Development of a conceptual framework for enhancing payment practices in the UK construction industry

Globally, unfair payment practices remain a major commercial issue for many industries. The problem is exacerbated in the construction industry with huge negative impacts on contractors and other supply chains. For example, in 2016 there were over £30 billion worth of unpaid invoices to Small and Medium-Sized (SMEs) construction contractors in the UK. Also, recent report revealed that in the last three years, £7.8 billion of retention monies deducted by construction clients were not returned. A separate UK government report claimed that 72% of construction contractors are often compelled to sign up to contracts with disparities in rates of items, prolonged delays to payment periods, the imposition of rates and other prejudicial payment practices. Indeed, the industry's multi-tiered structure together with the commercial bargaining position of clients makes contractors and other supply chains in the industry susceptible to unfair payment practices. Moreover, the problem is endemic and chronic in the construction sector despite various government regulations and private initiatives designed to alleviate the problem. Yet, there is little research on how to enhance fair payment practices in the construction sector. Therefore, the aim of this study is to develop a framework for enhancing fair payment practices in the UK construction industry. The key research questions are: How endemic are unfair payment practices in the UK construction industry? How effective is the proposed framework for enhancing fair payment practices in the construction industry? The study adopted concurrent mixed methods design; involving the use of archival data, questionnaire surveys and interviews with construction stakeholders in the UK. Data obtained were analysed and merged to provide better understanding of unfair payment practices in the construction industry. Data analysis techniques employed include descriptive statistics, Cronbach's alpha reliability, relative importance index, Pearson's correlation analysis, and content analysis. Findings from the study show that Tier 2 clients accounted for 82% of unfair payment practices, while 13% and 5% of cases were linked to Tier 3 and Tier 1 clients, respectively. Indeed, Tier 2 has and does exert a strong commercial influence over their supply chain. Other findings reveal that the use of cash flow strategy, business model and the culture in the construction industry are the major causal factors of lingering unfair payment practices. The study also found that payment provisions in standard forms of contracts are often ignored and impaired for various reasons including payer attitudes, legal loopholes, current payment processes, the use of adhesion contracts and weak bargaining powers. Moreover, the study also discovered that subcontractors and suppliers often find it difficult to challenge current unfair payment practices, because of client-contractor's relationships. The study also reveals that unfair payment practices have snowball effect on construction supply chain; with direct consequences for business profit margins, wide ranging insolvencies and indirect effects leading to mental illness, stress and reputational damage for businesses. Lastly, the study developed a framework to enhance fair payment practices for the construction supply chain. Validation of the framework by construction industry professionals revealed that it has the potential to enhance prompt payment of invoices from Tier 1 clients (private/public) to main contractors, subcontractors and other suppliers.