Is Late or Non-Payment a Significant Problem to Malaysian Contractors?

• Published in: Journal of design and the built environment Vol. 3; no. 1; pp. 35 - 50
• Main Authors: M.E. Che Munaaim, M.S. Mohd Danuri, H. Abdul-Rahman
• Format: Journal Article
• Language: English
• Published: University of Malaya 01.12.2007
• Subjects: Cashflow; Construction contracts; Dispute; Late and "oll-payment; Late and non-payment
• ISSN: 1823-4208; 2232-1500

Some developed countries have drawn lip construction-specific statutory security of payment acts/legislations typically known as Construction Contracts Act to eliminate poor payment practices and to assist continuous uninterrupted construction works. Malaysia too cannot pretend not to have these problems. This paper presents findings of a study conducted amongst Malaysian contractors with the aims to determine the seriousness of late and non- payment problems; to identify the main causes and effects of late and non-payment; and to identify ways to sustain the payment flows in the Malaysian construction industry. The study focused on contractual payments from the paymaster (government or private) to the contractors. The main factors for late and nonpayment in the construction industry identified from the study include: delay in certification, paymaster's poor financial management, local culture/attitude, pay master's failure to implement good governance in business, underpayment of certified amounts by the pay master and the use of 'pay when paid' clauses in contracts. The research findings show that late and non-payment can create cash flow problems, stress and financial hardship on the contractors. Amongst the most appropriate solutions to overcome the problem of late and non-payment faced by local contractors include: a right to regular periodic payment, a right to a defined time frame (or payment and a right to a speedy dispute resolution mechanism. Promptness of submitting, processing, issuing interim payment certificates and honouring the certificates are extremely important issues in relation to progress payment claims. Perhaps, an increased sense of professionalism in construction industry could overcome some of the problems related to late and non- payment issues.