Contractor Liquidity Evaluation Model for Successful Public Housing Projects

Abstract

A contractor’s continued financial health throughout a construction project is a basic requirement for successful project completion. Therefore, project owners must be conversant with the contractor’s financial capability from the bidding stage through project completion. Consequently, project owners adopt a prequalification (PQ) process to screen for poor technical and managerial capabilities during the bidding stage. Although the PQ pass rate in Korea is nearly 99%, contractor liquidity can still pose problems. In this situation, the most important construction management strategy involves monitoring the contractor’s liquidity status during the project. Accordingly, this study determines the symptoms of contractor decline at the corporate and project levels. Nineteen variables (17 financial and two nonfinancial) are selected through a symptom analysis. Moreover, this study develops a liquidity evaluation model (LEM) and its reference mode based on equations obtained by performing multiple discriminate analyses. These results demonstrate the practical feasibility of project owners to evaluate contractor liquidity using financial and nonfinancial information to prepare for possible financial problems.