Improving contractor’s Credit system

mitigates Delayed or Late Payment issues on Chinese Construction contracts: An Academic research

 

STUDENT PAPER

By Hongjing Lai

SKEMA Business School

Sichuan, China and Lille, France

 


 

ABSTRACT

This paper comes up with a research question that from the perspective of contractors, what are the leading causes for delayed and non-payment issues? Thus, it aims at analyzing these reasons and providing feasible alternatives (Milestone payment, Commercial debt, Liens, Payment bond, Recruitment of agencies and credit system) to deal with them. Furthermore, as the process of research, the paper is verified and evaluated through Fish bone Diagrams, Pair-wise comparison method, non-comparison model, non-dimensional data technique, rank table as well as Pareto Analysis.

After these analyses, it figures out that compared with another 5 alternatives, credit system could be the most effective remedy for ensuring prompt payment. Besides, the solution of using Liens could be excluded from research as less feasible.

Keywords: Construction industry, delayed payment, bond, Milestone, credit, debt

INTRODUCTION

As delayed and late payment issues chronically exist in domestic construction industry, Chinese companies are short of capability, competitiveness and energy in global construction market. Nowadays, the increase of payment issues attracts more attention because of the serious impact on implementation of construction programme. According to the survey, “the construction funds that have been owed by construction companies have accounted for 38.5% of the construction output value.”[1] “Among them, “45.2% of the total arrears were within 1 year, 24.3% from 1 year to 2 years, 18.9% from 2 years to 3 years, and 11.6% over 3 years.”[2] In the arrears project, there are government projects, state-owned enterprise projects, non-governmental projects, and foreign investment projects. “The projects in arrears of construction projects generally account for more than 50% of the total number of construction and completion projects”.[3] Among them, real estate development projects, large-scale and extra-large projects are particularly outstanding. In conclusion, this problem probably destroys social economic principles as well as deteriorating social credit environment. “To some extent, it may increase the wages of enterprises in arrears among employees, causing decreasing employment rate.”[4]

“To deal with delayed and late payment issues, it’s crucial to identify and describe following 4 features”:[5]

  1. year-on-year increase in arrears
  2. particular exposure in government investment projects
  3. Debt chain lengthening as well as multiple-layer debt relationship
  4. decrease in construction project quality.

“Referring to these features, it shows that leading causes for delayed and late payment issues generally exist in two sides of project owner and contractor as well as the conflicts between them”.[6] Therefore, the solutions should consider bilateral benefits, obligation and physical truth like corporate culture and organization structure. Nowadays, contractors’ obligation and self-reflection are more likely to be ignored while dealing delayed payment issues. In the project management, supplier plays an essential role in organization theme. In the project board, senior suppliers take place to directing a project process. Through the analysis and evaluation of  leading causes for delayed payment issues in Chinese construction companies, the role and obligation of contractors in delayed payment issues would be identified, discussed and verified.

More…

To read entire paper, click here

 

Editor’s note: Student papers are authored by graduate or undergraduate students based on coursework at accredited universities or training programs.  This paper was prepared as a deliverable for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director paul.gardiner@skema.edu.

How to cite this paper: Lai, H. (2019). Improving contractor’s Credit system mitigates Delayed or Late Payment issues on Chinese Construction contracts: An Academic research, PM World Journal, Vol. VIII, Issue III (April).  Available online at https://pmworldlibrary.net/wp-content/uploads/2019/03/pmwj80-Apr2019-Lai-improving-contractors-credit-in-chinese-construction.pdf

 


 

About the Author

Hongjing Lai

Sichuan, China
Lille, France

 

 

Hongjing Lai is an international student with 1 and a half years of learning experience in project management and business development. Born in the Basin of Sichuan Province, she received her Bachelor Certification with French language and literature major at local University in China before embarking on the adventure of expat living, learning in France. Studying in France since 2017, she serves as an international student with a serious learning attitude and habits, who also devotes to more professional certifications as well as academic developments. During this learning process, she noticed the difference of studying methods and habits and decided to overcome problems as much as possible. At present, she still studies hard in project management and business development courses like international contract management, sustainable project management etc… with rich teaching resources. Through these courses, she has investigated some issues like delayed payment and contract’s termination in construction industry and plans to deeply research from previous and typical academic materials and reference as well as project case studies.

Lai lives in Sichuan, China and can be contacted at hongjing.lai@skema.edu

 

[1] Talking about the Problem of Arrears and the Countermeasures. Retrieved from: https://www.cbi360.net/hyjd/20171228/110889.html

[2] Default project Baidu Encyclopedia. Retrieved from: https://baike.baidu.com/item/%E6%8B%96%E6%AC%A0%E5%B7%A5%E7%A8%8B%E6%AC%BE/8587656?fr=aladdin

[3] Default project Baidu Encyclopedia. Retrieved from https://baike.baidu.com/item/%E6%8B%96%E6%AC%A0%E5%B7%A5%E7%A8%8B%E6%AC%BE/8587656?fr=aladdin

[4] Jiqing. Y. Thoughts on the arrears of construction projects in the construction field. Retrieved from: https://wenku.baidu.com/view/9c6f6a182f3f5727a5e9856a561252d380eb20fc.html

[5] Report of Causes and Countermeasures of the Arrears. Retrieved from: https://wenku.baidu.com/view/c14f1b98b8f3f90f76c66137ee06eff9aef849cd.html

[6] Report of Causes and Countermeasures of the Arrears. Retrieved from: https://wenku.baidu.com/view/c14f1b98b8f3f90f76c66137ee06eff9aef849cd.html