net cash flow in a project, the various ways in which the key stakeholders could contribute to the contractor’s payment risks and cash flow problems (the ‘problems’) were investigated along with the mitigation measures. Using a two-stage descriptive survey method, pilot interviews were conducted with contractors, subcontractors, project managers, designers and quantity surveyors (the ‘group’). A questionnaire was designed based on the constructs generated during unstructured pilot interviews and used to obtain feedback from 120 members of the ‘group’ through structured interviews. The feedback was analysed for risks using the multi-factor analytical technique. Results showed that employers were the most risky sources contributing 24% of the contractor’s ‘problems’ in a project. The contractors and subcontractors were evaluated as being ‘high’ risk sources contributing 19% and 17%, respectively. The consultants and suppliers were evaluated as ‘moderate’ and ‘very low’ risk sources, respectively, with overall 37% contribution. Ensuring valid payment and variation claims that are supported with well-documented evidence was a key mitigation measure suggested for addressing the critical risk factors attributed to the ‘group’. The findings could guide the project team’s risk management efforts, especially on how to efficiently allocate the available resources to address the risk factors with a view to achieving more satisfactory outcomes and profitability in a project.

Keywords:

• Cash flow
• mitigation measures
• payment risks
• project management
• risk management