Research Journal of The University of Zagreb, Faculty of Civil Engineering

Organization, Technology & Management in Construction: An International Journal
ISSN 1847-5450 print / ISSN 1847-6228 online
udc 62:658(05)

Abstracting/Indexing: The papers published in Organization, Technology & Management in Construction: An international Journal are abstracted/indexed by: EBSCO, INSPEC, ProQuest Science Journals

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<<Table of Content

4. Hanh Tran, David G. Carmichael:

Contractor’s Financial Estimation
based on Owner Payment Histories


A contractor’s financial viability is affected by late and incomplete payments from the owner. Late and incomplete payments lead to cash flow uncertainty, additional bank interest, and delays in paying creditors such as suppliers and subcontractors, and may lead to decreased project
performance, and possible additional time and cost due to disputes. The paper presents a method for cash flow and present value analysis under uncertainty based on an owner’s payment history or estimated payment characteristics. The paper generalises existing modelling of uncertainty associated with late and incomplete owner payments to a range of claim types by the contractor, and different owner types. Aging contractor claims are analysed for claims submitted on a regular basis for amounts which may vary depending on project phasing. For each of the pre-identified typical owner payment practices, the estimated paid proportions of claims and the steady state distribution of payments in different age categories are established. A present value analysis assesses project viability from the contractor’s viewpoint. Actual project data are used to confirm the validity of the method. The intent of the paper is to assist contractors establish suitable allowances in their tender pricing, to choose a suitable claim/payment schedule and/or to adopt suitable administration practices to optimise cash flow. The paper gives a summary approach for contractors, providing them with a practical tool in cash flow planning, control and risk management.

Keywords: Cash flow, Markov chains, contractor payment, owner classification