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Abstract
Expectation of owner payment punctuality and completeness is of primary concern to a contractor before it commits to a new project. When payments are delayed or less than expected, the contractor's financial position and project performance are affected. This thesis proposes a number of analytical tools for contractors to anticipate and deal with late and incomplete payments. These tools allow contractors to estimate payment probability, plot cash flow and analyse different claim/payment strategies. The analytical tools also apply to subcontractors receiving payments from contractors, and to consultants receiving payments from owners or contractors.
Initiating from an existing Markov chain formulation of contractor payments, the thesis presents a tree form classification model of owner payment practices. Following the splits of the tree, each owner payment profile ends up in one of ten terminal nodes, corresponding to ten owner payment types ranging from the worst to the best.
A sensitivity study and test of the stationarity hypothesis of the Markov chain formulation of contractor payments is presented to reinforce the validity of the Markov chain formulation.
The likelihood of payment to subcontractors, which are subject to double payment uncertainties associated with owners and contractors, is modelled. Suggestions are made to subcontractors to calculate the age-dependent probabilities of outstanding claim amounts being paid based on contractor and owner typical payment behaviour.
The payment lateness and incompleteness associated with each owner type is used in an example to establish the cash flow forecast of a future project. Present worth analysis is performed to assess the feasibility of a project, based on different mark-ups and payment policies to lower level creditors.
The classification of owner payment behaviour is incorporated in an overall multi-criteria owner evaluation framework. This framework allows contractors to understand owner characteristics, and consequently aid the mitigation of risks associated with working with owners.
This thesis is an original contribution to current contractor's risk analysis practices and an extension of existing contractor claim-payment analysis. It will potentially help improve contractor's cash flow management, reduce project failures and contribute to the development of the construction industry in general.