An evaluation of contractors’ satisfaction with payment terms influencing construction cash flow

Abstract

Construction cash flow models developed in previous researches demonstrated that cash flow profiles vary for differing procurement methods. However, the issue of whether contractors are satisfied or dissatisfied with payment terms impacting cash flows in differing procurement methods is yet to be investigated. This is the concern of this study. The study identified from literature, payment terms potentially thought to impact construction cash flow. Using a 6‐point Likert‐type scale, a questionnaire survey was administered to UK construction contractors in order to assess their level of satisfaction with identified payment terms influencing construction cash flow. Responses from the survey, which focused on traditional and design and build procurement methods were analysed using mean response analysis and one‐way analysis of variance. Results showed that while contractors were satisfied with most of the contractual factors investigated under both procurement systems, they were dissatisfied with two of the factors, namely, time lag between entitlement to receive and actually receiving cash payment and percentage of contract sum retained. This dissatisfaction calls for action to consider devising alternative means of dealing with retention and delay payments.

Citation

Odeyinka, H.A. and Kaka, A. (2005), "An evaluation of contractors’ satisfaction with payment terms influencing construction cash flow", Journal of Financial Management of Property and Construction, Vol. 10 No. 3, pp. 171-180. https://doi.org/10.1108/13664380580001074