Research about Solving the Arrears Payment Problem

for Subcontractors in the Chinese Construction Industry

 

STUDENT PAPER

By Qing Wu

SKEMA Business School

Lille, France

 


 

ABSTRACT

Arrears payment and prolonged payment have considerably affected contractors, construction project completion and project quality in the Chinese construction sector for a long time. This paper sought to unravel the leading cause of this problem from the perspective of owners and give some appropriate alternative solutions by using Root Cause Analysis Diagram and Non-Compensatory Model. Then we use Muti-Attribute Decision Making model, Additive Weighting Technique to select the best solution.  Absolutely, we also need to confirm that the alternative solutions do have impacts on the arrears payment problem, so we choose to use Pareto Analysis, which can help us have a clear understanding of this alternative solution. By giving these analyses and researching methods, we find that Subcontracting is the best way to avoid and resolve this problem and we cannot implement Advance Deposit and Adding Late Payment Penalties these two methods in China since they are not suitable for China in the current construction industry. In conclusion, we hope that these solutions would help in improving payments problems in China.

Keywords: Prolonged Payment/ Arrears Payment in the construction Project/ Project Management/ Chinese Construction Industry

INTRODUCTION

In recent years, the Chinese construction industry has been growing rapidly since 1978. A large number of infrastructures, industrial and civil construction projects launched. The National Bureau of Statistics (NBS) said that “The value-added output of the construction industry reached 5.57 trillion yuan (about 816.6 billion U.S. dollars) in 2017”[1]. However, due to the imperfect legal system in the construction industry and weak regulatory measures, the the construction market was once seriously confused. Therefore, there are many problems raising in the Chinese the construction industry. Arrears payment & prolonged payment delays is one of the most serious one. As the report said that “Many reports have documented the massive scale of withheld wages and lack of payment. A 10,000 questionnaire survey by Little Bird, a Chinese labor NGO, concluded that over 75% of the construction workers received, or expected to receive, salaries less frequent than half-yearly. Most hoped to get paid eventually by year-end, despite legislation stipulating that salary must be paid on monthly basis”[2]. Laws and legislation cannot mitigate this situation since some government units are substantially involved in this unethical practice. As reported” Huang” (2004) the vice minister of the MOC, pointed out that 36.7% payment arrears were generated from the projects that were funded directly or indirectly by the government.”[3]Therefore, increasing payment issues have attracted much more attention.

Why arrears payment and prolonged payment problem are so serious in the Chinese the construction industry? As the report said that” the State Council provided an official interpretation in November 2003, there are five main reasons printed out”[4]. These are the deficiency of the credit system and legal system, unfair market environment, looseness implementing regulations, imbalance of the construction market, and local governments initiating projects without sufficient funding arrangement.

Indeed, besides the reasons mentioned above, in the construction project management, project owner and contractor also are responsible for this problem. For example, in China, because of extensive market competition, some contractors will promise that they can advance part of the payment in order to successfully bid. In this case, most owners will agree with this such decision. However, at the end of the project, owners will take advantage of contractors’ weakness risk awareness for arrears payment. Besides, some project owners are blindly launched without sufficient funds and financing channels, which directly lead that employees cannot receive their wages.

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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: Wu, Q. (2019). Research about Solving the Arrears Payment Problem for Subcontractors in the Chinese Construction Industry, PM World Journal, Vol. VIII, Issue III (April).  Available online at https://pmworldlibrary.net/wp-content/uploads/2019/03/pmwj80-Apr2019-Wu-solving-arrears-payment-problem-for-subcontractors-in-chinese-construction.pdf

 


 

About the Author

Qing Wu

Sichuan, China

 

 

 

Qing WU is a second-year graduate student studying for Project Management and Business Development in SKEMA BUSINESS SCHOOL. Born in Sichuan, China. She received her Bachelor Certification of French language and literature major in Jincheng College of Sichuan University in China, before going to France to study abroad. Since 2017, she is an international student with a rigorous and serious learning attitude, who also devotes to receive academic developments and obtain professional certifications. Thanks to the studying aboard, she found the differences in students’ learning methods and teaching methodology between her French friends and herself. Therefore, she began to absorb new knowledge and adjust her study habits and methods. Now, she has been exposed to many new courses, such as international contract management, global project management and leadership skills. By learning these courses, she has gained a deeper insight about some issues, such as arrears payment problem in the Chinese construction industry, and plan to deeply research by studying typical academic materials as well as the project case study. The learning experience has given her a deeper understanding of the Project Management and Business Development.

Qing lives in Sichuan, China and can be contacted at qing.wu@skema.edu

 

[1] Yi, Y. (2018, September). China’s the construction industry on rapid growth since 1978. Retrieved from: http://www.xinhuanet.com/english/2018-09/09/c_137455844.htm

[2] Bengten, P. (2018, February). Hidden in plain sight: forced labor constructing China. Retrieved from: https://www.opendemocracy.net/beyondslavery/peter-bengsten/hidden-in-plain-sight-forced-labor-constructing-china

[3] Wu, J. Payment problems and regulatory responses in the construction industry. Retrieved from: https://www.academia.edu/3690284/Payment_problems_and_regulatory_responses_in_the_the construction_industry

[4] Wu, J, Kumaraswamy, M, M.ASCE, Gary Soo. Payment problems and regulatory responses in  the construction industry. Retrieved from: https://www.academia.edu/3690284/Payment_problems_and_regulatory_responses_in_the_the construction_industry