ABSTRACT
The construction industry plays an important role in Nigerian
soci-economics development. It is both growth-imitating, and growth-dependent.
The industry establishes buildings and infrastructure works required for
socio-economic growth. The success of economic development will further lead to
increase in disposal incomes, thereby generating demand for additional
construction activities.
However, there remains a chronic problem of delayed and non-payment in
the payment in the industry affecting the entire project delivery chain.
The Nigerian construction industry operates the outdated and
inefficient payment practices which were inherited from our colonial masters.
The security of payment problem is common to many commercial
relationships, but the construction industry presents a peculiar problem,
because payment terms are on credit, rather than on delivery.
The growing affluence and higher quality expectation of purchasers and
consumers spurs developers to stipulate longer defects liability period and
higher retention amount.
This study therefore focuses on the causes, effects and reactions of
indigenous contractors to late and non-payment issues and to identify ways to
mitigate the problem. The research focused on contractual payments from the
employer to the contractor.
To facilitate the study, fifty questionnaires received from the filed
survey of relevant construction companies were analyzed using mean item score,
while two hypotheses were tested using the chi-square.
Findings from the study indicate that the main factors causing for Late
and non-payment in the construction industry identified are: Delay in
certification, employer’s poor financial management, local culture/attitude,
underpayment of the certified amount, and short of current year budget.
The finding show that Late and non-payment create cash flow problem,
stress on constructors, high cost of projects abandonment and some reactions to
late and non-payment encountered by contractors may have adverse effects on
their own business.
The findings show that late and non-payment create cash flow problem,
states on constructors, high cost of projects and abandonment and some
reactions to late and non-payment encountered by contractors may have adverse
effects on their own businesses.
Among the most appropriate solutions to overcome the problem Late and
non-payment faced by indigenous contractor’s include; a right to regular period
and defined time-frame for payment; a right speedy dispute resolution
mechanism, and a right to suspend work.
In the main, the professional bodies, Government and other stake
holders should study and amend the existing standard form of contract to provide
protection and promote balanced allocation of risks and fair contract to all
related parties.
Finally, the findings of the research may assist the relevant parties in
addressing the problems associated with late and non-payment in an effective
manner, to the benefit of all.
CHAPTER
ONE
1.01 INTRODUCTION
The construction industry is one of the largest industries in Nigeria.
It contributes about 2% of the gross domestic product (GDP). It employ’s a
workforce of about two million people and engages support services from a wide
range of professionals such as architects, engineers, builders, and surveyors.
The industry produces
buildings and infrastructure works required for socio-economic development,
which contribute to the overall economic growth. The national yearly
development plan usually includes the construction sector as its major
component. The development of the industry is therefore a critical success
factor in the development of the overall national economy.
The most common project procurement method used in commercial
construction in Nigeria is the traditional design-bid-build system of
contracting. Here, most contracts are awarded to main contractors, who also
enter into contracts with subcontractors, suppliers, and ultimately skilled
artisans and laborers who are employed by these firms.
However, it is common to find that the problem of the contractor is on
the inadequacies of the payment regime in the construction industry.
Many in the industry see and often themselves suffer the effects of
payment default and keep moaning about it. Nevertheless, the problem was not a
major issue during the good times of the oil boom of 1970’s when jobs were plenty and many contractors or even
sub-contractors would tolerate late payment.
However, the problem became magnified as the industry is deeply
affected by bleak market and falling construction demand. The general
legislation and the existing contractual arrangement for project procurement
have not prevented the problems.
There is therefore an urgent need to provide new mechanisms that will
address the cash flow problems facing contractors in the Nigerian construction
industry.
1.02 BACKGROUND OF THE PROBLEM
Payment is said to be the lifeblood of the construction industry. Yet,
there remains a chronic problem of Late and non-payment, Lin Chon Fong
(2005). The federation of building and civil engineering contractors in
Nigeria has been lamenting on this problem as frequently reported in the press.
This is a major concern because the quantum of payment for works and services
rendered in the industry is large, often in billions of naira.
The industry works and will continue to
work provided those works and services are properly paid for. The practice of
efficient and timely payment is a major factor that contributes to a project
success (CIOB 2004).
A survey of payment performance has shown that the construction
industry has developed a late and non-payment culture, John stone, (1999),
which in some cases, often leads to disputes. This usually create severe cash
flow problems especially to contractors,
because payment is post-phoned pending the resolution of the dispute.
The common available mechanisms of dispute resolution in the construction
industry are presently by way of arbitration and litigation. In practice, these
mechanisms leave much to be desired because of their many inadequacies and
shortfalls.
The situation is getting worse
because:
·
There are only limited security of payment and
remedies available to the unpaid contractor in Nigeria pending dispute
resolution.
· There
is no common law right of suspension of work by the contractor for non-payment,
else the court may find him guilty of repudiating the contract.
· Even
though the standard form of contract (JCT 80 Nigerian edition), contain
express provisions for determination of his employment for non-payment, most
contractors as a matter of practice are reluctant to go on this route in order
to maintain commercial goodwill with employers.
This is the present dilemma of the unpaid Nigerian contractor, as he
watches his cash flow and profitability put into jeopardy.
1.03. AIM OF THE STUDY
The aim of the study is to investigate the causes, effects, reactions
and solutions to late and non-payment problems encountered by contractors in
the Nigerian construction industry, (Enugu State).
The study objectives are:
·
To identify the causes of late and non-payment
of construction projects
·
To establish the common reactions by
contractors in managing the problems
·
To examine the effects on the contractors
·
To identify ways to mitigate the problems
1.05. RESEARCH QUESTIONS
·
What are the causes of late and non- payment in
Nigeria construction industry
·
What are your reactions when it faced with a
late and non-payment situation
·
What are the effects of late and non-payment on
performance of contracts
·
How can the problem of late and non-payment be
reduced
1.06. RESEARCH HYPOTHESES
Research
Hypothesis 1
HO:
H1:
Research
Hypothesis 2
HO:
H1: There is significant difference in factors causing non-payment.
Although late and non-payment do occur in several construction
contracts, this study is restricted to the investigation of late and non
payment issues in building construction projects.
Owing to the problem of accessibility of data, the data for this study
will be based on the contractors whose offices are located in Enugu State,
namely small, medium and large organizations.
The most prevalent used form and conditions of contract in Nigeria is
the JCT 8o (current edition) issued by the Federal Ministry of Works
(FMW). This mostly will be referred to in this study.
1.08. SIGNIFICANCE OF THE
STUDY
First and foremost, the aim is to increase the awareness of both the
employers and contractors in relation to their obligations on payment issues.
For the contractors, it will provide a better understanding of their rights to
payment and their legal position if payment is delayed or not paid.
In the main, the findings of the study may assist the stakeholders in
the industry, in addressing the problems of late and non-payment in a holistic
manner for the benefit of all.
Specifically, it may be useful for the introduction of a legislation to
be called “construction payment Act” as already found in many developed
countries.
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Item Type: Project Material | Size: 71 pages | Chapters: 1-5
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