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EBU5002 - DISSERTATION

RESEARCH REPORT

An Investigation of causes and effects of Delayed Payments to Road Contractors in

Malawi for Public Funded Road Projects

Marking Tutor : Ron Smith

Submitted in partial fulfilment of the requirements for the Degree of

MSC IN PROJECT MANAGEMENT

The University of Bolton

Date : 23 APRIL 2015


ABSTRACTMalawi is a landlocked country and roads are an integral part of the transportation

system, therefore it is Government of Malawi’s priority that the road network is efficient

so that it achieves both social and economic benefits to the country. Currently, the road

network in Malawi is underdeveloped and the roads are not of international standard

compared to neighbouring countries in the Southern African Development Community

(SADC) and Common Market for Eastern and Southern Africa (Comesa) regional

trading blocks to which Malawi is a member. Every year, the Government of Malawi

commits substantial sums of money in the national budget to ensure development of the

Road network and maintain the current roads to good standards to ensure continued

and uninterrupted access to all corners of the country by all sectors of the society.

This effort by government to develop the road network is not without challenges.

Delayed payments to road contractors have been a serious bottleneck in the successful

implementation of road projects in Malawi. This is despite the reforms which were

carried out in the Malawi Road Sector in 2005 which saw the creation of two separate

bodies, the Roads Authority and the Roads Fund Administration with separate roles of

administering the road network and managing funds for the road sector respectively.

This paper seeks to explore the causes and effects of delayed payments to Road

Contractors in Malawi and has been confined to exploring the causes of delayed

payments to only those projects which are funded from public coffers, using fuel levy by

the Roads Fund Administration and appropriations from the government annual budget

due to time constraints presented for carrying out the research.

Various findings have arisen from the research project and recommendations have

been made accordingly to improve the current challenge of payment delays and

mitigate resulting effects experienced by contractors and the general public.

Key words: the key words which are often encountered in this research paper include:

payments, contractors, and road construction sector.

i


TABLE OF CONTENTSABSTRACT......................................................................................................................2

ACKNOWLEDGEMENTS................................................................................................vi

CHAPTER 1 - INTRODUCTION......................................................................................1

1.1 Background.........................................................................................................1

1.2 Problem Statement.............................................................................................2

1.3 Research Aim and Objectives.............................................................................3

1.4 Research Questions...........................................................................................3

1.5 Justification for the Research..............................................................................3

1.6 Limitations of the Study and Areas for Further Research...................................4

1.7 Structure of the Dissertation................................................................................5

CHAPTER 2 – LITERATURE REVIEW............................................................................7

2.1 Introduction.........................................................................................................7

2.2 Main organisations involved in the road construction sector in Malawi...............7

2.3 Successful project execution.............................................................................10

2.3.1 The delayed payment concept...................................................................10

2.3.2 When does late payment occur?................................................................11

2.3.3 Contributing factors to delayed payments to road contractors...................11

2.3.4 The effects of delayed payments to road contractors.................................14

2.3.4.1 Solutions to the problem of delayed payments to road contractors.........16

CHAPTER 3 – Research Design....................................................................................19

2.1 Introduction.......................................................................................................19

2.1.1 Research Philosophy..................................................................................20

2.1.2 Research Approach....................................................................................20

2.1.3 Research Strategies...................................................................................21


2.1.4 Research Choice........................................................................................21

2.1.5 Time Horizons............................................................................................21

2.1.6 Techniques and Procedures.......................................................................22

CHAPTER 4 - DATA COLLECTION, ANALYSIS AND INTERPRETATION..................27

4.1 Data Collection..................................................................................................27

4.1.1 Questionnaire Administration.........................................................................27

1. Road Contractors.................................................................................................28

2. Roads Fund Administration..................................................................................28

3. Roads Authority....................................................................................................29

4. Consultants..........................................................................................................29

4.2 Data Analysis....................................................................................................30

4.2.1 Causes Of delayed Payments.......................................................................34

4.2.2 Effects of Delayed Payments.........................................................................52

4.2.3 Solutions to delayed Payments.....................................................................66

CHAPTER FIVE – CONCLUSION AND RECOMMENDATIONS..................................70

REFERENCES.................................................................................................................1

Table of GraphsGraph 1- Causes of delayed payments (Contractors’ perspective)................................36

Graph 2 - Causes of delayed payments (RFA’s perspective)........................................38

Graph 3 - Causes of delayed payments (RA’s perspective)..........................................41

Graph 4- Causes of delayed payments (Consultants’ perspective)...............................44

Graph 5 - Causes of delayed payments to road contractors (all respondents)..............45

Graph 6 - Effects of delayed payments (Road Contractors’ perspective)......................54

Graph 7 - Effects of delayed payments (Consultant’s)...................................................56

Graph 8 - Effects of delayed payments (RA’s perspective)............................................58

Graph 9 - Effects of delayed payments (RFA’s perspective).........................................60


Graph 10 - Effects of delayed payments to road contractors (all respondents).............61

Graph 11 - Solutions to delayed payments to road contractors (all respondents)..........66

Table of FiguresFigure -1 - Structure of Dissertation.................................................................................6

Figure 2- Players involved in payment of certificate.........................................................9

Figure 3- Research Concept Map..................................................................................18

Figure 4- Research “Onion” as adopted from (Tosey & Saunders, 2012)......................19

Figure 4- Data Entry for received questionnaires...........................................................32

Figure 5 : Illustration of part of excel worksheet depicting how data was manipulated. .33

Figure 6 - Dissertation Work Plan..................................................................................72

List of Tables

Table 1- Analysis of arrears owed to road contractors.....................................................2

Table 2 - Summary of Sample Sizes..............................................................................24

Table 3- Sample Size Calculation Worksheet................................................................26

Table 4 - Scale of questionnaire responses...................................................................28

Table of Appendices

Appendix 1 – Sample Research Questionnaire...............................................................1

Appendix 2: Excerpts of Interview with Roads Authority Senior Engineer.......................1

Appendix 3: Excerpts of Interview with Head of Finance for RFA....................................1

Table of Keys

Key 1 - Legend to Graph 1.............................................................................................36









ACRONYMSRFA - Roads Fund Administration

RA – Roads Authority

NCIC – National Construction Industry Council

Government of Malawi – GoM

IPC – Interim Payment Certificate

HoA – Head of Audit

HoF – Head of Finance

NRA – National Roads Authority

PPP – Public Private Partnership

ANRP – Annual National Roads Programme

SE – Senior Engineer

COMESA – Common Market for Eastern and Southern Africa

SADC – Sothern Africa Development Community


ACKNOWLEDGEMENTSTo come up with this paper, I am indebted to various people and organisations who

provided me with the necessary assistance during the course of the research. Special

mention should go to my supervisors, Ron Smith and Peter Chiligo who provided the

necessary guidance during the course of the research.

Special recognition should go to all Road contractors, Consultants, the Roads Authority

and Roads Fund Administration staff who took time to respond to the questionnaires

and provided time for interviews.

To my wife Blessings and daughter Joan, they deserve my sincere and heart felt

appreciation for the moral and physical support rendered to me during the time they

sacrificed the usual family union that coexists on a daily basis to give me free and

uninterrupted time to concentrate on the dissertation.

Last but not least, I would like to thank my Lord and saviour Jesus Christ for the spiritual

inspiration provided to me throughout the period of the research. This helped me to

conquer all hurdles experienced on the way.

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AN INVESTIGATION OFCAUSES AND EFFECTS OF DELAYED PAYMENTS TO ROAD CONTRACTORS IN MALAWI FOR PUBLIC FUNDED ROAD PROJECTS

CHAPTER 1 - INTRODUCTION

1.1 BackgroundMalawi is a landlocked country and heavily relies on road transport for both internal

access between the country’s three regions and external access to its neighbouring

countries of Zambia, Mozambique and Tanzania. The official road network for Malawi

covers a total distance of 15,451km.

This road network is not fully developed, with only 4,045 km i.e. twenty seven percent

(27%) of the total network being paved (Road Network, n.d).

To this end, Malawi government has focused on road network expansion as a national

public sector investment program. This is backed by the Malawi Growth and

Development Strategy (MGDS) which identifies transport infrastructure as a priority area

for public investment, (Government of Malawi, 2010).

Critical to this road network development is the effectiveness of the construction

industry in carrying out its functions. One key player in the construction industry is the

road contractor. To ensure effective delivery of projects, and for good health of the

contractors business, it is imperative for contractors to have smooth cash flow (Hunter,

2012). Good cash flow is fundamental in the development and sustainability of a healthy

and competitive construction industry (Robertson & Maritz, 2012).

Amongst other initiatives to improve service delivery in the road sector in Malawi,

reforms were carried out in the year 2006 which saw the creation of two bodies, the

Roads Fund Administration (RFA) and Roads Authority (RA) with two separate roles of

managing funds for roads and maintaining the road network respectively. The main

reason for the reforms was to enhance efficiency and accountability of public funds

meant for roads as opposed to the previous set up where funds management and road

network maintenance were in the hands of one body, the National Roads Authority.

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Apart from the Roads Fund Administration and the Roads Authority, the other key

player in the road sector is the government of Malawi which provides funding for road

constructions through parliamentary appropriations.

1.2 Problem StatementDespite the well set up arrangement in the Malawian road construction industry, there

are many challenges which are faced and need to be overcome. One of the problems is

delayed payment to contractors. Many contractors in Malawi experience delays in

getting paid for work done (Mazengera, 2009).

According to Gara & Hawkins, (2014), as at 30 June 2014, the Malawi government

owed road contractors and other players in the industry for work done, a total sum of

Twenty Seven Billion, Four Hundred Twenty Million Kwacha(MWK27.42Bn) , an

equivalent of Six Eight Million, Five Hundred and Fifty Thousand Dollars ($68.55Mn),

where 1USD=MWK400. The sum includes actual amounts claimed for work done plus

interest charged on the delayed payments.

An analysis of the evolution of the arrears as at 30 June 2014 revealed that the amount

outstanding dated as far back as the fiscal year 2009/2010 as depicted in the table

below:

Financial Year Amount of Arrears

2009/2010 $13,073,119

2010/2011 $28,673,435

2011/2012 $27,477,520

2012/2013 $21,256,107

2013/2014 $68,550,400

Table 1- Analysis of arrears owed to road contractors (Gara & Hawkins, 2014))

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A review of selected 50 contractor certificates for major road projects for the five year

period between 2009 and 2014 showed that 25% of the certificates were delayed by

exceeding the agreed contract payment period of 45 days from date of logging a

certificate by the contractor to payment date by the Roads Fund Administration.

Late payment challenges are considered to affect many players in the local construction

industry and are referred to as financial problems by those affected by it, whether in

public or private funded projects (Abdul -Rahman et al. 2006).According to Huse, 2002,

timely payment of contractor certificates ensures the well being of contractors.It is

therefore imperative to ascertain the key factors causing delays in payments to

contractors in the context of public funded projects and establish the resulting effects of

these payment delays.

1.3 Research Aim and ObjectivesThe research seeks to investigate the causes contributing to the delayed payments to

road contractors in Malawi and the resulting impact of this delay and develop solutions

to address the causes of delayed payments.

Specifically, the research will address the following two objectives:

1. Establish the causes of delayed payments to road contractors in Malawi

2. Establish the effects of delayed payments

1.4 Research QuestionsIn order to realise the specific objectives of the study, the following questions will be

answered:

1. What are the causes of delayed payments to road contractors in Malawi?

2. What are the effects of delayed payments to road contractors in Malawi?

1.5 Justification for the ResearchThe research on delayed payments to road contractors and the effects this brings is an

important element of project management in the implementation phase of the project life

cycle. The research therefore has an important bearing to the academic field for the

students learning project management because it will increase their knowledge of the

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challenges of project management implementation and how to deal with them in relation

to payments to contractors.

Practically, the research will help the road construction industry players; RA, RFA,

Contractors and consultants to resolve current concern of delayed payments to

contractors being experienced in Malawi which has led to the Roads Fund

Administration and the Government of Malawi paying huge sums of money in interest to

road contractors for delayed payments, monies critical to national road network

expansion as well as for maintenance and rehabilitation of roads. From the results of

the research and its recommendations, it is hoped that all parties in the road

construction sector will take necessary strides to eliminate the factors causing the

payment delays.

1.6 Limitations of the Study and Areas for Further ResearchThe constraints encountered when undertaking the research are as follows:

Limited finances to carry out the research, with every resource being financed by

the researcher resulting in limiting the tests to only a sample of a population of

current contractors carrying out works;

Limitation to information accesses as some institutions did not cooperate to

provide institutional information for privacy reasons and lack of trust on the use to

which the research findings would be put. Therefore information was only sought

from institutions which were readily available and were willing to give the

information.

Longitudinal effects: Time available to investigate the research problem was

constrained by the fact that this is an academic research and formed part of an

assignment to attain an academic qualification therefore it had a due date and

the research could only be conducted within this time to meet the deadline. It is

also worth noting that the research was conducted within the researcher’s free

time as he is fully employed and fully attending to work at the time of doing the

research.

There was a limitation in the required number of qualifying personnel to do the

field work. The people approached to do the field work to administer

questionnaires were expensive as such supplementary methods such as emails

were used to administer questionnaires.

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The research approach use of mixed methods using questionnaires and

interviews to collect both quantitative and qualitative data but the questionnaire

fell short of collecting qualitative data, with most of the respondents only tackling

the quantitative questions and not providing qualitative information in the sections

provided for this.

Although the research only concentrated on causes and effects of delayed payments to

contractors, this does not exhaust possible research areas relating to the road

construction industry. There is potential for further research on other areas in the sector

such as investigation into factors leading to high rate of project success for donor

funded road projects compared to public funded road projects in Malawi.

1.7 Structure of the DissertationThis paper has been structured in such a way that it has various chapters with particular

subheadings within them. The reason for this structuring is to enhance clarity of the

important issues discussed in the paper. These chapters are linked to one another and

should be read as such throughout this report.

Figure -1 below depicts the dissertation structure which will be followed in the

subsequent sections of the dissertation. This has been included to give the researcher

advance knowledge of the framework of the research.

Chapter 1 – Introduction1.1. Background

1.2. Problem statement

1.3. Justification for the research

1.4. Purpose of the study

1.5. Specific Objectives

1.6. Limitations of the study and areas for further research

1.7. Structure of the dissertation

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Chapter 2 – Literature Review2.1 Summary of general theory

2.2Review of previous work

Chapter 3 – Research Design and Methodology3.1 Research philosophy

3.2 Research Approach

3.3 Research Strategies

3.4 Research Choice

3.5 Time Horizons

3.6 Techniques and Procedures

Chapter 4 – Data Analysis and Findings1.1. Questionnaire Administration

1.2. Data Entry and Analysis

1.3. Causes of Delayed Payments

1.4. Effects of Delayed Payments

1.5. Solutions to Delayed Payments

Chapter 5 – Summary, Conclusions, Discussion, and Recommendations

Figure -1 - Structure of Dissertation

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CHAPTER 2 – LITERATURE REVIEW

2.1 IntroductionThe following chapter critically reviews the existing literature related to the research

topic of delayed payments to road contractors undertaken by other researchers. A

literature review is an evaluative report of information found in the literature related to a

selected area of study (unknown, n.d). The concept map for the research formed a

guide in the literature review section of the research project. Refer to Figure 3 for the

research concept map.

The literature review was carried out through books, Project management and

engineering journals, conference papers, academic and masters theses, internet,

newspapers and books in order to identify factors which are responsible for causing

delays in making payments to road contractors and the effects the delayed payments

have on the contractors and the construction industry as a whole. The sources used are

secondary because of their ease to locate (Saunders, et al., 2009).

A wide range of studies on problems facing contractors in the construction industry have

been undertaken in several countries, with some researchers specifically tackling the

issue of delayed payments in the construction industry in their countries, emphasizing

that this challenge is not only in Malawi but spread throughout the world.

2.2 Main organisations involved in the road construction sector in MalawiTo ensure the understanding of the payment system in the road construction industry,

below is a summary of the brief roles of the main players in the industry:

1. The Roads Fund AdministrationThe Roads Fund Administration is a statutory organisation established by the Roads

Fund Administration Act of 2006 for purposes of raising, administering and accounting

for funds for the construction, maintenance and rehabilitation of public roads in Malawi

(RFA Act, 2006).

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The organisation is responsible for making all payments to contractors for road works

and reports to the minister of finance. The sources of revenue for the Roads Fund

Administration are road tolls levied on international transit vehicles for using Malawi

Roads, fuel levy paid by all fuel buyers as a percentage of the fuel pump price, and

parliamentary appropriations through the national budget. The Roads Fund

Administration, together with the Roads Authority, as explained below, is the client in

the road construction projects in Malawi.

2. The Roads AuthorityThe Roads Authority (RA) is a statutory body which was formed in 2006 through an Act

of Parliament no.3 of 2006 as a direct result of the road sector reforms in Malawi as

highlighted above. Its function is to manage the road network in Malawi. The Roads

Authority reports to the ministry of Transport and Public Infrastructure.

Annually, the Roads Authority prepares an Annual National Roads Programme (ANRP),

and engages consultants and Works Contractors to carry out road works as outlined in

the ANRP. The Roads Authority is therefore the client in road construction projects

together with the RFA as above.

Approval for payment to road contractors for work done is by the Roads Authority itself,

and the payments are made by the Roads Fund Administration.

3. Road ContractorsThese are employed by the Roads Authority and are the executors of the road works

contracts and perform their work in line with the contractual agreements with Roads

Authority.

In Malawi, all contractors, including road contractors are regulated by the National

Construction Industry Council (NCIC), which categorises contractors into various

categories according to their experience and demonstrated capacity to carry out works

(NCIC, 2015). The experience is determined by the number and size of works contracts

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executed over a specified period of time. The Road contractors prepare certificates for

payment for work done.

4. ConsultantsThese, like the contractors enter into contract with the Roads Authority to act and

represent fully the Roads Authority, and to administer the construction contract and

ensure its full compliance by the road contractors. Just like contractors, the consultants

are paid for the work they do on behalf of Roads Authority.

Consultants are involved in the payment process of contractors by certifying the work

done by contractors including the quantities being claimed by the contractors.

Figure 2below illustrates the various players involved in the payment chain of certificates

for road contractors. It is important to note that the positioning of the organizations in the

chain is not a hierarchy and does not in any way represent the importance of the

organizations, but rather the stages at which the organisations are involved in the

payment process.

Figure 2- Players involved in payment of certificate

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Contractor

Consultant

Roads Authority

Roads Fund Administration


2.3 Successful project executionFor a project to be executed successfully there is need among many things to

effectively allocate and use the available resources (Munns & Bjeirmi, 1996). Almost all

project resources, including human, machinery, materials etc., depend on the

availability of cash.

According to Cantoria, 2011, managing cash flow in construction projects is a vital

aspect of project management’s implementation plan. Without proper cashflow,

implementing a project would be a challenge. According to Al-Joburi et al., 2012, cash

flow impacts every aspect of construction projects’ implementation process and cash

shortages can lead to project failure and business bankruptcy. In Ghana, studies

indicate that delayed payments to contractors contribute to poor cashflow forecasting on

the part of Ghanaian road contractors, thus affecting successful implementation of road

projects (Amoako, 2011). This challenge is still prevalent today, and even faces

Malawian Road contractors.

2.3.1 The delayed payment conceptImportant definitions pertaining to key research terminology has been included below:

1. Payment

As per the Oxford Dictionary, payment is defined as the action or process

of paying someone or something or of being paid.

2. Interim Payment

This is payment certificate issued before the final certificate payment.

Such payments are meant to assist contractors to overcome cash flow

problems and provide a source of self-financing in respect of their own

commitments to suppliers and sub-contractors (Deen, 2011).

3. Advance Payment

The sum paid to a contractor in advance before commencement of works

with the objective of helping the contractor to start up and finance the

contract without unnecessary external borrowing.

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4. Late or delayed payment

This is defined as failure of a paymaster to pay within the period of

honouring of certificates as provided in the contract (Harris & McCaffer ,

2003)

5. Interest on delayed payment

This is interest paid to contractors calculated on contractor’s delayed

certificates meant for payment. According to the special conditions of

contracts between road contractors and the RA, this amount is calculated

as a percentage of the outstanding amount using the prevailing

commercial bank lending rates and is compounded on a monthly basis.

2.3.2 When does late payment occur?According to Roads Authority, (2012), the general conditions of contract for road

projects between the Roads Authority and all road contractors stipulate that payment of

certificate for road and related works to a contractor is within forty five (45) days from

the date it is passed on to the consultant by the contractor. Within these 45 days, the

certificate is supposed to change hands from consultant to Roads Authority who checks

and approves the certificate for payment and send it to the Roads Fund Administration

for eventual payment. If the certificate is not paid within the above stipulated 45 days,

then delay is deemed to have occurred in paying a contractor.

2.3.3 Contributing factors to delayed payments to road contractorsVarious literature reviewed identify several factors contributing to delay in making

payments to contractors.

According to Johnston, (1999), the problem of late payment, including non-payment is

experienced not only in developing countries, but even in the developed countries like

the United Kingdom. For example, a survey carried out to assess the payment

performance in Britain revealed that the construction industry is prone to late payment

culture, with payment of debts due to subcontractors and other suppliers, being paid, on

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average, 53 days after tendering of invoices or application for payment (Johnston,

1999).

Malawian contractors have been faced with the same problem of delayed payments like

their international counterparts. According to Gara & Hawkins, (2014), as of 30 th June

2014, the government of Malawi owed contractors for carrying out various infrastructure

projects money in excess of USD56.2million, with some of these arrears spanning over

two years.

Their study revealed that the arrears (delayed payments) arose due to cashflow

challenges which came about due to the flowing factors:

a) Inability to provide funds envisaged in the budget

This arose due to failure to achieve levels of targeted revenue generation in the

budget. This is attributed to poor financial planning and budgetary provision for

projects.

b) Committing to expenditure beyond that provided for in the budget

Payments to road contractors sometimes exceed the budgeted funds due to

price escalations and interest charges on late payments thus eroding the

budgeted funds leading to delays in making payments.

c) Procedural weaknesses leading to failure to make payments

According to Laryea, (2010), payment problems to contractors in Ghana result from

cumbersome payment procedures, with the payment structure very beaurecratic and

complicated making release of payment such a big problem. In some cases the Ministry

of Finance asks contractors to account for previous monies paid before another

payment is made.

According to Alornyeku, 2011 , beauracracy is a type of formal administration with the

characteristics of division of labour, rules and regulation, hierarchy of authority,

impersonality of social relationships and technical competence, etc.

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Although beauracracy was coined with an aim of ensuring that large organisations are

managed properly and are able to achieve efficiency and be accountable to people,

inefficiencies in the systems have made beauracracy an enemy of contractors and other

business players in industries. According to Max Weber bureaucracy is the ideal and

rational type of administration useful for achievement of positive results. However, he

notes the dysfunctions of bureaucracy due to excessive application of its guiding

principles by office holders, negatively imacting on on social and economic development

especially in poor countries.

According to Arab News, (2013), in Saudi Arabia, the causes of delayed payments to

contractors apart from beauracracy also include lack of compelling legislation to protect

contractors from clients who delay payments. The system in Saudi Arabia requires

contractors to implement projects as long as the contract has been signed, even if the

payments are delayed. This does not empower the contractor to force client to make

timely payments through abandonment of work since will be deemed to have failed the

contract and be sued for damages.

Research done by Ali et al.(n.d), found that one of the factors which contribute to late

payment to contractors is the economic conditions especially during economic crisis.

Economic conditions have an impact on the client’s cashflow impacting on the ability to

make payments, thus delaying payments to contractors.

According to Ngwaluko, (2013), contractors are faced with problems of payment due to

the use of manual payment system. Manual payment system is slow as it involves

personnel moving files between offices and any delay by one person affects the whole

payment chain.

In Sri Lanka, grafts were found to be one of the factors contributing to delays in making

payments to contractors. The issue of graft is deep rooted in the construction industry

and contractors are its main victim to an extent that in some extreme cases, no positive

response can be obtained by a contractor from client without a graft (National

Construction Association of Sri Lanka, n.d)

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According to Donkor,( 2011), the following factors contribute to delays in making

payments to contractors for donor funded projects in Ghana:

Lack of proper feasibility studies into the availability of finance to complete a

project.

Variations are made on project without taking serious consideration of its

financial implication.

The number of signatures that must be appended to the documents.

Late preparation of certificates

Inability to provide funds, due to poor budgetary allocation and mismanagement

of funds

Late variation of valuations

Inaccuarate bills of quantities

Slow coordination and seeking of approval from concerned authorities

Delay in work apprpoval

Lack of communication

Poor contract management

Liaison problems among contracting parties’

Client’s cashflow problems

Bribe paid before certificate is signed

Inadequate supporting documents

All these factors will be assessed via a survey to determine if they also contribute to

delayed payments to Road Contractors in Malawi.

2.3.4 The effects of delayed payments to road contractorsLiterature reviewed pertaining to the effects of delayed payments to contractors

revealed a wide range of impacts from financial to socio-economic challenges. Ten

main effects were identified from the literature reviewed.

Delayed payments to contractors affect the performance of contractors, with others not

being able to complete the projects in time resulting into project delays (Judi & Rashid,

2010). Muhwezi et al., (2014), consider delay in making payments by the client as

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critical and is one of the greatest factors which contribute to delays in completing

projects.

According to Latham, (1994), delayed payments to contractors will not only cause

delays in completing projects but also has the potential effect of forcing contractors out

of business and getting bankrupt. In America, the bankruptcy of Truland, a large

electrical contractor was attributed to delayed payments to the contractor by the main

client of the project(Sernovitz, 2014).

Apart from the contractors themselves, other parties who are connected to the

contractors in one way or another also suffer because payment delays to the

contractors. According to Obeidat, (2014), delayed payments to road contractors in

Jordan has led to contractors to be unable to pay their obligations to banks and the

salaries of their employees. This is similar in Ghana, where studies on effects of

delayed payments to contractors revealed that late Payment will cause severe cash flow

problems especially to contractors, and this would have a devastating secondary effect

down the contractual payment chain(Amoako, 2011).

The other effect of delayed payments to contractors is reputation damage to contractors

due to delayed completion of works or abandonment of works due to the delayed

payments which impacts on their cashflow and ability to perform their work(Gara &

Hawkins, 2014).

The construction industry is also faced with disputes between clients and contractors

with various factors contributinng to this, one being the issue of delayed payments. This

leads to high advesrary between client and contractor and leads to negative effects on

the project success(Muhamid, 2014).

Apart from the reputation damage identified above, Gara & Hawkins, (2014), in their

report of assessing public arrears and liabilites generated from contracts in the Road

Sector in Malawi, they identified a number of other impacts of delayed payments to road

contracors in Malawi as listed below:

1. Create Financial Hardship to contractors

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2. Create Negative Chain Effect on other Parties

3. Create Cash Flow Problems

4. Cost overrun

5. Result in Delay in Completion of Projects

6. Lead to Bankruptcy or Liquidation

7. Lead to Abandonment of Projects

8. Result in Formal Dispute Resolution e.g. Litigation/Arbitration

9. Create Negative Social Impacts

These impacts of delayed payments are in tandem with what other studies studies in

countries outside Malawi found and the research will seek to establish if these

impacts/effects are still relevant to the Malawian road contractors.

2.3.4.1 Solutions to the problem of delayed payments to road contractorsAccording to Prism, (2013), acknowledgement is made that delayed payments is a norm

in every line of business but recognises that the construction industry is unique due to

its complex nature of contracting and sub contracting, as such there is need to have

legislation to give guidance on payments to contractors. This, it is argued should help

to bring fairness to both parties because in the absence of legislation to enforce

payment, the only beneficiary is the entity withholding the payment as it reduces its

need for bank financing.

Coordination is another critical element to ensure payment delays are eliminated.

Clients, Consultants and Contractors should consider the project as their own and

should coordinate effectively to ensure smooth flow of communication among the

contracting parties(Donkor, 2011).

Adoption of e-payment system in the construction industry is another solution to

expedite payments to road contractors. According to Mdala, 2013, automation of the

payment system is imperative to improve the flow of payments in the Road Sector.

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Charging interest on delayed payments is another option available to the contractor.

Accroding to Huse, (2002), charging interest on delayed payments will act as an

incentive to the clients to make timely payments to contractors since interest charges

apart from affecting client’s cashflow, they also are an expense and increases the

client’s expenditure beyond his budget.

Studies undertaken by Zou, (2006), revaled that in order to combat corruption in the

construction sector, “there is need to strengthen the management of the construction

market through development of laws and regulations, and development of a transparent

work process as well as providing ethical and technical education to the related

personnel”.

2.3.5 Conceptual frameworkFigure 3 below shows a concept map depicted as a pictorial summary model of how the

theories and literature relate to the research. The figure depicts the key factors to be

studied i.e. the causes and effects of delayed payments and the solutions to the

delayed payments.

Page 17


Figure 3- Research Concept Map

Page 18


CHAPTER 3 – Research Design

3.1 IntroductionThis chapter deals with the research design employed in undertaking the research

project. When planning for any undertaking, it is imperative to properly set out a plan in

order to ensure that its execution is carried out in an orderly and logical manner. The

plan or design acts as a framework upon which the whole undertaking is carried out

from start to finish.

To ensure important elements of the research are not missed out, (Tosey & Saunders,

2012), propose that the researcher should use the research onion as depicted in Figure 4

below.

Figure 4- Research “Onion” as adopted from (Tosey &Saunders, 2012)

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By following the research onion from its outermost layer to the innermost layer, the

research design was systematically followed as outlined in the below sub headlines.

3.1.1 Research PhilosophyThe first layer of the research onion depicts the research philosophies which can be

adopted for carrying out research. Saunders et al., 2009, identifies two main

philosophical perspectives for business research as positivism and interpretivism.

According to Williams, 2011, the basis of positivism philosophy is the highly structured

methodology to enable generalization and quantifiable observations and evaluate the

result with the help of statistical methods, while the interpretive philosophy believes that

the social world of management and business is too complex as to be formulated in

theories and laws such as in the natural science. According to Johnson & Christensen,

2012, with the interpretive philosophy, there are many truths to a simple fact and these

are relevant for every situation and research problem.

For the purposes of this research, the philosophy which was adopted is interpretivism.

This philosophy was chosen because the researcher believes that there are many truths

to the research questions relating to delayed payments to road contractors and the

effects this has on them supported by the fact that different players have different

perspectives to the same situation.

According to Saunders et al., (2007), “the most important determinant of the research

philosophy adopted is the research question with one approach better than the other in

answering particular research questions”.

3.1.2 Research ApproachFrom the research onion, the second layer outlines the different approaches available to

the researcher to choose from when conducting research. For this paper, the selected

approach is deductive because there is already a theory from which the researcher will

move from when carrying out the analysis of data collected.

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3.1.3 Research StrategiesDue to the need to collect data from different sources in the construction industry, the

research combines two strategies which are important to produce the most relevant

data for conducting the research. These strategies are survey and case study and have

been explained in the sub sections below.

3.1.3.1 Case StudyFor the research, two organisations have been chosen as the case study institutions

and these are:

1. The Roads Fund Administration

2. The Roads Authority.

These two organisations are very significant for the research for the role they play in the

payment process to road contractors as highlighted in in chapter 2.

3.1.3.2 SurveySurvey research was adopted for the list of contractors and consultants. Surveys are

used to obtain up to date information on public opinion to various topics. According to

Saunders et al., 2009, surveys, as a data collection method, are popular because they

allow large amounts of data to be collected in a cost effective manner.

3.1.4 Research ChoiceThe research onion’s fourth layer outlines various research choices available to the

researcher when carrying out research. The researcher shall use mixed methods to

ensure both numeric and non-numeric data is captured for use in quantitative and

qualitative analysis.

3.1.5 Time HorizonsDue to the limited available time within which to carry out the research, cross sectional

time horizon will be adopted. According to Saunders, et al., 2009, a cross sectional time

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horiszon looks at a snapshot of events at a particular time, while as a longitudinal time

horizon looks at a series of events over a long period of time.

As can be seen in Figure 7, the research was conducted by following a plan which was

largely based upon the limited time available as per the University of Bolton Time Table.

3.1.6 Techniques and ProceduresThe research employed the use of interviews and questionnaires for data collection for

the research. Refer to appendices section for sample questionnaire (Appendix 1) and

interview excerpts (Appendix 2 and Appendix 3).

3.1.6.1 Sample Size for Road ContractorsThe total list of road contractors who had been awarded contracts by the Roads

Authority in the first half of the financial year beginning 1 July 2014 was obtained from

the Roads Authority. The list included civil contractors in all the categories of contractors

as specified by the National Construction Industry Council. The total for the population

was 105.

The research concentrated only on these current financial year contractors other than

all the registered contractors with the National Construction Industry Council because

these were the proven active contractors at the time of starting the research and thus

were deemed more relevant to the research considering that they can be traced and

accessed easily to meet the limited time available for the research.

A determination of the sample size was made using published tables from Research

Advisor from the link http://research-advisors.com/tools/SampleSize.htm. According to

Israel, (1992), another way of determining sample size is to rely on published tables

which provide a sample size for a given set of criteria.

For the road contractors, the following variables applied when calculating the sample

size:

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http://research-advisors.com/tools/SampleSize.htm


Population size = 105

Confidence level = 95%

Margin of Error = 5%

The required minimum sample size is 83. Refer to Table 3 for the sample size

calculations.

Determination of the actual respondents to be selected for purposes of administering

questionnaires was made using simple random sampling. The total list of the road

contractors obtained (population), was tabulated on an excel worksheet and given

numbers from 1 to 105, and using Microsoft Excel random function, “=RAND ()”, 83

contractors were selected.

3.1.6.2 Sample Size for Roads Fund Administration Purposive, non-probability sampling was used to select the sample in this case study

organisation. This is because not every employee in the organisation is involved in the

processing of contractor certificate payment and thus not all employees would have

knowledge of factors that contribute to delayed payments to contractors or the impact

this has to the contractors.

In total, the key personnel involved in the processing of contractor certificates for

payment were eleven (11). This includes 3 engineers who work as technical auditors

and eight accountants. Thus the total population for the Roads Fund Administration for

the research is 11.

The Sample Size for the Roads Fund Administration, using the published tables as

explained above gave a sample size of 11, where

Population size = 11

Confidence level = 95%

Margin of Error = 5%

Refer to Table 3 for the sample size calculations.

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3.1.6.3 Sample Size from Roads Authority Just like with the Roads Fund Administration, non-probability sampling was used to

select the sample. Emphasis was placed on the engineers who are involved in the

payment process, and these totalled 14. Using the published table as per Table 3, at

confidence level of 95% and Margin of error of 5%, this gives a sample size of 14.We

selected all the 14 engineers and sent them questionnaires to respond.

3.1.6.4 ConsultantsThe total list of active consultants who were engaged by the Roads Authority in the first

half of the financial year beginning 1 July 2014 was obtained and these in total were 7.

We limited our population to only these active consultants due to challenges of

accessibility for those consultants who are not active. This was intended to ensure that

accessing them is easier considering the limited time available for conducting the

research and reporting the results thereof.

Using the published table as in depicted in Table 3, the total sample size for consultants at

confidence level of 95% and margin of error of 5% is 7.All the 7 consultants were

selected and questionnaires were administered to them.

Below is the summary of the sample sizes for each target of respondents for the survey

Target Respondent Sample SizeRoad Contractors 83Roads Fund Administration 11Roads Authority 14Consultants 7

Table 2 - Summary of Sample Sizes

3.1.7 Research EthicsResearch ethics are paramount whenever carrying out any research as there are

always issues of ethics and morals that need to be considered. Of great concern to the

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participants of any research is the confidentiality of their identity as well as unauthorized

use of information provided for the research, just to name a few.

For the purpose of this research, the University Of Bolton Code Of Practice for Ethical

Standards in Research involving Human Participants was complied with. At the

beginning, before commencing with the research, a research ethics checklist was

completed and this was submitted to the University together with the Topic choice form.

Page 25


Table 3- Sample Size Calculation Worksheet

Page 26


CHAPTER 4 - DATA COLLECTION, ANALYSIS AND INTERPRETATIONThis chapter deals with data collection for the research and explains how the methods

and procedures mentioned in chapter 3 were practically used in the data collection.

Further, the chapter addresses the subject of data analysis for the collected data and

lastly how the results of the analysis were interpreted.

The research employed both quantitative and qualitative techniques to analyse the

numerous multifaceted numeric and non-numeric collected data. Microsoft Excel was

used to carry out the data analysis owing to the simplicity of the application to analyse

data to suit the requirements of the research.

4.1 Data CollectionThe data for the research was sourced through questionnaires, literature studies of

reports from Roads Authority and Roads Fund Administration, Contract documents,

other government documents and the internet relating to the construction industry and

interviews with various personnel in the sector.

For the collected data to be meaningful, it must be converted into a form that makes

sense to the readers of the research report because in its raw form, data is

meaningless. This therefore requires that data collected is analysed and interpreted to

provide answers to the research questions and address the research objectives.

4.1.1 Questionnaire AdministrationQuestionnaires were administered to all the four categories of respondents, i.e.

contractors, Roads Authority, Roads Fund Administration and Consultants.

The questionnaire contained 4 sections. Section 1 was for general information while

sections 1 to 3 addressed the research questions and specific research objectives as

explained in chapter 1. Specifically, the questionnaire was structured as follows:

1. Section 1 –General information

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2. Section 2 - Causes of delayed payments

3. Section 3 – Effects of delayed payments

4. Section 4 - Solutions to delayed payments

The questionnaire was designed to carter for both quantitative and qualitative data

collection. For the quantitative section, structured questions with prelisted answers were

asked to the respondents and the respondents were required to rank their responses on

a scale of 1 to 5 with the scales standing for the following as in table below:

1 = Very Low 2 = Low 3 = Medium 4 = High 5 = Very High

Table 4 - Scale of questionnaire responses

After the quantitative questions in each section, there followed qualitative questions

whereby respondents were asked to provide their own explanations to the issues in the

questionnaire, over and above the prelisted answers provided in relation to the

questions asked. This was intended to capture data not captured in the quantitative

sections and also to get more explanations to the quantitative questions asked. A

sample questionnaire has been included in appendix 1.

The questionnaires were administered to all the categories of respondents as below:

1. Road ContractorsFrom the sample of 83 contractors, questionnaires were sent to all the 83 contractors

via email and physical delivery as a hard copy. Out of these 83 contractors, a total of 40

contractors responded to the questionnaire and the remaining 43 did not do so even

after following up with them and sending reminders. The total questionnaires responded

to represents a response rate of 72% of the total sample size of contractors chosen for

the research.

2. Roads Fund AdministrationFrom the sample of 11 RFA employees, a total of 11 questionnaires were sent to them

via email and manual delivery. All the 11 respondents retuned the questionnaires,

representing a 100% response rate.

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3. Roads AuthorityElectronically and manually, questionnaires were sent to all the 14 selected engineers

at Roads Authority. Out of these 14 questionnaires, only 10 were returned. This

represents a 71% response rate.

4. ConsultantsAs is similar with the other respondents, questionnaires were sent electronically and

manually to all the 7 consultants in the sample and all of them returned the

questionnaires, representing a 100% response rate.

To ensure all the target respondents to whom questionnaires were sent are

remembered, an excel worksheet was opened where all the target respondents to

whom questionnaires were sent were recorded. The excel worksheet contained the

names of the respondents, their email address, contact telephone numbers and

physical address, the status of questionnaires sent i.e. returned or not returned. This

ensured all questionnaires were tracked. Upon being returned by the respondents, the

questionnaires were filed to safeguard them from being lost.

4.1.2 Interview with RA and RFA employeesThe other technique involved interviewing employees of Roads Authority and Roads

Fund Administration, being the main players in the payment process of certificates as

explained in chapter two. Meetings were booked with four people, two from each

organisation and confirmation was only received from two people, each from RA and

RFA and these were finally interviewed.

The interview took the form of asking the interviewees questions along the lines of the

research objectives in order to uncover more into the causes and effects of delayed

payments beyond what can be captured via questionnaires. Excerpts of the interview

were recorded on paper and have been included in the appendices section. Refer to

Appendix 2 and Appendix 3.

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4.2 Data AnalysisThe quantitative data collected from the various respondent categories was analysed by

following the below steps:

1. All the questionnaires collected from respondents were grouped into their

categories according to the type of respondent i.e. contractors, consultants,

Roads Authority and Roads Fund Administration. After this grouping, each

questionnaire was given a code to ensure that it is unique and that once it has

been entered into the excel worksheet, it should not be entered again to avoid

duplicating data for the analysis and thus getting wrong results for the research.

The contractor’s questionnaires were given codes from contractor 1 to contractor

50. The consultant’s questionnaires were given codes from Consultant 1 to

Consultant 7. Similarly for the Roads Fund Administration questionnaires, these

were coded from RFA 1 to RFA 11, and the Roads Authority questionnaires were

coded from RA1 to RA 10.

2. After the first step, a worksheet in excel was created for data entry. All the data

from the questionnaires collected was entered into this excel worksheet to

establish the number of responses for each section of the questionnaire from the

different respondent categories. The questions required responses on a range of

1 to 5, where the range represented ranking from very low to Very high as

explained in Table 4 above.

3. To ensure data was correctly entered, the excel function of data validation was

used and a range of 1 to 5 was set as the valid data to ensure that any number

outside this range entered mistakenly into the worksheet should be rejected to

avoid inputting wrong data as depicted in Figure 5below. A prompt giving

notification of rejection of entry would come out automatically if any number

outside the validation limits was entered by mistake. Once a questionnaire was

entered, it was uniquely marked by stamping with a specially made stamp

marked with the words “analysed” and safely filed to ensure that it is not

mistakenly entered again.

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4. After the data had been entered onto excel, the analysis took the form of

populating the number of responses for each score .i.e. very low, low, medium,

high and very high, for each category of respondent in order to establish how

many of the respondents had given a particular value to the same question. An

excel function of “=countif ()” was used to undertake this exercise to ensure that

all data had responses are considered owing to the many questionnaires

collected. To act as control, the total number of responses for each particular

field was summed up by adding these values derived above. This was done

using the excel operation of “=sum ()”.As an example, see Figure 5for the analysis

of data entered for contractors when analysing the causes of delayed payments.

5. After obtaining the scores as in 5 above, they were further analysed as a

percentage of total responses derived in 5 above and graphs were plotted to

depict a visual outlook of the responses for each category of respondents in

order to get meaning from the data analysed. Refer to Figure 6 below for an

illustration of how data was manipulated.

6. Considering that the research respondents are in different categories, a weighted

average of the responses in each category was derived using the average

formula in excel for each category of respondents. The formula for the average

used is as follows: “=Average(A1:A5)”, where “A1:A5” represent the range of

percentage responses for each of the variables, very low to very high. A single

graph for the weighted averages was plotted to come up with a general pattern of

all respondents considered together using the law of whole numbers. The graphs

will be analysed in terms of how skewed they are about the neutral axis, and

conclusions drawn from thereon and recommendations accordingly made.

The qualitative data from the interviews was analysed by developing themes

from the narratives provided during the interview by the interviewees.

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Figure 5- Data Entry for received questionnaires

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Figure 6 : Illustration of part of excel worksheet depicting how data was manipulated

Page 33


4.2.1 Causes Of delayed PaymentsAn analysis of the causes of delayed payments have been analysed according to each

category of respondent i.e. Contractors, Roads Fund Administration, Roads Authority

and Consultants. Different respondents placed different amounts of importance to the

causes of delayed payments, in some cases showing similar results. The results of the

analysis have been included in the subsequent subheadings.

4.2.1.1 Causes of delayed payments - Road ContractorsA survey of the causes of delayed payments to road contractors revealed the following

factors as the causes of delayed payments as depicted in Graph 1. The results clearly

indicate that contractors consider all the factors in the questionnaire to contribute to

delayed payment of certificates for work done, albeit with different importance placed to

each factor as below.

Lack of adequate funds on the part of client was considered the major cause of delayed

payments by road contactors. One hundred percent (100%) of the respondents ranked

delayed payments as a having a very high impact on delaying certificate payments for

work done, with Eighty Five percent (85%) of them ranking it very high and fifteen

percent (15%) ranking it high.

This was followed by bureaucracy and red tape in the payment system. One 100% of

respondents ranked the factor as significant, with fifty seven percent (57%) ranking it as

very high and forty three percent ranking it as high.

The other factors followed in the following descending order:

Ninety Five percent (95%) of the respondents ranked the use of manual

payment system as a contributor to delayed payments, with the

respondents splitting between forty seven and half percent each ranking

the factor between high and very high.

Ninety two and half percent (92.5%) ranked inaccurate bills of quantities

and/or disagreement on the valuation of works done between high and

Page 34


very high as contributing to delays in making timely payments to

contractors. Fifty percent of all the contractors rated the factor as high and

forty two and half percent (42.5%) rated it very high.

In total, seventy five (75%) of contractors ranked corruption in the system

between high and very high in contributing to payment delays. Forty five

percent (45%) rated it high and thirty five percent (35%) rated it very high.

Seventy five percent (75%) of contractors ranked poor relationship

between contractor and the client between high and very high at fifty five

percent (55%) and twenty percent (20%) respectively.

Seventy percent (70%) of contractors ranked political affiliation of

contractor between high and very high in contributing to payment delays.

From this 70%, fifty two and half percent (52.5%) ranked the factor it high

and seventeen and half percent (17.5%) ranked it very high.

Fifty five percent (55%) of respondent contractors ranked delay in

submitting contractor’s payment claim between high and very high in

contributing to payment delays to road contractors. The 55% was made up

of fifty two and half percent (high) and two and half percent (very high).

Lastly, eighty five percent of contractors ranked variations in the original

contract e.g. Changes in designs and scope of contracts between medium

and high in contributing to payment delays. Forty two and half percent

(42.5%) ranked the factor as medium and the other forty two and half

percent (42.5%) ranked the factor as high.

Page 35


F1 F2 F3 F4 F5 F6 F7 F8 F90%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Causes of Delayed Payments - ContractorsPe

rcen

tage

Res

pons

es

Graph 1- Causes of delayed payments (Contractors’ perspective).

FI Corruption in the system

F2 Lack of adequate funds on the part of client

F3 Bureaucracy and Red Tape in the system

F4 Variations in the original contract

F5 Poor relationship between contractor and the client

F6 Inaccurate bills of quantities

F7 Political affiliation of contractor

F8 Use of manual payment system

F9 Delay in submitting contractor’s payment claim

Key 1 - Legend to Graph 1

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4.2.1.2 Causes of delayed payments – Roads Fund AdministrationAnalysis of delayed payments from questionnaires administered to Roads Fund

Administration revealed that delayed payments are majorly caused by lack of funds on

the part of client and Bureaucracy and Red Tape in the system. These factors were

each given a score of One hundred percent (100%) i.e. all respondents ranked them as

very high contributing factors.

Other factors were also agreed to cause delays to payment of certificates and these

have been included below in descending order in terms of importance by the Roads

Fund Administration.

All respondents ranked inaccurate bills of quantities and/or Disagreement on the

valuation of works done between high and very high, with forty five percent (45%)

ranking the factor as high and fifty five percent (55%) ranking the factor as very

high.

All respondents ranked the use of manual payment system between high and

very high in contributing to delayed payments. Thirty Six percent (36%) of the

respondents rated the factor as high whilst sixty four of the respondents rated the

factor as very high.

Eighty two percent (82%) of respondents ranked delay in submitting contractor’s

payment claim between high and very high in contributing to payment delay to

contractors.

Eighty two percent of respondents (82%) ranked poor relationship between

contractor and the client as contributing to delays in making payment to

contractor

Fifty Five (55%) of respondents ranked corruption in the system between high

and very high as causing delays in making timely payments to road contracts

Fifty four percent (54%) of road contractors, with high and very high sharing

twenty seven percent (27%) each, attributed the political affiliation of contractors

as causing delays in making contribution to delayed payments.

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F1 F2 F3 F4 F5 F6 F7 F8 F90.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

Causes of Delayed Payments - RFA

Resp

onse

Rat

e

Graph 2 - Causes of delayed payments (RFA’s perspective).











Page 38


4.2.1.3 Causes of delayed payments – Roads AuthorityAnalysis of factors causing payment delays from questionnaires administered to Roads

Authority revealed the following that Roads Authority regard lack of adequate funds on

the part of client being the greatest cause of delay in making timely payments to

contractor with 100% of the respondents ranking the factor as very high.

Bureaucracy and Red Tape in the system came second in the rankings by Roads

Authority, with 100% of the respondents raking the factor between high and very high,

broken down as sixty percent (60%) high and forty percent (40%) very high.

The other factors produced the following rankings in descending order:

Ninety percent (90%) of respondents ranked inaccurate bills of quantities and/or

disagreement on the valuation of works done between high and very high in

contributing payment delays to road contractors.

Ninety percent (90%) of respondents from the Roads Authority ranked variations

in the original contract e.g. Changes in designs and scope of contracts between

high and very high in contributing to payment delays, with 60% ranking it as high

and 30% ranking it as very high.

Eighty percent (80%) of RA respondents ranked delay in submitting contractor’s

payment claim between high and very high in causing payment delays, with thirty

percent (30%) ranking the factor as high and fifty percent (50%) ranking the

factor as very high.

Eighty percent (80%) of Roads Authority respondents ranked Use of manual

payment system between high and very high in causing payment delays, with

thirty percent (30%) ranking it as high and fifty percent (50%) ranking it as very

high factor.

Fifty percent (50%) of RA respondents ranked Political affiliation of contractor

between high and very high in causing delays in payments to road contractors,

with forty percent (40%) ranking the factor as high and ten percent (10%) ranking

it as very high.

Page 39


The following two factors did not get prominence amongst the respondents

contributing to delayed payments:

Poor relationship between contractor and the client, with only thirty percent (30%)

respondents rating as high, whilst the other portion was ranked as 30% medium

and 40% ranked it between low and very low in causing payment delays.

Roads Authority did not also rank corruption in the system as great contributor to

delayed payments to road contractors with sixty percent (60%) of the

respondents ranking the factor between medium and very low.

Page 40


F1 F2 F3 F4 F5 F6 F7 F8 F90%

20%

40%

60%

80%

100%

120%

Causes of Delayed Payments - RA

Perc

enta

ge R

espo

nses

Graph 3 - Causes of delayed payments (RA’s perspective).











Page 41


4.2.1.4 Causes of delayed payments – ConsultantsAnalysis of causes of delayed payments amongst respondents drawn from consultants

revealed that consultants ranked lack of adequate funds on the part of client, and

bureaucracy and Red Tape in the system are the leading causes of delayed payments

to road contractors in Malawi with all the respondents unanimously agreeing to these

factors.

The following factors were also considered to be significant by the consultants in

contributing to delayed payments and have been explained below in descending order:

One hundred percent of consultants ranked Poor relationship between contractor

and the client between high and very high in contributing to delayed projects, with

forty three percent (43%) of these ranking it as high and fifty seven percent

(57%) of them ranking it as very high.

One hundred percent (100%) of the consultants ranked delay in submitting

contractor’s payment claim between high and very high in contributing to

payment delays to contractors, with forty three percent (43%) of these ranking

the factor as high and fifty seven percent (57%) ranking it as very high.

Use of manual payment system was also ranked as one of the major causes of

payment delays. Eighty percent of consultants ranked it between high and very

high, with forty three percent (43%) as high and fifty seven percent (57%) as very

high.

Eighty six percent of respondents ranked variations in the original contract

between high and very high in causing payment delays. This ranking is made up

of forty three percent (43%) high and forty three percent (43%) very high.

Forty three percent of consultants ranked corruption in the system as having a

very high significance in causing payment delays, and 29% ranked it as high and

the other 29% ranked it as medium.

The analysis also revealed that consultants do not place much significance on the

following factors as contributing to delays in making payments to contractors:

Page 42


Political affiliation of contractor, with only fourteen percent (14%) of the

consultants ranking it as high, whilst seventy one (71%) ranked it as medium

and fifteen percent (15%) ranked it as low.

The consultants also did not highly rank poor relationship between contractor and

the client as a major cause of delayed payments to contractors. Only 29% rated

in as high whilst 71% rated it as medium.

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F1 F2 F3 F4 F5 F6 F7 F8 F90%

20%

40%

60%

80%

100%

120%

Causes of Delayed Payments (Consultants)Re

spon

se R

ate

Graph 4- Causes of delayed payments (Consultants’ perspective).











Page 44


4.2.1.5 Causes of delayed payments – All respondentsThe analysis of causes of delayed payments amongst the four categories of

respondents, considered in totality provided the following results as depicted in Graph

5below.

Very Low Low Medium High Very High0%

10%

20%

30%

40%

50%

60%

CONT

Causes of Delayed Payments

perc

enta

ge R

espo

nses

Graph 5 - Causes of delayed payments to road contractors (all respondents)

Overall, all the respondents agree with the assertions of causes of delayed payments

included in the research questionnaire. The majority of the responses for all

respondents ranged between medium and very high as follows:

Road contractors, 34% very high, 45% high and 29% medium;

Consultants had 49% very high, 29% high, and 21% medium;

Roads Fund Administration had 55% very high, 26% high and 18% medium, and

lastly;

Roads Authority had 36% very high, 38% high and 19% medium.

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4.2.1.6 Summary of the causes of delayed paymentsThe comments from the qualitative section of the questionnaire provided by

respondents provided more information into the causes of delayed payments as

described below:

1. Lack of adequate funding on the part of clientIt was revealed that the client for the roads, Roads Fund Administration has funding

challenges due to the over reliance on fuel levy to fund road projects. The money that is

funded in the national budget at times is not fully made available during the financial

year. It was also established from the responses that this lack of adequate funding is

exacerbated by politicizing road projects. “Don’t pretend like you don’t stay in Malawi.

You see, our politicians are the ones contributing to the poor development of this

country. A president can decide today and make a directive on a podium during a

political rally that a road project should start in an area, without consulting anybody on

the availability of funds or even the economic viability of the road. This presents

problems of payments to contractors when work starts since there are no budgeted

funds for such road projects”. Extracted from excerpts of interview with Head of

Finance, Roads Fund Administration. See Appendix 3 for the full excerpts of the interview.

This lack of adequate funding on the part of client contributes to delayed payments

because at the time of applying for payment by contractors, it is often found that the

client has no money to pay contractors for work done. The most contractors to suffer

are those undertaking big projects requiring huge sums of money, and in the event of

limited available funds, these are often side stepped during payments and priority is

given to smaller contractors carrying out smaller projects.

Another reason established which has contributed to lack of adequate funds on the part

of the client is the intermittent flow of cash budgeted for the road sector. Road levy

charged on fuel purchases takes long to be remitted to the Roads Fund Administration

by the Malawi Energy Regulatory Authority (MERA), the organisation which collects the

levy on behalf of RFA. Money budgeted for road development projects via the National

Page 46


budget is not immediately available and comes in bits and pieces, affecting availability

of funds to pay contractors. This has an effect on timely payment of road contractors.

The interviews also revealed that the revenue sources for the road fund are very few

and contributes to inadequate funds on the part of client. See Appendix 2.

2. Bureaucracy and red Tape in the systemMost respondents agreed to bureaucracy and red tape in the system as being one of

the major causes of delayed payments to road contractors. These results were

corroborated with interviews carried out with the respondents. “There are many, but I

can’t explain all of them because of time. But prominent ones include duplication of

work by RFA and RA. The same work performed by RA is performed again by RFA,

except for the payment. Technical auditors of RFA go to inspect road projects, an

activity which is also done by RA engineers and inspectors”. Extracted from excerpts of

interview with HoF, RFA. See Appendix 3.

From the comments provided by respondents in the questionnaires, it was revealed that

once a certificate has been prepared by a contractor, it passes through seven offices

before payment is finally made. From the contractor, the certificate is passed on to a

consultant who checks and certifies the work done by the contractor. The contractor

then routes the certificate to Roads Authority, where the project engineer authorizes the

certificate after comparing the certificate with work done on the ground. The project

engineer then routes the certificate to the regional engineer, who authorizes the

certificate for payment by Roads Fund Administration after satisfying himself with the

certificate.

After the certificate has reached the Roads Fund Administration, it goes to the technical

auditors, who are engineers by profession. These technical auditors check the

correctness of the certificate by checking the rates used by the contractor in the

certificate claim and also the quantities of completed work being claimed. The certificate

is then compared to the physical work carried out which is established via physical

verifications conducted periodically by the technical auditors to ensure certificate is

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being claimed for work done. After certification by technical auditors, the certificate is

sent to the head of audit who also conducts a check of the certificate.

After being checked by the head of audit, the certificate goes to the senior accountant

who prepares a payment voucher which is authorised by the head of finance and finally

payment is made. This whole process takes weeks to complete at the expense of a

contractor waiting for the much needed cash to meet costs of the project.

3. Disagreements on the valuation of work doneThe research revealed that there are often disagreements between contractor and

consultant including the client, RA and RFA, on the valuation of work done. Often times,

it is found that the contractor overstates the value of work of done, and sometimes he

may even use incorrect rates in order to claim huge amounts from the certificate. This

leads to delays in payment to the contractor since there is back and forth tossing of the

certificate between the parties involved in the payment process and this leads to delays

in processing the certificate and eventually delays payment to the contractor. See

Appendix 2: Excerpts of Interview with Roads Authority Senior Engineer

It was also established that the disagreements arise due to lack of adequate

documentation to support the certificate claim by the contractor. See Appendix 2.This

presents problems to the client when reviewing the certificate, resulting in delays in

payment since the supporting documentation is asked to be provided before the

certificate starts to be processed.

Sometimes, it happens that a certificate passes through the consultant and the Roads

Authority, but when it reaches the Roads Fund Administration, issues may be

discovered pertaining to the valuation of works, and the certificate is sent back to Roads

Authority to resolve with Consultant and Contractor. This entails the payment process

starting all over, thus contributing to delay in making payment.

4. Corruption in the system

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The comments from the respondents also revealed that contractors, often times

encounter cases of bribery whereby people involved in the payment, having knowledge

that contractors often rely on timely payment of certificates to have a healthy cashflow,

ask for bribes in order to speed up the certificate payment. This practice goes to worst

cases where client deliberately overlooks paying a certificate or tries to find fault with a

certificate in order to get a bribe to process the certificate. “It is also alleged that there is

corruption in the payment chain, more especially at the RA and RFA stages. Some

contractors have complained of being extorted to pay money in order that their

certificates are processed timely”. Excerpts from interview with the Senior Engineer,

Roads Authority. See Appendix 2. Different respondents placed different importance to

corruption as a causative factor of delayed payments, with contractors ranking it highest

of all the respondent groups and Roads Authority and Roads Fund administration

ranking it lowly. Refer to Graphs 1 – 4. This is not surprising bearing in mind that the

contractors are the victims of the malpractice.

5. Poor relationship between contractor and clientSurvey results collaborated with interviews of contractors revealed that bad blood

between contractor and client results in delays in processing contractor certificate for

payment. Sometimes there is bad blood between client employees and a contractor and

this may get too personal to an extent that the client deliberately delays the certificate to

make a point to the contractor that he has power over the contractor and can pull the

strings.

6. Variations and change of scope of worksContract variations and change of scope in road works contracts is a normal occurrence

due to such factors as change in designs due to unforeseen circumstances. When

variations take place, more especially where the scope of work has increased, a

contractor is not paid outright for the extra work done and is required to make the claim

on the final certificate. This results in the contractor being not paid timely for work done.

7. Political affiliation of contractor

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Contractors of all the respondent categories attributed the political affiliation as a factor

in causing payment delays. Comments from the contractors revealed that politicians

usually have an influence over the activities of the Roads Fund Administration and the

Roads Authority since these are public bodies.

Sometimes these politicians influence how payments are conducted with the client. For

example, where a contractor is affiliated to an opposition party and provides financial

support to opposition parties, politicians in government sometimes direct the client to

delay payment in order to antagonize the financial muscle of the contractor so that he

does not fund rivals. This leads to payment delays. As a converse, those contractors

who have political connections may find their way to get their certificates paid timely.

Refer to interview with RFA HoF on Appendix 3.

8. Use of Manual Payment SystemThe payment system in the road construction industry is manual and not electronic.

Contractors prepare the certificate and print a manual which is sent physically to the

consultant. The consultant checks the certificate, and writes a letter of recommendation

to Roads Authority for the contractor to be paid. This letter is printed and together with

the contractor certificate is delivered physically to Roads Authority. Once in the hands of

Roads Authority, the certificate is checked, and necessary approvals are done and

covering letter is written, printed and signed and delivered physically to Roads Fund

Administration.

At the Roads Fund administration, when the certificate is received, it is checked and

approved for payment. In some cases cheques are written for contractors and in other

cases, a bank letter is written with a list of contractors and amounts to be paid. This

letter is physically taken to the bank for payment processing.

There is so manual involvement in the certificate processing to its eventual payment

and this causes payment delays.

9. Delay in submitting contractor’s payment claim

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Contractors have a role to play in the timely processing of certificates, as the analysis of

respondents has revealed. Information from the Roads Fund Administration, Roads

Authority and Consultants emphasize that contractors delay in submitting certificate for

payment. Where there are limited funds, the demand for payment amongst competing

contractors is high, and if a contractor delays in making a claim, by the time he submits

a certificate, all the money may have already been paid to other contractors. This is

because all the money for the roads is put in one account, the road fund account, and

payment to contractors is dependent on availability of money in the account. In times of

funds shortage, apart from prioritizing contractors, payment is made on first come first

paid basis, since the client cannot wait for certificates which have not been made.

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4.2.2 Effects of Delayed PaymentsThe following subheadings discuss the effects of payments as revealed by the analysis

of responses from respondents who attended to the questionnaires.

4.2.2.1 Effects of Delayed Payments – Road ContractorsAnalysis of effects of delayed payments to contractors from the questionnaires

administered to road contractors revealed that contractors consider all the effects

included in the assertions to be the effects of delayed payments. See Graph 6 below for

the results of the analysis.

The analysis revealed the following levels of importance placed to the effects by the

contractors and have been listed below in descending order:

100% of contractors ranked tarnishing image of contractor between high and

very high as being the effect of delayed payments. 60% of responses ranked the

effect as very high and the remaining 40% ranked it as high.

100% of contractors ranked the creation of chain reaction on other parties in the

supply chain between high and very high. 55% of respondents ranked it very high

and the remaining 45% ranked it as high.

98% of contractors ranked “reduced project profitability to the contractor due to

cost overruns” as an important effect, with 68% ranking it as very high and 30%

ranking it high.

97% of contractors ranked “Cashflow problems for the contractor” as an

important effect due to delayed payments. This was represented by 80% of

contractors ranking it as very high effect and 17% of contractors ranking it as

high.

96% of contractors ranked “Delays in completing projects” between high and very

high as an effect emanating from delayed payments. Of these, 66% ranked it

very high and 33% ranked it as high.

95% of contractors ranked “negative social impacts “between high and very high

as an effect arising from delayed payments, with 43% ranking it very high and

52% ranking it high.

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92% of contractors ranked “loss of potential business” between high and very

high as an effect arising from delayed payments, with 75% ranking it as very high

and 17% ranking it high.

Suspension of works has been ranked between high and very high by 80% of

contractors as an effect arising from delayed payments, with 48% ranking it as

very high and 32% ranking it as high

bankruptcy or liquidation has been ranked between high and very high by 80% of

contractors as an effect of delayed payments, with 48% ranking it as very high

and 32% ranking it as high

78% of contractors rank “Poor relationship with client resulting in loss of future

business opportunities” between high and very high, as a an effect resulting from

delayed payments, with 45% ranking it as very high and 33% ranking it as high.

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E1 E2 E3 E4 E5 E6 E7 E8 E9 E100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Effects of Delayed Payments - ContractorsPe

rcen

tage

Res

pons

es

Graph 6- Effects of delayed payments (Road Contractors’ perspective).

E1 Delays in completing projects E2 Reduced project profitability to the contractorE3 Cashflow problems for the contractorE4 Leads to bankruptcy or liquidationE5 Creates a chain reaction on other parties in the supply chain

E6 Leads to suspension and/or abandonment of works

E7 Poor relationship with client resulting in loss of future business opportunities

E8 Loss of potential business due to spending a lot of time with one clientE9 Results in negative social impacts due to delayed completion of projects E10 Tarnishes the image of the contractor


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4.2.2.2 Effects of delayed payments – ConsultantsThe analysis of effects of delayed payments amongst the consultants revealed the

following from the perspective of consultants. The effects have been listed below in

descending order of importance.

100% of Consultants ranked as very high, reduced project profitability and

cashflow problems for the contractor as major effects arising from delayed

payments to contractors.

100% of consultants rank between high and very high, “delays in completing

projects”, as an effect of delayed payments arising from delayed payments. 71%

of these ranked the effect as very high and 29% ranked it as high.

100% of consultants ranked “negative social impacts” between high and very

high as effect of delayed payments. From these, 57% ranked it as very high and

43% ranked it as high.

Suspension of works had 100% of consultants ranking it between high and very

high. 57% ranked it as high and 43% ranked it as very high as an effect of

delayed payments to contractors.

86% of consultants ranked “creation of chain reaction to other parties in the

supply chain” as an important effect from delayed payments. Of this 86%, 57%

ranked it as very high and 29% ranked it as high.

71% ranked bankruptcy and loss of potential business as important effects

arising from delayed payments, with 29% ranking the effects as very high and

41% ranking them as high.

Finally, only 29% of consultants consider poor relationship with client as a high

effect arising from delayed payments. 57% consider it medium and the other

14% consider it low.

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E1 E2 E3 E4 E5 E6 E7 E8 E9 E100%

20%

40%

60%

80%

100%

120%

Effects of Delayed Payments - ConsultantsP

erce

ntag

e R

espo

nses

Graph 7 - Effects of delayed payments (Consultant’s).






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4.2.2.3 Effects of Delayed Payments – Roads Authority The effects of delayed payments analysed from roads authority responses revealed the

importance of effects of delayed payments from Roads Authority perspective as

depicted in Graph 8. These have been presented in descending order in the following

bullet points;

All RA employees to whom questionnaires were administered and responded,

identified “delays in completing projects” as the main effect of delayed payments.

All the respondents ranked their responses as very high.

100% of the Roads Authority respondents ranked as very high, “cash flow

problems to contractor “, as an effect arising from payment delays.

Negative social impacts was ranked by 100% of RA employees as an effect of

delayed payments with 70% ranking the effect as very high and 30% ranking it as

high.

Tarnishing image of contractor was ranked by 100% of respondents between

high and very high as an effect arising from payment delays. 70% ranked the

effect as very high and 30% ranked it as high.

Reduced project profitability was ranked by 100% of RA employees as an effect

arising from delayed payments, with 50% ranking it as very high and the other

50% ranking it as high.

Bankruptcy and liquidation received 90% of RA responses between high and

very high as arising from delayed payments. 70% ranked the impact as very high

and 20% ranked it as high.

Suspension and abandonment of works received 90% of responses between

high and very high from the Roads Authority. 50% ranked the impact as very high

and 40% ranked it as high.

Loss of potential business received 60% of the responses between high and very

high, with 20% ranking the impact as very high and the 40% ranking it as high.

Poor relationship with client received 50% of the responses between high and

very high with 10% ranking the impact as very high and the 40% ranking it as

high.

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E1 E2 E3 E4 E5 E6 E7 E8 E9 E100%

20%

40%

60%

80%

100%

120%

Effects of Delayed Payments - RAP

erce

ntag

e R

espo

nses

Graph 8 - Effects of delayed payments (RA’s perspective).






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4.2.2.4 Effects of Delayed Payments – Roads Fund AdministrationThe effects of delayed payments analysed from Roads Fund Administration’s responses

revealed the importance of the effects of delayed payments from Roads Fund

Administration’s perspective as depicted in Graph 9. These have been presented in

descending order in the following bullet points;

Cashflow problems for the contractor was ranked by 100% of the respondents as

very high;

Reduced project profitability to the contractor was ranked by 100% of

respondents between high and very high as an effect arising from delayed

payments. 73% of these respondents ranked the impact as very high and the

other 27% raked it as high.

Delays in completing projects was ranked by 100% of respondents between high

and very high, with 64% ranking it as very high and 36% raking it as high.

Negative social impacts was ranked by 100% of respondents between high and

very high with 55% raking it as very high and 45% ranking it as high.

Chain reaction on other parties in the supply chain was ranked by 91% of

respondents between high and very high, with 64% ranking it as very high and

27% ranking it as high,

Loss of potential business was ranked by 91% of respondents between high and

very high, with 55% ranking it as very high and 36% ranking it as low.

Bankruptcy or liquidation was ranked by 82% of respondents between high and

very high, with 27% ranking it as very high and 55% ranking it as high.

The two effects below were not ranked highly by Roads Fund administration as being

significant:

Suspension and/or abandonment of works was ranked by 100% of respondents

between medium and high, with 55% ranking it as medium and 45% ranking it as

high.

Poor relationship with client was ranked by 100% of respondents between low

and high, with 9% of respondents ranking it as low, 46% ranking it as medium

and 45% ranking it as high.

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E1 E2 E3 E4 E5 E6 E7 E8 E9 E100%

20%

40%

60%

80%

100%

120%

Effects of Delayed Payments - RFA

Per

cent

age

Res

pons

es

Graph 9 - Effects of delayed payments (RFA’s perspective).






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4.2.2.5 Effects Delayed Payments – all respondentsThe results of the analysis of all responses taken in totality for all respondents revealed

a positive affirmation to the research assertions of the effects of delayed payments as

included in the research questionnaire as depicted in Graph 10 below.


10%

20%

30%

40%

50%

60%

70%

Effects of Delayed Payments - All respondents

Perc

enta

ge re

spon

ses

Graph 10 - Effects of delayed payments to road contractors (all respondents)

Significantly, all responses considered together for each respondent ranked the effects

(impact) of delayed payments between high and very high impact as explained below:

Road contractor responses ranked all the effects towards high and very high with

these values getting 33% and 58% weights respectively. 9% of the responses

were between very low and medium impact.

Consultants responses were 51% very high, 34% high and 14% between very

low and medium

Roads Authority responses were 57% very high, 32% high, and 11% between

very low and medium

Roads Fund Administration responses were 47% very high, 35% high and 17%

between very low and medium.

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4.2.2.6 Summary of findings of the effects of delayed paymentsThis section summarises the effects of delayed payments after considering the

responses from questionnaires and the interviews with RA and RFA employees. The

research has revealed that effects of delayed payments are experienced in the industry

as explained in the following subheadings:

1 Delays in completing projects The information gathered from all respondents revealed that delayed payments

contribute to delay in completion of projects. Most contractors revealed that many

projects in Malawi always experience time overruns due to the delayed payments to

contractors by clients. See Appendix 2: Excerpts of Interview with Roads Authority Senior

Engineer.

“Talking about effects, there are many. But of importance to the RA, and myself as

an engineer include project delays and sometimes suspension. When payment to

contractors delay, they stop working because they don’t have resources with which

to use in undertaking the project. Many road projects, such as Nkhotakota-Nsulira,

Bunda-Mitundu and Phalombe-Chiringa road have delayed to complete because of

the same issue”. Appendix 2

Since contractors remain illiquid, they have no means of buying materials, paying

employees and meeting other overhead costs, and impacts on projects completion.

2 Reduced project profitability to the contractor due to cost overrunsMost contractors who provided additional information to their questionnaires

revealed that due to delayed payments, the profitability of a project to the contractors

reduces drastically and in some cases totally wiped off resulting into making losses

by the contractors. This is so because delayed payments results in the contractors

spending a long time on the site and continue to incur overheads such as idle labour

payment etc.

Also, due to delayed payments, contractors resort to borrowing from banks and

other unchartered and informal lending individuals and suffer interest charges for the

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sole reason that the work should not stop. This reduces their profits in their income

statement.

3 Cashflow problems for the contractorThe research also revealed that cashflow problems are caused by delayed

payments because most contractors, especially the small to medium sized ones do

not have the financial muscle to sustain the works in the event of delayed payments.

The payment delay thus heavily impact on their cashflow position and the balance

sheet is affected by creditors.According to interviews with RFA, “Ok. Let me see. There used to be many

construction companies in Malawi, most of them went out of business, not only due

to financial mismanagement, but also due to delayed payments”. See Appendix 3.

4 Leads to bankruptcy or liquidationIt was revealed during the research that delayed payments are one of the many

causes of failure of many contractor’s businesses, especially small and emerging

contractors who do not have a big asset base. Delayed payments clearly shake their

survival on the market and they resort to other modes of financing e.g. usury from

loan sharks in order to meet financial commitments for the contract. See Appendix 2

and Appendix 3, interviews with RA and RFA. In the end this totally wipe out their cash

and they are no longer liquid enough to sustain the business.

5 Creates a chain reaction on other parties in the supply chain Delayed payments have a secondary effect on the supply chain in the construction

project, affecting all the players in the construction. When payment delays, it creates

a vicious cycle in the supply chain since the contractor has obligations to pay other

people for goods and services rendered including suppliers and employees. Where

the contractor fails to pay, this also creates a chain reaction in the supply chains of

those other players. For example suppliers need to reorder stocks, pay creditors,

their employees etc. A negative effect on their customer, the contractor, also affects

them and their entire supply chain.

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6 Leads to suspension and/or abandonment of works by the contractorInformation provided by respondents revealed that payment delays leads to suspension

and worst scenarios, abandonment of works. This is because a contractor relies on the

regular payment of interim certificate claims for him to perform the work. Where the

payments are not being done, a contractor is left with no cash resources and has no

choice but to abandon work until client is ready with funds. This is very common with big

projects involving huge capital outlays trickling into millions of Dollars. Respondents

cited such roads as Nkhotakota-Nsulira road, Bunda-Mithundu Road and Phalombe-

Chiradzulu-Chiringa Road, as projects which were abandoned due to delayed or non-

payment of contractor certificate claims. See Appendix 2.

7 Poor relationship with client resulting in loss of future business opportunitiesThe research also revealed from the information provided by the respondents that

delayed payments have the disastrous consequence of causing relationship breakdown

between contractor and client. Some contractors resort to other means of getting their

payment processed e.g. use of political connections to intimidate client, or using the

legal frameworks such as courts to sue the client for non-payment. The antagonism

created as result of this results in relationship breakdown between the client and

contractor, compromising future business opportunities for the contractor.

8 Loss of potential business due to spending a lot of time with one clientAs the old adage goes “time is money”, this is true for contractors engaged in

construction projects. The longer the time spent at a construction site not only reduces

the profitability of the contract but also leads to loss of potential business with other

clients who may many be in need of contractors whilst one is engaged with another

client. Most construction companies have limited number of employees who cannot be

committed to more than one project at once. Also, to get works, there is need for a

performance bond. The bond is inform of money or property valued at a certain sum,

and acts as guarantee that a contractor will perform the work. This money remains with

a bank until the contract is finished when it is released. Overspending time at a project

site means that this money still remains tied with a bank, until the project is finished.

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This limits the contractor from bidding for other jobs until his money is released from the

performance bond.

9 Negative social impacts due to delayed completion of projects e.g. poor roads for the citizenry

Information sourced from the respondents revealed that delayed payments results in

negative social consequences to the society. Roads help people to easily access

markets, hospitals in order to access health care, and other social amenities. Delayed

projects make life difficult for the people targeted with the road project. According to

RFA HoF, “There are many other effects, including underdeveloped road network

leading to lack of access to markets for the local masses”. See Appendix 3

10 Tarnishes the image of the contractorThe research information gathered from respondents revealed that contractors’ image is

at risk of being tarnished in the event of projects delaying due to delayed payments.

This is very common in Malawi because people do not understand the relationship

between client and contractor in the road projects. In the event of project delays, people

always blame the contractor that he is delaying the project without knowing the source

of the problem. In severe cases, people have demonstrated against contractors carrying

out road projects and harassed their workers due project delays.

In some cases people have even petitioned the client, RA/RFA, to cancel contracts with

certain contractors due to road project delays. These stories are published in

newspapers and even aired on national and private radio stations and television

stations in the country. This negatively impacts on the image of the contractors, which is

a very important asset in business to win contracts with future clients.

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4.2.3 Solutions to delayed PaymentsThe results of the analysis of all responses taken in totality for all respondents depicted

in Graph 11 below, reveal a positive affirmation to the assertions of solutions to delayed

payments included in the research questionnaire in Appendix 1.

The assertions made in the questionnaire to solve the problem of delayed payments are

listed below:

Charging interest payments on delayed payments

Legal action for delayed certificates

Cash flow planning by client

Reducing bureaucracy in the payment certificates

Adopting e-payment system

Enforcing an ethical culture in the payment system

Right to suspend work by the contractor

Improving coordination by all the contracting parties; consultants, contractors

and client

Improving capacity of contractor in preparing certificate claims


10%

20%

30%

40%

50%

60%

Solutions to Delayed Payements - All respondents

Perc

enta

ge R

espo

nses

Graph 11 - Solutions to delayed payments to road contractors (all respondents)

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The responses from the four categories of respondents largely ranged between high

and very high with the totals for the ranges at 85% for road contractors, 88% for

consultants, 73% for RFA and 83% for Roads Authority.

4.2.3.1 Summary of findings of the solutions to delayed paymentsThe following subheading explains the solutions to the problem of delayed payments

aided by the comments provided by respondents in the questionnaires and interviews

1. Charging interest payments on delayed payments All the respondents agreed that charging interest on delayed payments is

amongst the most viable solutions to ensure payments are made timely by the

client. Charging interest acts as punishment to the client, and compensation to

the contractor for delayed payments. Currently, the provisions of the contract

include a clause on charging interest for late payments. See Appendix 3,

excerpts of interview with HoF, RFA.

2. Legal action for delayed certificates Where certificates are delayed beyond reasonable time and due to factors perceived

to be related to poor relationships or political, some of the respondents suggested a

legal suit should be the remedy to the contractors in order to be paid timely. Some

contractors had reservations on the use of legal remedy to avoid breaking

relationships and compromising opportunities for future contracts with the client.

3. Cash flow planning by clientAll respondents pointed to the need for cashflow planning by client when starting

projects and engaging a contractor. It was suggested that proper feasibility studies

into availability of funds to undertake projects should be made. It was also

suggested that politicians should avoid starting projects for the sake of gaining

political mileage, without caring whether resources are available. Refer to Appendix 3:

Excerpts of Interview with Head of Finance for RFA

4. Reducing bureaucracy in the payment certificates

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The respondents made suggestions that there should be reduction in duplication of

work in the payment process, more especially at the checking of certificate. There is

so much duplication of work between Roads Authority and Roads Fund

administration, and reducing this should help to mitigate payment delays. Refer to

Appendix 2 and Appendix 3.

5. Adopting e-payment system The respondents attributed payment delays to over use of manual processing of

payment in the construction sector. Adoption of e-payment system, where a

contractor can electronically log a certificate and all processes are done via

computer, should go a long way to mitigate payment delays. See Appendix 2.

6. Enforcing an ethical culture in the payment system Most of the respondents suggested that there is need for professionalism in the

construction sector and a code of ethics for the industry needs to be enforced by the

NCIC. All the other organisations should also develop codes of ethics to curb

malpractices such a graft. Refer to Appendix 3: Excerpts of Interview with Head of Finance for

RFA

7. Right to suspend work by the contractor The respondents suggested that the contractor should have the right to suspend

work where non-payment or delayed payments are being experienced from the

client. Currently, the conditions of contracts for road projects do not include delayed

payments as one which can lead to termination of contract.

8. Improving coordination by all the contracting partiesAll parties should work in tandem and should own the contract as their own. There

should be constant flow of information amongst all the parties to timely make

decision which affect payments. For example, Roads Fund should send timely

information to road contractors on impending holidays or activities which can affect

payments and require them to expedite preparation of certificates. Refer to appendix

2 and 3.

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9. Improving capacity of contractor in preparing certificate claimsThe respondents agreed that one step towards curbing delayed payments is to

train contractors on how to raise a certificate as most contractors have problems

with the task and results in preparing incorrect certificates which often times are

sent back for correction, resulting into delays. Refer to appendix 2 and 3.

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CHAPTER FIVE – CONCLUSION AND RECOMMENDATIONSThis chapter summarises the findings from the last chapter and draws conclusions from

the same.

This research paper has investigated the causes and effects of delayed payments to

road contractors in Malawi for publicly funded road projects. From the results of the

study drawn from the primary research and supported by the literature reviewed, it can

be concluded that payments are a lifeline of the construction industry. Delays in

payments have disastrous consequences to contractors and the entire industry. It is

therefore imperative that critical importance should be put to payments to contractors to

avoid delays.

From the results of the research, it can also be concluded that the assertions in the

research questionnaire drawn from the literature review as to the causes and effects of

delayed payments have been confirmed by the primary research.

Further, the research identified solutions to resolve the problem of delayed payments.

Various recommendations have been suggested by the research respondents including

cashflow planning, reduced bureaucracy, charging interest on delayed payments,

adoption of e-payment, enforcement of ethical culture, improving coordination, and

improving capacity of contractor in certificate preparations. To ensure successful

integration of these recommendations, further recommendations have been proposed.

There is need for the Roads Fund Administration to increase its revenue base. Other

than relying on fuel levy and government appropriations, effort should be made to carry

out research on other potential revenue sources to ensure that there are adequate

funds for road projects which will ensure timely payments to contractors.

There is a need for collaborative partnership between Roads Fund Administration and

Roads Authority to ensure enhanced coordination to eradicate delayed payments to

road contractors. This can be achieved by constant communication and removal of any

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rivalry in how they work and start seeing themselves as part of the contract. According

to HoF, RFA, the relationship between RFA and RA has left many contractors suffering

due to poor coordination and this has led to delayed payments. See Appendix 3: Excerpts of

Interview with Head of Finance for RFA. This is supported by Donkor, (2011) whp

recommends that Clients, Consultants and Contractors should consider the project as

their own and should coordinate effectively to ensure smooth flow of communication

among the contracting parties.

There is also a need for refinement of roles performed by Roads Fund administration

and Roads Authority to remove duplications and inefficiencies which contribute to

delayed payments such as physical verification of work by both organisations. A

functional review exercise of the roles of the two organisations should be carried out to

identify conflicting and duplicated roles in the payments process and streamline

activities to reduce bureaucracy. To effectively embrace the changes proposed by the

functional review, change management strategy should be incorporated in the two client

organisations, RA/RFA. In every organisation, people have an inherent fear of

embracing change for various reasons including fear of the unknown, fear of losing

status and position, fear of job loss etc. It is imperative that change management

techniques are employed in all organizations in the payment process.

It is also imperative that Continuous Improvement is employed in the road sector to

ensure that problems are continually addressed and strive to reach a stage of 100%

non-delayed payments by the Malawian road sector. This includes contractors

improving their certificate preparation skills.

Page 71


Appendices

Figure 7 - Dissertation Work Plan

Page 72


Appendix 1– Sample Research Questionnaire

RESEARCH QUESTIONNAIREDear Participant

I am Joseph Chembezi, collecting data from you which will be used in my dissertation as

part of my Masters in Project Management with the University of Bolton. The aim of the

research is to investigate the causes and effects of delayed payments to Road Contractors

in Malawi for public funded road projects, and to suggest solutions to resolve the problem.

The information you will be asked to provide will be used to help to provide insights to

achieve these objectives.

The questionnaire should take you about 15 minutes to complete. The information

provided will be treated in the strictest confidence as you will notice that you are not asked

to include your name and address anywhere on the questionnaire. The findings from your

questionnaire and others will be used as the main data set for my dissertation for my

masters’ course in Project Management at the University of Bolton. I hope you will find

completing the questionnaire enjoyable.

If you have any queries or would like further information, please feel free to contact me on

0999 930 189/0888 859 356 or email me on [email protected]

Thank you for your assistance and cooperation.

Page 1


1) Which area in the construction industry supply chain are you in?

☐Contractor ☐Consultant ☐RA ☐RFA

2) How long have you been in the construction industry?

☐0-5 years ☐6-10 Years ☐11-20years ☐21years and above

3) Are you familiar with payment certificates for road projects?

☐Yes ☐No

4) Have you ever participated in any capacity in the processing/certification or any

issues of payment for road projects?

☐Yes ☐No

5) Are you aware or experienced any instance of a certificate for road project being

delayed for payment?

☐Yes ☐No

Page 2


6) The following table lists down various factors which contribute to delayed payments

to road contractors for work done. Please rank these variables by significance by

ticking the relevant field.

Item Factor Very

Low

Low Medium High Very

High

1. Corruption in the system ☐ ☐ ☐ ☐ ☐

2. Lack of adequate funds on the part of

client

☐ ☐ ☐ ☐ ☐

3. Bureaucracy and Red Tape in the

system

☐ ☐ ☐ ☐ ☐

4. Variations in the original contract ☐ ☐ ☐ ☐ ☐5. Poor relationship between contractor

and the client

☐ ☐ ☐ ☐ ☐

6. Inaccurate bills of quantities and/or

Disagreement on the valuation of works

done

☐ ☐ ☐ ☐ ☐

7. Political affiliation of contractor ☐ ☐ ☐ ☐ ☐

8. Use of manual payment system ☐ ☐ ☐ ☐ ☐

9. Delay in submitting contractor’s payment

claim

☐ ☐ ☐ ☐ ☐

7) Any other factors which cause payment delays you wish to include:

I. …………………………………………………………………………………

………………

Page 3


II. …………………………………………………

……………………………………………

III. …………………………………………………………………………………………

Page 4


8) The following table lists down the impacts on contractors brought about as a result

of delayed payments. Please rank these variables by significance by ticking the

relevant field.

Item Factor Very

Low

Low Medium High Very

High

1. Delays in completing

projects

☐ ☐ ☐ ☐ ☐

2. Reduced project profitability

to the contractor due to cost

overruns

☐ ☐ ☐ ☐ ☐

3. Cashflow problems for the

contractor

☐ ☐ ☐ ☐ ☐

4. Leads to bankruptcy or

liquidation

☐ ☐ ☐ ☐ ☐

5. Creates a chain reaction on

other parties in the supply

chain

☐ ☐ ☐ ☐ ☐

6. Leads to suspension and/or

abandonment of works by

the contractor

☐ ☐ ☐ ☐ ☐

7. Poor relationship with client

resulting in loss of future

business opportunities

☐ ☐ ☐ ☐ ☐

8. Loss of potential business

due to spending a lot of time

with one client

☐ ☐ ☐ ☐ ☐

9. Results in negative social

impacts due to delayed

completion of projects

☐ ☐ ☐ ☐ ☐

Page 5


10. Tarnishes the image of the

contractor

☐ ☐ ☐ ☐ ☐

9) Any other impacts of delayed payments to contractors you wish to include:

I. …………………………………………………………………………………………

………

II. …………………………………………………………………………………………

………

III. …………………………………………………………………………………………

………

Page 6


10)The following table lists down mitigations to the problem of delayed payments.

Rank these solutions in terms of relevance.

Ite

m

Solution Very Low Low Medium High Very

High

1 Charging interest

payments on

delayed payments

☐ ☐ ☐ ☐ ☐

2 Legal action for

delayed certificates

☐ ☐ ☐ ☐ ☐

3 Cash flow planning

by client

☐ ☐ ☐ ☐ ☐

4 Reducing

bureaucracy in the

payment certificates

☐ ☐ ☐ ☐ ☐

5 Adopting e-payment

system

☐ ☐ ☐ ☐ ☐

6 Enforcing an ethical

culture in the

payment system

☐ ☐ ☐ ☐ ☐

7 Right to suspend

work by the

contractor

☐ ☐ ☐ ☐ ☐

8 Improving

coordination by all

the contracting

parties; consultants,

contractors and

client

☐ ☐ ☐ ☐ ☐

9 Improving capacity

of contractor in

☐ ☐ ☐ ☐ ☐

Page 7


preparing certificate

claims

11)Any other solutions to the problem of delayed payments to contractors you wish to

add:

I. …………….

…………………………………………………………………………………

II. …………….

…………………………………………………………………………………

III. …………………………………………………………………………………………

……

Page 8


Appendix 2: Excerpts of Interview with Roads Authority Senior Engineer

INTERVIW WITH SENIOR ENGEINEER, ROADS AUTHORITYVenue : SE’s office

Interviewer : Researcher

Interviewee : SE

Date : 25th March 2015

Excepts

SE. Welcome Joseph. How is the research going on?

R. Thank you. Things are taking shape right now, although challenges are still there

more especially with getting contractors return questionnaires. But as time gets

closer, I believe I should receive most of the questionnaires.

SE. That’s wonderful to hear. It is normal when carrying out research to experience

challenges. That is part of the game. So, how may I help you? What information

are you looking for?

R. I have two main objectives which I would like to fulfil from the research: to find

causes of delayed payments to road contractors and the effects this brings to the

industry. I am also interested to find solutions to this problem. In short, I want you

to provide me with information along these research objectives.

SE. My friend, we can spend the whole day discussing this topic. This is a very wide

subject, but I will try to be specific to be in tune with the allocated time of 30

minutes for the interview.

R. Thank you sir. You may go on.

SE. Regarding causes, the major one is lack of enough funds by the RFA to pay

contractors. I am not sure why we have this, but this is really an issue. The

second factor is the long process that contractor’s certificate go through to get

paid. At first, before creation of RFA, all payments used to be made by National

Roads Authority, and things were moving efficiently.

Page 1


R. I have noted that the causes mentioned all relate to the RFA. Does it mean that

the RA does not contribute to payment delays?

SE. Ha-hah! Do you want to misquote me my friend? Not that all problems are

caused by RFA. Even the RA and the contractors contribute to the delay in one

way or another. For example, RA sometimes forget to include supporting

documentation in the certificate forwarded to RFA for payment, and RFA holds

the certificate until all relevant documents are furnished. Sometimes the

contractors fail to raise a correct certificate, with many errors characterizing the

certificate claim. Sometimes one wonders if these errors are genuine, because

most of the times the errors always favour the contractor by over claiming on

work done. When these certificates are detected, they are sent back to the

contractor for correction, resulting in delays.

It is also alleged that there is corruption in the payment chain, more especially at

the RA and RFA stages. Some contractors have complained of being extorted to

pay money in order that their certificates are processed timely. Where a

contractor refuses to be corrupted, the client deliberately delays his certificate.

But these are just allegations without any proof.

R. How do you rank use of manual payment in the payment process as a contributor

of delayed payments?

SE. Joseph, you well know that in the modern day and age, computers have formed

the backbone of every activity including businesses. In the road sector payment

system, manual system has been in place since as far back as I can remember.

Everything about contractor’s payments is manual from the contractor up to

Roads Fund Administration. Yes, manual payment has an impact, but not as

high.

R. That is well understood. What about the effects of delayed payments?

SE. Talking about effects, there are many. But of importance to the RA, and myself

as an engineer include project delays and sometimes suspension. When

Page 2


payment to contractors delay, they stop working because they don’t have

resources with which to use in undertaking the project. Many road projects, such

as Nkhotakota-Nsulira, Bunda-Mitundu and Phalombe-Chiringa road have

delayed to complete because of the same issue.

There have also been cases of some contractors facing financial hardships which

has led to some closing down.

R. As an engineer at RA, what measures can you propose to combat the problem of

delayed payments to contractors?

SE. As I already pointed out, the main issue with payments is lack of adequate funds

with RFA. The government and RFA should find means of raising more revenue

for road projects. Further to this, contractors should have experts who are

familiar with certificate processing to avoid errors.

I think my twenty minutes is up. We have to wind up. Lastly, RA and RFA

activities need to be aligned to remove duplicated roles. Otherwise, there is too

much duplication of roles mostly between RA engineers and RFA technical

auditors.

R. Thank you so much sir. It is true the 30 minutes is up. I really appreciate for

allowing me to meet you and have this interview despite your busy schedule.

May God bless you sir.

SE. It is my pleasure. Please make sure you share the results of your research to

me. Have a good day.

Page 3


Appendix 3: Excerpts of Interview with Head of Finance for RFA

INTERVIEW WITH HEAD OF FINANCE, ROADS FUND ADMINISRTATIONVenue : HoF’s office

Interviewer : Researcher

Interviewee : HoF

Date : 26th March 2015

Excepts

R. Hello Sir, Good Morning.

HoF. Fine thanks, how are you? You can take a seat. How may I help you?

R. As you recall, I scheduled for an interview with you today in relation to the topic

of the research which I am carrying out.

HoF. Yes I remember, it’s just that this morning I have been busy, the CEO is looking

for some reports and I am supposed to furnish him by noon. By the way, remind

me, what is your research topic? You will forgive me, I read the email last week

and with age am becoming too forgetful.

R. The research is entitled investigation into causes and effects of delayed

payments to road contractors for publicly funded road projects. Basically, I am

interested to learn from you, being at the helm of payments to road contractors,

your experience regarding causes of payment delays and the impact this causes

to the contractors.

HoF. Hmmm! (clears throat). Young man, you must already know all the issues to do

with payments. You have been working with the RFA for six years. What I know,

you already know.

R. Correct sir, but you being directly involved in the payments, and also more senior

in the organisation, you should know issues much better than me.

HoF. Ha-ha! Ok. So where do we start?

Page 1


R. Wherever you want sir, but I would be comfortable to follow a structured

approach, from causes and effects, to suggested solutions to resolve the

problems.

HoF. Ok. But I am only giving you 30 minutes for the interview as agreed. Don’t forget

I have reports to submit to the CEO. My friend, there are many causes to delayed

payments, but none can surpass the inadequate funds available to carry out

projects. Of the many reasons for this, apart from few revenue bases in addition

to the fuel levy, most projects are started without proper feasibility studies.

R. What do you mean sir when you say most projects commence without proper

feasibility studies?

HoF. Don’t pretend like you don’t stay in Malawi. You see, our politicians are the ones

contributing to the poor development of this country. A president would just make

a directive on a podium at a political rally that a road project should start in an

area, without consulting anybody on the availability of funds or even the

economic viability of the road. This presents problems of payments to contractors

when work starts since there are no budgeted funds for such road projects.

R. That is well understood sir, what could be the other contributing factors?

HoF. There are many, but I can’t explain all of them because of time. But prominent

ones include duplication of work by RFA and RA. The same work performed by

RA is performed again by RFA, except for the payment. Technical auditors of

RFA go to inspect road projects, an activity which is also done by RA engineers

and inspectors. In other words, the relationship between RFA and RA has

left many contractors suffering due to poor coordination and this has led to

delayed payments

Page 2


During my stay in this organisation, I have also noticed that most contractors have

problems to make claims, and this results in errors. When detected, the

certificates are sent back for correction, delaying payment further.

R. Do you face political pressure when making payments?

HoF. Normally this happens when funds are limited and rationing for payments is

happening. Some politically connected contractors find their way to have

payments made in full. This disadvantages other contractors who would have

been paid had the politicians not exercised a hand.

R. In terms of politicians demanding that certain contractors are not paid?

HoF. This happens, but sporadically.

R. Sir, in the interest of time, would you quickly go to the effects of payment delays

to contractors.

HoF. Ok. Let me see. There used to be many construction companies in Malawi, most

of them went out of business, not only due to financial mismanagement, but also

due to delayed payments. Most of the contractors use borrowed money to

undertake projects, and if there are payment delays to them, it means the

creditors are also not paid timely, resulting in accumulation of interest on the

money borrowed. This forces the contractor out of business because it affects

their liquidity. The other effect is delay in completion of projects. What happens

when a contractor’s payment delays is that the contractor suspends work and

this results in the projects delaying.

There are many other effects, including underdeveloped road network leading to

lack of access to markets for the local masses; interest charged on delayed

payments puts a strain on the already limited road budget.

R. If you were to change things, what would you do to deal away with the problem

of delayed payments in line with the causes and effects already explained?

Page 3


HoF. First and foremost, it is important to increase the revenue base of the Road

Fund. Currently, fuel levy and government funding via national budget are the

core sources of revenue and this is not adequate. It is important to think of how

to go beyond these two revenue sources in order to ensure availability of

adequate cash to pay contractors timely. It is also important …Ngrrrrr! (cell

phone rings, picks it up and hangs up). Am sorry, I will attend to that letter. How

far are we to finish? Ok, what I was saying is that there is need to streamline

activities of RA and RFA to remove inefficiencies and duplications which are

causing payment delays. The organisations can utilize work of consultants to

independently carry out a functional review of the activities of the two

organisations. By the way, I gave you twenty minutes and this is up. I have to

attend to office activities, otherwise I may get fired. Are you going to

accommodate me shelter at your house if am fired? Ha-ha! I am joking.

Currently, the contractors charge interest on delayed payments using the

applicable bank lending rate. This was designed to cover the contractors from

delayed payments.

In order to address concerns of corruption, codes of ethics in the various

organisations in the construction industry should be developed and implemented.

R. Sir, I would like to thank you for your time and the information provided and I

promise to provide you with a copy of the research report. I ask God to bless you.

Thank you.

HoF. Thank you. Make sure to use the information for academic use only. Have a

good day.

Page 4


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