Mitigating Payment Problems in the Construction Industry through Analysis of Construction Payment Disputes

Abstract

Payment is the lifeblood of construction businesses because performance in any construction activity is dependent on an uninterrupted funds flow. However, steady funds flow is rare, and businesses suffer with the worst cases resulting in litigations. The study of litigations, 40 construction payment dispute cases filed in the High Court in New Zealand, within the current study gives an indication of the nature of the payment problem in the construction industry. Disputes over payment arise between contractors and principals in most (80%) of the instances investigated, with progress and final payments being often disputed in construction projects. However, only in limited situations do contractors and subcontractors achieve success with their claims and are able to recover their payments fully. Through the analysis of payment disputes, the study suggests means by which payment problems could be mitigated. Placing charging orders, caveat registration over built properties, and issuance of bankruptcy and liquidation notices have been the means of mitigating payment disputes. In spite of these measures, payment problem is prevalent within the industry. This study therefore suggests that the rational starting point for real solutions to the payment problem is a change in attitude of upstream construction parties, followed by adherence to provisions within payment-related legislation and contract forms.