Causes and Effects of Late Payments on Company’s

Projects: A Case on Engineering Services, Pakistan

Hassan Mahmood
Research Scholar
Karachi University Business School, University of Karachi, Pakistan

Naveera Khalid
Research Scholar
Karachi University Business School, University of Karachi, Pakistan

Dr. Danish Ahmed Siddiqui

Associate Professor
Karachi University Business School, University of Karachi, Pakistan
daanish79@hotmail.com

ABSTRACT
The study found that causes of payment problems in the engineering services; cash flow
problems due to delays and non-payments experienced on other projects, disputes over payment
claims and responses, cash flow difficulties due to lack of initial capital, attitude of payers, easy
exit of players, and the general payment culture of the industry. Subsequent clustering of the
identified factors using a factor analysis provided knowledge on key areas which industry
practitioners need to focus on in mitigating payment problems within the industry. From the
factor analysis, the underlying factors for payment problems are six-fold: contractual issues,
financial strength of industry players, disputes between players, project characteristics, the
‘domino effect’ and others. Most of the causes of payment problems fall under the clusters:
financial strengths of industry players, project characteristics, and the ‘domino effect’. It is safe
to conclude that the domino effect is partly due to financial weaknesses of key construction
industry players.

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1. INTRODUCTION

Incorporated in 1984, engineering services was established to satisfy industry demands in facility
development, process and code compliance. Since our inception, the ES team of specialists has
been delivering the knowledge and expertise for successful project completion while ensuring
compliance with the various specifications and regulatory requirements, significantly reducing
the plan review and approval cycle. Ultimately, it is our customers who benefit from cost-
effective and timely high quality projects and solutions. It is a full service, multi-disciplinary
engineering firm with offices in Karachi, Lahore and Islamabad. Since our founding, we have
strived to establish ourselves as an ethical and respected engineering firm specializing in
different fields of mechanical engineering on projects spread throughout the country. We firmly
believe that our ongoing success is a reflection of our dynamic project team. As a team, we
continue to learn and grow, always eager to meet a fresh challenge that will take us to a new
level as a leader in our industry. Our team works very hard to ensure on time delivery of projects
with top quality and complete satisfaction of the clients thereby resulting in long associations and
repeat orders from the majority of our clients. We have completed a number of prestigious
projects in these fields over the years and are committed to providing quality services and
optimum solutions, “on time and within budget” to our customers. Today, ES employs in excess
of 100 engineers and workers. At engineering services our core principle is “We make a living
by what we get; we make a society by what we give”, is supported by the corporate philosophy
that we have adopted in our work. Whether you have a specialty project or require a turnkey
solution, ES delivers a versatile range of services to address each step of the process. From initial
planning through construction and installation- ES provides the confidence and assurance to
exceed customer expectations.
Late payment problem and non-payment is common in engineering services and needs to be
explicitly recognized as this problem recurs from project after project. Payments, which implies
a major problem as monies, is needed to pay for materials, labor, plant, subcontractors’ account
rendered, preliminaries and general overheads expended during the progress of the work. When
the flow of money into a business is delayed, the net cash flow will become negative. When this
happens, the contractor would require immediate funding to overcome the cash deficit.

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Payment problems in the company are not a new phenomenon. Such problems have been widely
acknowledged for more than four decades by previous research (Banwell, 1964; Latham, 1994;
Wu, 2010; Ye and Rahman, 2010; Wu, Kumaraswamy and Soo, 2011). The problem seems
generalized, with contractors and subcontractors not getting paid their due amounts on time. This
may take the form of under-payment, late or delayed payment and non-payment all together.
Non-payment or under-payment refers to situations where an expected payment was never
received, and/or would be considered bad debt, written off, or lost partially/fully. Late or delayed
payment on the other hand, is a situation where payment is not made to head contractors or
subcontractors on time, in accordance with the timelines agreed between the parties to the
contract. Therefore, late payment affects time, cost and quality as good quality construction
requires prompt payment, so that progress would not be affected. Therefore, the risk of late
payment in the company can be adversarial and disastrous. Payment issues in the company are
considered a factor of significant concern to all the players in the industry.
As noted by Alaghbari, Kadir, Salim, and Ernawati (2007), late and inconsistent payment of
contractors for completed works is one of the critical factors, causing delays in the completion of
infrastructural projects in developing countries. Delay in payment at the higher end of hierarchy
is likely to trickle down the chain of contracts (Construction Industry Working Group on
Payment, 2007).Memon, Rahman, Aziz, Ravish, and Hanas (2011) have associated prolonged
delays in payment with consequences, such as high risk of industrial disputes, wanton
destruction of property, and a high turn-over of workers; while Raj and Kothai (2014) pointed
out that timely payment of workers is necessary for maintaining motivation, willingness,
confidence, discipline, and cheerfulness to perform work.
According to Kennedy (2005) ‘payment, not unexpectedly, has always been the main subject of
disputes. Takim, and Min (2009) linked delayed payment to causal factors, such as clients’ poor
financial and business management; financial impropriety and political interference; inaccurate
valuation for completed works; as well as insufficient documentation and information for
valuation, among other factors. More specifically, few studies, such as Sambasivan and Soon
(2007), Abdul-Rahman et al. (2009), and Memon et al. (2011), have focused on the effects of
delayed payment of contractors on the completion of infrastructural projects.
So the problem of major concern is delayed payment and non-payment. Due to late and non-
payment problems, some countries like United Kingdom, Singapore, New Zealand and some

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states in Australia, e.g. New South Wales, have already legislated their construction specific
statutory payment security regime. The purpose of this case is to inform other companies that
what are the causes that leads to delay in payment and effects of delayed payment on contractors
on the completion of large infrastructural projects and what are the possible solutions for late
payment or non-payment issues.

2. STATEMENT OF THE PROBLEM

Engineering services is facing this problem from the start of their first project as each and every
project faces delay due to delayed payments and non-payment. Many projects are still in pending
because of this issue. There are nine factors due to which engineering services faces the delay in
payment and non-payment which are (1) Client’s Poor Financial Management ,(2) Client’s
Withholding of Payment , (3) Conflict among the parties involve , (4) Local culture/attitude , (5)
Contractual provisions , (6) Delay in certification , (7) Disagree on the valuation of work done ,
(8) Technical problems , (9) Short of current years project .
To overcome this issue company is trying their level best to maintain friendly relationships with
all their clients, to avoid any dispute. As effects of this issue are long term and can even result in
the incompletion of the project and would be too costly for the company. It will also affect the
cash flow of the company as late payment problem is interrelated with the cash flow problem.
Engineering services have negative net cash flows until the very end of construction when the
final payment is received or advanced payment is received before starting the project. The delay
of payment from owners will affect the cash flow of the contractor and retainage withheld by the
owner will also create cash flow problem to the
After many meetings of CEO and the managing partner to discuss this issue engineering services
identifies three most possible solutions to counteract the payment problems “A right to regular
periodic payment, “A right to a defined time frame for payment and “A right to a speedy dispute
resolution mechanism.

3. LITERATURE REVIEW

Payment is a sum of money paid to someone in return for goods, work done or services rendered.
In the construction companies, payment is the sum of money paid to contractors after their work

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for certain projects has been successfully completed. In a typical engineering and construction
contract, it is apparent that the contractor has promised to carry out all the works under the
contracts. On the other hand, the employer must keep his side of the promise by giving necessary
consideration to payment when due which in most cases comes in monetary form.
Payment is considered as the life blood of the construction industry because construction projects
often involve very large capital outlay (Ameer-Ali, 2005). It is very obvious that a healthy and
consistent disbursement of money is a critical point in determining contractor performance. In
order to ensure the flow of the work activities under the contract and its eventual successful
realization, construction contracts have to be drafted. Most of these standard forms of contracts
contain specially drafted clauses which govern all aspects of the subject of payment under the
contract; these clauses have been reduced to the following principal categories.

Construction projects are considered successful when delivered within scheduled duration,
allocated budget, and specified quality (Majid, 2006; Owolabi et al., 2014).

In Malaysia, Sambasivan and Soon (2007) identified causes of delays in the completion of
infrastructural projects, including contractor’s improper planning, poor site management,
inadequate experience, inconsistent flow of payments for completed work, poor management of
sub-contractors, inconsistent communication between parties, as well as shortage of materials,
equipment, and labor.

In Ghana, delay in payments, poor contractor management, delays in material procurement, poor
technical performances, and escalation of material prices were identified as key factors
accounting for about 80% of delays in the completion of infrastructural projects (Frimpong,
Olowoye, & Crawford, 2003).

In Qatar, a Public Works Report of 2009 linked delays in the completion of about one-third of
infrastructural projects to contractor’s lack of capacity, escalation of construction material prices,
deferral of payments due to design issues, delay in payments of the contractor (Government of
Qatar, 2009).

According to Yee and Abdul Rahman [7], identified clients deliberate delay for their own
financial advantages, delay in releasing of the retention monies to contractor and willful

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withholding of the payment for personal reasons are the cause of the paymaster’s withholding of
payment.

Abeiro (2010) study cited cases of delayed construction projects in the lake region of Kenya,
including the Kisii-Chemosite Road, which delayed for more than 15 years due to delay in
payment. The study noted that delayed completion of the projects has led to loss of both time and
possession utility of the projects.

Among the developed countries, delay in the completion of infrastructural projects has been
reported in Canada, the United States, Australia, and Britain, among others. De Souza (2009)
attributed delays in the completion of construction projects due to delay in payments.

In developing countries, delays in the completion of construction projects have been reported in
India, Malaysia, Indonesia, Qatar, Jordan, Egypt, Ghana, South Africa, and Kenya due to late
payments and non-payment.

The literature review highlights most studies focusing on causes of delays in the completion of
construction projects in developed and developing countries, and most of them are linked to
delayed payment of contractors. Study examined the effects of delayed payment of contractors
on the completion of construction projects.

4. ANALYSIS
The issue has been prevailing in the company for quite a few time now and couldn’t been catered
in so many construction companies. Although research had been made in the past so many times
in other countries (Banwell, 1964; Latham, 1994; Wu, 2010; Ye and Rahman, 2010; Wu,
Kumaraswamy and Soo, 2011). Regardless of whether it is late payment or not being paid in the
sums guaranteed, everything actually implies enormous issues to the contractual workers as
income will be affected. Some little development organizations, for example, Class F temporary
workers would even close business because generally payments. Income is basic to the
development business. Indeed, even Lord Denning broadly said that income is the life-blood of
the development business. The simplicity of income is a fundamental component in conveying
an effective venture.

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Numerous moves have been made by government to check the payment issues among
contractual workers. Datuk Seri S. Samy Vellu in 2008 has proposed to make direct payments to
sub-temporary workers taking care of government ventures with quick impact to guarantee that
they get the cash on time Government officials that deferred the conveyance of payments to
contractual workers will be given extra charge. However, that doesn't stop there. As of late,
Datuk Seri Abdullah Ahmad Badawi shows his interests over grievances from temporary
workers and providers about late payments. He had trained that all payments must be made
inside three weeks of the date of receipts of the bills.

In any case, there are still instances of deferred payment and non-payment in mediation if not in
the court. Contractual workers are as yet confronting issues in getting their payments. Assertion
and judicature process expended a lot of time and cash as well as could kill the business too. As a
temporary worker, what is the most fitting move ought to be made in verifying their payments
without affecting their business and income?

Engineering services has come up with the solutions which could create a positive the impact on
the company’s finances.

4.1 SIGNIFICANCE OF RESEARCH:

Delay in payment is a big issue that brings up more issue to the company. Engineering Services
has been facing this problem for a very long time and it’s important to cater this problem to make
a company run its operations smoothly.

The development business assumes a significant job in any nation's improvement procedure. The
business sets up structures and foundation works required for social monetary improvement
which add to the general financial development. The achievement of monetary improvement will
additionally prompt an expansion in transfer livelihoods, producing interest for extra
development exercises. Accordingly, it is imperative to ensure the economy development of
development industry is moving easily.

Payment is considered as the backbone of the development business since developments

frequently include extremely huge capital expense and set aside a significant effort to finish
(Naseem, 2005). In the development business, payment is the total of cash paid to contractual

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workers, experts and providers after their works, administration or materials has been effectively
acknowledged or acknowledged. Payments are so imperative to these gatherings that it is a
steady cerebral pain for them as issues in development would consistently be rotating around the
poor payment rehearses. In cases this way, temporary workers would be straightforwardly
influenced as they are the person who get and spend the most measures of fiscal sources in a
venture done. An ordinary dispensing of interval payment is a basic point for a contractual
worker to assist them with getting by in the development field.

This examination should build the familiarity with the two temporary workers and managers in
connection to the payment issues. The temporary workers should take consideration with late
payment issue, since it will carry a major effect to their money related capacity. The engineers or
government ought to likewise take consideration with this issue so as to limit the effect to the
work in site. By that, making improvement either all alone gathering or managers is imperative
to take care of the issues. Other than that, the examination is additionally expected to catch the
eye of the businesses or engineers in making their payments immediately and practicality.

This exploration help to discover the most widely recognized reasons cause the postponement in
progress payment for development venture in private and open part. Think about the explanation
which most much of the time happens to see whether these two unique fields face similar issues
in getting payment. Open tasks for the most part include more gatherings in setting up the
payment testament, while private activities which are ordinarily included powerless budgetary
foundation's bosses. After recognize the variables causes delay in these two fields, the
subsequent stage is to discover the answer for take care of the issues.

Through the exploration, the discoveries may help the pertinent gatherings, for example,
engineers or government and the temporary workers in tending to issues related to late payment
in a viable and auspicious way to make a success win circumstance for all gatherings in the
Malaysian development industry. It is trusted that the significant gatherings will embrace and
actualize the essential game plan so as to limit questions on payment in any development
venture, in order to make an amicable and agreeable workplace for all gatherings and to improve
the payment streams in the Malaysia.

4.2 RESEARCH QUESTIONS

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For the problem existing in Engineering Services we have interviewed employees and other
people related to the company. Postponement in development between time payments thusly
influences the advancement of the development venture. Either in private or open development
venture, payment is the existence blood for an undertaking so as to finish in the specific time
frame. Consequently, it is essential to take care of this issue. To discover the arrangement, we
should realize the causes impact the late payment. In this manner, this exploration will empower
us to give the responses to the accompanying inquiries:

• What are the variables that add to postpone in progress payments for development
ventures?
• Can you think of any solutions to counter this problem?
• How much the factors contributes to delay in payments?

4.3 RESEARCH METHODOLOGY:

The research for this study was conducted using the following approaches:

a) Literature Review

This incorporates the optional information and data gathered from various sources which can be
utilized to direct the exploration. The sources incorporate books, diaries, magazines, paper,
papers, meeting papers, periodicals, data from the web, and so forth. These materials were
utilized as foundation data so as to completely comprehend the data required for discourse and
investigation in the exploration. The data can be any issues identified with the postponement in
payment in worldwide development enterprises.

b) Interview

Besides observations and literature review, interview sessions was conducted to collect the
primary data. In order to get more accurate and evaluated data, experienced contractors and
employees had been the targeted respondents for the interview.

4.4 NUMBER OF RESPONDENTS:

Employer 5

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Contractor 2

Engineers 5

Financer 4

4.5 FACTORS CAUSING LATE PAYMENT:

(1) Client’s Poor Financial Management

For the company it is necessary to keep their employees motivated with the incentives and

salaries employees get.Poor money related administration frequently includes utilization of credit

to pay for extravagances or credit could be utilized by low budget clients to pay for their

essential typical cost for basic items. It is foreseen that Engineering Services poor money related

administration could make them have lacking working finances when they are obliged to pay the

payees. Payment is considered as the existence blood of the development business since

development extends frequently include enormous capital cost (Ameer-Ali, 2005).

(2) Client’s Withholding of Payment

As gave in numerous standard types of agreement, the business may retain payments to the

fundamental contractual worker or subcontractor for an assortment of reasons. Such reasons are

major damaged development work, contested work, inability to agree to any material

arrangement of the agreement, outsider cases recorded or sensible proof that a case will be

documented, and inability to make convenient payments for venture assets (Reeves, 2003).

These reasons may make the business won't make payments which will bring about deferred

payments.

(3) Conflict among the parties involve:

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In the development business, since contrasts in discernments among the members of the

undertakings, clashes are inescapable. On the off chance that contentions are not all around

oversaw, they are rapidly transform into debates. Questions are one of the fundamental elements

which forestall the effectively consummation of the development venture. Along these lines, it is

imperative to know about the reasons for debates so as to finish the development venture in the

ideal time, spending plan and quality. Susila (2012) found in a development venture, from one

viewpoint the contractual worker's consideration is in the finishing of the undertaking as per

indicated timetable and endeavor to make monetary profit, while then again the proprietor needs

brilliant facilities at prudent costs. The reason for each gathering appears to be opposing in

accomplishing their objectives, such conditions could prompt clash. The reasons for the

contention can be brought about by proprietor, experts, contractual workers, agreements and

particulars, HR, and undertaking conditions.

'Payment, not suddenly, has consistently been the primary subject of questions' (Adballa and

Hussein, 2002). It is foreseen that contention whenever disrupted will grow into debates which

can likewise cause postponed payment. The complexity of the work, limited time, the amount of

resources used, and many things that affect the process of the construction (Susila 2012).

(4) Local culture/attitude

Engineers from engineering company in an interview said

“People usually want more for less and work done before they pay. But it is important for labor

to get paid by the time they start working on the projects.”

Clients usually pay late or tries to delay the payments and this has become a culture of locals to

delay payments until the completion of the projects. Before the presentation of the Housing

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Grants, Construction and Regeneration Act 1996 (HGCRA) the development business in the UK

was inclined to a culture recently payment where a postponement of 53 days in making payment

after the receipt of receipt was normal (Johnston, 1999).

(5) Contractual provisions

There are situations where contract understandings don't carry any equity to both primary

contractual workers and subcontractors (Artidi and Chotibongs, 2005). One genuine model is

when for example, the 'pay when-paid' condition is regularly utilized in contract understandings

between principle temporary workers and subcontractors or between lodging engineers and

primary contractual workers (Adballa and Hussein, 2002).

'Pay-when-paid' or otherwise called 'consecutive' technique for payment never carries equity to

the subsequent gatherings (Artidi and Chotibongs, 2005). Frequently second gatherings would

get deferred payment or far more atrocious, no payment by any means. In any case, the genuine

circumstance is, despite everything it exist in the business, regularly in the nonstandard

development contracts. It might be beneficial to take note of that in England, this kind of

arrangement in development contracts has been rendered unenforceable (Housing Grants,

development and Regeneration Act 1996). The approach of 'pay-when-paid' was additionally

dismissed during the drafting of Construction Industry Development Board in 2002 in Malaysia.

The general temporary worker utilizes these systems to protect himself/herself from any

obligation in case of being sued by subcontractors whenever or in case of non-payment by the

proprietor.

(6) Delay in certification:

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During contract periods, the most widely recognized technique utilized is break payments or the

purported progress payments. In Standard Forms, the interval or progress payment are affected

by the issuance of 'between time authentications'. A between times testament is really the

intermittent accreditation for the payment because of contractual worker. The disappointment of

the certifier to issue the applicable 'between time' authentications in accordance with the

stipulation of the agreement can open his boss to a potential case of rupture of agreement by the

temporary worker (Singh, 2003). The recurrence of intermittent payment could be changed from

a fortnight to a month. The genuine length is regularly the period as consented to in the

agreement conditions marked.

(7) Disagree on the valuation of work done:

Another main cause is that the clients does not agree to the worth of the work done by our

engineers. They want to pay less for their projects which makes it more difficult to keep labor

working on the projects. The valuation of work is an estimation of cost that is incurred during the

project and can be estimated easily. The contractors may disagree with the cost or they have

issues with the company’s valuation. We can calculate the value of work by evaluating the task

and activities done or by progress analysis.

(8) Technical problems:

Engineering services has skilled employees and other working facility but there are so many

other technical issues that are being faced by the company for example Agreements, change

orders, materials orders, receipts, solicitations, work applications, testaments of protection… you

likely have enough paper to fill a whole trailer of file organizers. It's an ideal opportunity to go

paperless. A computerized arrangement can assist you with remaining on track of records,

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composed on your activities, and on-time with your installments. At any rate, filter all records

into your PC and carefully document/sort out them. Make certain to reinforcement your PC to a

cloud support or hard drive routinely on the off chance that you have an equipment issue.

(9) Short of current years project:

Engineering services has also claimed during an interview that there are less of a project that we

handle because of this payment issue. It is just like a cycle to us we pay our contractor and

subcontractor after we get paid by the client. Due to this issue we are unable to get more projects.

Sometimes in a year we get less project that has been estimated during the year and that makes a

company go in loss. It has a great impact in our company shares and other.

Other time the projects get prolong due to the delays in payments which results in less project

per year.

5. DISCUSSION OF POSSIBLE OPTIONS

Engineering services has been serving in the construction industry successfully for a long time
now. They have done many projects with reputable companies and this is a common and one of
the major problem that they face constantly during their work. The impacts are getting more
serious day by day and cannot be ignored any further. If the company will not counter these
problems it will results into a liquidation of company
After a long talk with the employees and engineers of the company it was found that the
company has come up with the solutions for the problem of delay in payments
A right to regular periodic payment

One of the solution to counter the delay of payments is, a company will take payment in
installments. The company will hand over a written agreement for the payments including the
months in which it would be paid. So that a company can claim for the payment on the due dates.

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It will also help engineering services to have less conflicts among the parties involved in the
contract as well as finances can be managed easily on the basis of contract.
In development, an installment calendar (or timetable of installments) is a rundown of dates
setting out when installments will be made by one gathering to another under the provisions of
the agreement between them. It can likewise additionally be connected to the fruition or
satisfaction of certain pre-concurred exercises or stages, so, all things considered installments
must be made.

The Housing Grants, Construction and Regeneration Act 1996 was presented to guarantee that
installments are made immediately all through the production network and that questions are
settled quickly. Among the arrangements remembered for the demonstration was the privilege to
be paid in between time, intermittent or organize installments. Corrections made in 2011, set up
that dates for installments must be set out in the development contract.
By incorporating an installment plan for the agreement, setting out who needs to do what and by
when, the probability of gatherings misunderstanding dates (for example business neglecting to
serve an installment notice on schedule, or a contractual worker neglecting to serve an
application for installment on the correct date), can be diminished, thus debates are more
uncertain.
• An installment timetable will as a rule incorporate the accompanying subtleties:
• The beginning date for the agreement.
• The sum to be paid as an underlying installment.
• The interim of different installments after the underlying installment.
• The time period inside which the undertaking will be finished.
• The assessed absolute development contract sum.

A right to a defined time frame for payment

Engineering services has come up with the solution that it will discuss the way of payments and
the time in which it can be paid to the company during the agreement and will not make any
agreement before that. The time frame will define the time during which a payment should be
done. The day from which working will be started to the end day

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This is the strategy for payment to contractual worker activated by the accomplishment of the
agreement achievement of down to earth or generous culmination or potentially the purported
giving over of the attempts to the business. Consequently, except if such stage is come to and
ensured by the agreement chairman, the contractual worker isn't qualified for any payment at all.
In utilizing this technique, the temporary worker is essentially financing the attempts to a huge
degree, which expenses would in the end incorporate with the agreement entirety. The business
should likewise be set up to shoulder this weight just as be in a situation to source and impact
installment at last of a sizeable single amount sum upon the taking over of the works

A right to a speedy dispute resolution mechanism.

The results of the subcontractors being paid late are grave. In such circumstances, a few
subcontractors will in general increment their citations which thus builds absolute undertaking
cost, a bothersome condition for proprietors. It should be conceivable to improve subcontractor
payment practice if engineers pay fundamental contractual workers on schedule, and thus
principle temporary workers pay their subcontractors at the earliest opportunity after finishing of
the subcontract work.

6. RECOMMENDATIONS:

This study concludes that(1) Client’s Poor Financial Management ,(2) Client’s Withholding of
Payment , (3) Conflict among the parties involve , (4) Local culture/attitude , (5) Contractual
provisions , (6) Delay in certification , (7) Disagree on the valuation of work done , (8) Technical
problems , (9) Short of current years project are major factors that impact project delays and cost
overruns in the Engineering Services . As such, it is recommended that these factors should serve
as a scientific starting point for efforts aimed at reducing construction delays and cost overruns.
Possible Solutions were a right to regular periodic payment, “A right to a defined time frame for
payment and “A right to a speedy dispute resolution mechanism. I would recommend that A
right to regular periodic payment is the best alternative to reduce Payment delays and non-
payment and will help Engineering Services to complete their projects successfully without any
obstacles. Also it will eliminate these factors and will provide more healthy environment and
will try an improve relations between the 2 parties and solve all the problems as payment will be
done on a periodic basis.

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7. DETAIL OF CHOSEN OPTION:
Engineering Services has come up with many solutions in the past to counter all the factors that
causes delay in payments. Some of them were discussed in the section above and has a details
information about it, these include a right to regular periodic payment, “A right to a defined time
frame for payment and “A right to a speedy dispute resolution mechanism.
Adopting any of them is a wise decision when it comes to running a company smoothly on the
terms and laws given by the government and suitable for the company as well.

Engineering service has always made its operations flexible to the governmental laws and
policies and made the company successful in the past years.

In accordance to the laws it was decided by the company to make the strategies work and opt for
a right to regular periodic payment.

There are explicit arrangements in connection to the strategies for making installments. The
Payer must issue a Payment Notice inside five days of the due date for installment, regardless of
whether no sum is expected.

The Payer must issue a Pay Less notification on the off chance that they mean to pay not exactly
the sum set out in the Payment notice, setting out the reason for its count.

The advised aggregate is payable by the last date for installment.

On the off chance that the Payer neglects to give a Payment Notice, the Payee may give a default
Payment Notice. Yet, on the off chance that the agreement requires Interim Applications this
isn't required as the application turns into the default Payment Notice. On the off chance that
agreements don't follow the Act, the Scheme for Construction Contracts applies. The
Construction Act Helps Specialist Subcontractors Get Paid the essential installment rules
presented by the Construction Act and the 2009 revisions are: The privilege to installment by
portions. A 'satisfactory instrument' for figuring out what wholes are expected and when, and
connecting to the 'execution of commitments' or 'choices' under 'another agreement' doesn't
establish a 'sufficient system'. Earlier notification of entireties due and 'the premise on which that
total is determined'.

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 'Pay when paid' provisions to be 'incapable' (with the exception of on account of bankruptcy of
an outsider upon whom installment depends).

Earlier notification of aim to pay not exactly (for example 'set-off from') the Notified Sum setting
out 'the premise on which that total is determined'.

Right to suspend work (by at least seven days' notification) for non-installment of the 'Informed'
aggregate. Where at least one of these base necessities are not met, or potentially no
understanding has been come to on the terms, the pertinent pieces of the Scheme for
Construction Contracts, come into activity as a 'default' instrument.

The Act leaves the gatherings 'allowed to concur' the measure of any portions or intermittent
installments, the instrument for deciding this, the interims at which such installments become
due and the interims between the 'due date' and the 'last date' (for example the most recent date
by which installment must be made). This enables Contractors to utilize their 'muscle' so as to
force longer installment periods than are reasonable and sensible.

The Local Democracy Economic Development and Construction Act 2009 ("LDEDC")
acquainted changes with the law in regards to installments under development contracts for
contracts went into on or after first October 2011.

Stage Payments for Specialist Contractors and Subcontractors

The Act (see area 109 HGCR Act) qualifies the payee for organize installments for any work
under the agreement except if:

• The agreement expresses that the term of the work is to be under 45 days; or
• The gatherings concur that the term of the work is assessed to be under 45 days.

8.CONCLUSION:
The study found that causes of payment problems in the engineering services; cash flow
problems due to delays and non-payments experienced on other projects, disputes over payment
claims and responses, cash flow difficulties due to lack of initial capital, attitude of payers, easy
exit of players, and the general payment culture of the industry. Subsequent clustering of the
identified factors using a factor analysis provided knowledge on key areas which industry

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practitioners need to focus on in mitigating payment problems within the industry. From the
factor analysis, the underlying factors for payment problems are six-fold: contractual issues,
financial strength of industry players, disputes between players, project characteristics, the
‘domino effect’ and others. Most of the causes of payment problems fall under the clusters:
financial strengths of industry players, project characteristics, and the ‘domino effect’. It is safe
to conclude that the domino effect is partly due to financial weaknesses of key construction
industry players.
Thus the study concludes that the financial stability of players is central to payment problems in
the construction industry. Stability of payment is ensured through a regular flow of cash during
work progress and ensures that all parties’ financial claims are able to be settled as and when
they are due. Stable and periodic payment seems to be the chief mitigating solution to payment
problems in the construction industry. Adjustments to contractual provisions that could guarantee
financial stability may include the procurement of some sort of financial security at the outset of
a project. Thus any payment default is immediately indemnified by the security provider. It may
also be worth incorporating mandatory requirements for prequalification of the financial status of
critical funding parties to any contract. This way, vulnerable parties can be assured of the
financial status of critical funding parties. The applicability of these few suggestions are
recommended for further investigation as the current study is limited to identifying the key
causes of payment problems. Further, the study recommends that the viewpoints of project
owners are significant and should be collected in future study investigations as the current study
had simply used consultants as proxies to project owners.

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