Late payment to subcontractors in the construction industry

Sam Bolton, Gayan Wedawatta, Nadeeshani Wanigaratne, Chamindi Malalgoda

Research output: Contribution to journalArticlepeer-review

Abstract

Late payment is a recurring issue in the UK construction industry. Whilst the existence of the problem is well known, there is a dearth of quantified evidence on the extent of the problem from a subcontractor point of view. This research sought to quantify the extent of late payment and late release of retention and their effects on construction subcontractors in the UK. A research design including the analysis of payment data of 30 selected projects (355 payments) from a case study subcontractor and a supplementary questionnaire survey with 21 subcontractors were used to investigate the issues. Late payment was observed in most of the case study subcontract projects (77%) and nearly half of the payments (46%), suggesting it is common practice. Statistical analysis showed that whilst there was no statistically significant link between payment delay and contract sum, subcontractors are likely to experience longer payment delays in projects with a higher number of payments. It was found that the ate release of the second half of the retention posed an even significant problem to subcontractors, with a considerable portion of the income (upwards of 2.5%); sometimes the entire profit, being held up for nearly two months from the due date. The findings highlight that whilst the regulatory and contractual measures over time have sought to address the issue of late payment, it remains a prevalent issue and that subcontractors often fail to rely on such measures. This necessitates subcontractors to factor late payment into their cash flow planning. The authors suggest that the recent and proposed initiatives such as the Project Bank Accounts, central retention deposit scheme, smart contracts offer potential to mitigate payment delays.
Original languageEnglish
JournalJournal of Legal Affairs and Dispute Resolution in Engineering and Construction
Publication statusAccepted/In press - 3 May 2022

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