Modelling the relationship between project payment systems, financial management strategies and construction organisation performance in South Africa

Doctoral Thesis


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The failure of construction projects to be delivered successfully – the root of poor performance in the construction industry – is attributed by scholars to the improper payment (or no payment at all) of contractors, and subsequently, of sub-contractors and suppliers. Therefore, proficient payment systems, adequate cash flow and effective financial management strategies are required for the success of construction projects. However, there is limited or no objective research that explores the impact of financial management strategies and project payment systems on construction company performance in South Africa. Also, previous research efforts have focused on various modelling approaches and their success/failure; thus, a model is yet to be developed for South Africa that will assist the construction industry practitioners in South Africa to have a reliable payment system and financial management strategy. Such a model might improve project/organisational performance. This study investigated the project payment systems and financial management strategies used by large construction organisations in achieving better performance within the business and project environment. The study further examined whether financial management strategies mediate the relationship between project payment systems and construction organisation performance. The study made use of a sequential mixed-method research approach that involves the collection of both quantitative and qualitative data to achieve the research objectives. The sample size for the study consisted of 176 contractors listed in Grades 7 to 9 on the Construction Industry Development Board (cidb) Register of Contractors. Data on the financial performance of the construction companies was obtained by gathering historical information on past projects undertaken within a five-year period (2013-2017), the payment systems used, financial management strategies adopted by the companies, and project and organisation performance data. Quantitative data analysis was carried out using both descriptive and inferential statistics. Descriptive statistics, such as percentiles and mean scores, were used to analyse the background information of the respondents and how the study population responded to the questionnaires, the typical payment systems used on construction projects and financial strategies, and the level of project and organisation performance. Structural Equation Modelling (SEM) was employed in modelling the extent to which project payment systems and financial management strategies in business and project environments influence, and are associated with, construction organisation performance. It emerged from the study that construction organisations that lack effective financial management strategies accept the use of the interim project payment system by clients on construction projects; and that financial management strategies adopted by construction companies indirectly affect their financial performance. The research also revealed that the interim payment system mediates the impact of the financial management strategies adopted, on the financial performance of construction organisations. Based on these findings, the study concluded that the failure of construction projects and organisations would be reduced through the adoption of effective financial management strategies by construction organisations and appropriate payment systems by the clients. The study highlighted channels of improving project payment systems in the construction industry, by recommending appropriate methods that suit the project environment. Also, the research proposed financial strategies and measures relating to payment and usage of the funds in the contract, so that payment and construction company performance problems in projects may be reduced. The research extends the theory on financial management strategies and its impact on financial organisational performance in the context of construction companies and the construction industry. The study contributes to the knowledge of payment systems and construction company performance, and the research and practical implications of the payment systems for the operations and performance of construction firms.