Regulative Measures Addressing Payment Problems in the Construction Industry: A Calculative Understanding of Their Potential Outcomes Based on Gametric Models
Publication: Journal of Construction Engineering and Management
Volume 137, Issue 8
Abstract
Payment default is a common complaint from contractors in the construction industry. Many regulative measures have been adopted in different jurisdictions to address such payment problems. Current research primarily takes an interpretative approach for conducting semantic analysis of these measures, reporting their applications, and comparing their implementation outcomes. This paper presents a comprehensive theoretical understanding of these issues, their sources/roots, and related measurements, and addresses them through gametric models. Working elements of regulative measures are demarcated as punishment of opportunistic payers, remedies for unpaid payees, and costs to parties in referring to remedies and realizing justice. Empirical evidence from an international literature review of protection measures and experiences of addressing payment arrears and from a survey in mainland China is provided to support the models. This framework is useful to researchers and professionals in complementing the current descriptive approach in investigating and understanding regulative measures that address payment problems. This understanding is also useful for lawmakers to accompany the current path-dependent approach in introducing and amending payment protection legislation, i.e., referring to similar measures in other jurisdictions where a mutual legislative origin is shared.
Get full access to this article
View all available purchase options and get full access to this article.
References
Baker, G., Gibbons, R., and Murphy, K. J. (2002). “Relational contracts and the theory of the firm.” Q. J. Econ., 117(1), 39–84.
Battersby, J. (2007). “What are the current options open to contractors and subcontractors in Hong Kong to resolve their payment problems?” Security of payment in the construction industry—Should it be the subject of legislation in Hong Kong?, Lighthouse Club Hong Kong Branch, Hong Kong.
Canterbury Pipe Lines, Ltd., v. The Christchurch Drainage Board, 16 BLR 76 (1979).
Chan, P. C. F. (2006). “Security of payment legislation—Case of a blunt but practical and equitable instrument.” J. Prof. Issues Eng. Educ. Pract., 132(3), 248–257.
Cheng, T., Soo, G., Kumaraswamy, M. M., and Wu, J. (2007). “Are there ways to ensure fair and prompt payment?” Security of payment in the construction industry—Should it be the subject of legislation in Hong Kong?, Lighthouse Club Hong Kong Branch, Hong Kong.
Cheng, T., Soo, G., Kumaraswamy, M. M., and Wu, J. (2010). “Security of payment for Hong Kong construction industry: Workable alternatives and suggestions.” Proc. ICE - Manage. Procurement Law, 163(1), 17–28.
Construction Industry Review Committee (CIRC). (2001). “Construct for excellence: Report of the Construction Industry Review Committee.” Hong Kong.
Crabb, J. H., ed. (1995). The French civil code, Springer, Berlin.
Cushman, E. H. (1932). “The proposed uniform mechanics’ lien law.” University of Pennsylvania Law Review, 80(8), 1083–1104.
Deng, X., Ding, S. Z., and Tian, J. (2004). “Reasons underlying a mandatory high penalty construction contract bonding system.” J. Constr. Eng. Manage., 130(1), 67–74.
Department of Trade and Industry (DTI). (2005). “Improving payment practices in the construction industry: Consultation on proposals to amend Part II of the Housing Grants, Construction and Regeneration Act 1996 and Scheme for Construction Contracts (England and Wales) Regulations 1998.” UK.
Department of Trade and Industry (DTI). (2007). “Improving payment practices in the construction industry: 2nd consultation on proposals to amend Part II of the Housing Grants, Construction and Regeneration Act 1996 and Scheme for Construction Contracts (England and Wales) Regulations 1998.” UK.
Egan, J. (1998). “Rethinking construction: The report of the Construction Task Force to the Deputy Prime Minister, John Prescott, on the scope for improving the quality and efficiency of UK construction.” Dept. of the Environment, Transport and the Regions, London.
Huang, W. (2004). “Press conference of the payment arrears in the construction industry.” 〈http://www.xinhuanet.com/zhibo/20040826/zhibo.htm〉 (Jan. 3, 2010).
Jiang, P. (1999). Elaborate analysis to contract law of People’s Republic of China, China University of Political Science and Law Press, Beijing.
Kadefors, A. (2004). “Trust in project relationships—Inside the black box.” Int. J. Proj. Manage., 22(3), 175–182.
Kumaraswamy, M. M., Ling, F. Y. Y., Motiar, R. M., and Phng, S. T. (2005a). “Constructing relationally integrated teams.” J. Constr. Eng. Manage., 131(10), 1076–1086.
Kumaraswamy, M. M., Motiar, R. M., Ling, F. Y. Y., and Phng, S. T. (2005b). “Reconstructing cultures for relational contracting.” J. Constr. Eng. Manage., 131(10), 1065–1075.
Lai, L. W. C., Ng, F. W. N., and Yung, P. (2008). “The Coase theorem and a Coasian construction economics and management research agenda.” Constr. Manage. Econ., 26(1), 29–46.
Latham, M. (1994). Constructing the team: Final report: Joint review of procurement and contractual arrangements in the United Kingdom construction industry, H.M.S.O., London.
Lönholm, L. H., ed. (1906). The Civil Code of Japan (Microform), Maruya, Tokyo.
Lubenham Fidelities & Investment Co., Ltd., v. South Pembrokeshire District Council, 33 BLR 39 (1986).
Macneil, I. R. (1974). “The many futures of contracts.” Southern California Law Review, 47, 691–816.
Macneil, I. R. (1978). “Contracts: Adjustment of long-term economic relations under classical, neoclassical and relational contract law.” Northwestern University Law Review, 72(5), 854–905.
Mersey Steel and Iron Co. v. Naylor, Benzon & Co., 9 A.C. 434 (1884).
Milligan, J. L. (2007). “Payment practices in the construction industry—The UK experience.” Security of payment in the construction industry—Should it be the subject of legislation in Hong Kong?, Lighthouse Club Hong Kong Branch, Hong Kong.
Ministry of Construction. (2004). “Stipulations in applying contract gurantee for construction work in real estate development projects.” Beijing.
Ministry of Construction. (2006). “Opinion in further applying the guarantee system in construction projects.” Beijing.
Ministry of Construction, National Planning Committee and Treasury. (1996). “Notice of strictly forbidding the reliance on the contractor to finance the construction work.” Beijing.
Ndekugri, I. (1999). “Performance bonds and guarantees: Construction owners and professionals beware.” J. Constr. Eng. Manage., 125(6), 428–436.
Ndekugri, I., and Russell, V. (2005). “Insolvency and resolution of construction contract disputes by adjudication in the UK construction industry.” Constr. Manage. Econ., 23(4), 399–408.
Osborne, M. J. (2004). An introduction to game theory, Oxford University Press, New York.
People’s Republic of China (PRC). (1999). Contract for construction work, (GF-1999-0201) Law Press, Beijing.
Posner, R. A. (2003). Economic analysis of law, Aspen, New York.
Rahman, M. M., and Kumaraswamy, M. M. (2002). “Joint risk management through transactionally efficient relational contracting.” Constr. Manage. Econ., 20(1), 45–54.
Rahman, M. M., Kumaraswamy, M. M., and Ling, F. Y. Y. (2007). “Building a relational contracting culture and integrated teams.” Can. J. Civ. Eng., 34(1), 75–88.
Soo, G., Kumaraswamy, M. M., and Wu, J. (2008). “Contractor’s right to stop work on non-payment: A comparative perspective from Hong Kong.” CIB W89 Building Education and Research Conf., BEAR 2008 on Building Resilience, Kandalama, Sri Lanka.
State Council. (2003). “Notice from the office of the State Council about resolution of the payment arrears in the construction industry.” Beijing.
Supreme People’s Court. (2004). “Interpretation of the Supreme People’s Court on issues concerning the application of law for the trial of cases of dispute over contracts on undertaking construction projects.” Beijing.
Tai, S. L., Liu, R. H., and Li, Z. F. (2004). “Consideration for resolving payment problems in the construction industry: A comparison with mechanic’s lien in the U.S.A.” Constr. Econ., 2004(2), 34–35 (in Chinese).
Touran, A., Atgun, M., and Bhurisith, I. (2004). “Analysis of the United States Department of Transportation prompt pay provisions.” J. Constr. Eng. Manage., 130(5), 719–725.
Uher, T. E., and Brand, M. C. (2005). “Analysis of adjudication determinations made under security of payment legislation in New South Wales.” Int. J. Proj. Manage., 23(6), 474–482.
Wang, C. H. (2000). The German civil code, Gaunt, Holmes Beach, FL.
Ward, P., Sher, W., Gameson, R., and Guillermo, A. M. (2007). “Innovative protocols and technologies as a means of complying with the Building and Construction Industry Security of Payments Act 1999 (NSW) Australia.” Constr. Manage. Econ., 25(7), 747–763.
Wen, L. B. (2007). The annual report of the work of the government. State Council, Beijing.
Williamson, O. E. (1979). “Transaction-cost economics: The governance of contractual relations.” J. Law. Econ., 22(2), 233–261.
Williamson, O. E. (1981). “The economics of organization: The transaction cost approach.” Am. J. Sociol., 87(3), 548–577.
Williamson, O. E. (2000). “The new institutional economics: Taking stock, looking ahead.” J. Econ. Lit., 38(3), 595–613.
Wu, J., Kumaraswamy, M. M., and Soo, G. (2008). “Payment problems and regulatory responses in the construction industry: Mainland China perspective.” J. Prof. Issues Eng. Educ. Pract., 134(4), 399–407.
Wu, J., Kumaraswamy, M. M., and Soo, G. (2011). “Dubious benefits from future exchange: An explanation of payment arrears from ‘continuing clients’ in Mainland China.” Constr. Manage. Econ., 29(1), 15–23.
Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 137 • Issue 8 • August 2011
Pages: 566 - 573
Copyright
© 2011 American Society of Civil Engineers.
History
Received: Jan 12, 2010
Accepted: Dec 6, 2010
Published online: Dec 8, 2010
Published in print: Aug 1, 2011
Authors
Metrics & Citations
Metrics
Citations
Download citation
If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Simply select your manager software from the list below and click Download.