Relationship between procurement systems and payment methods in assuring financial safety in Sri Lankan building projects

Abstract

The Construction industry is a place where the parties to a project frequently face various risks throughout the project life cycle. Financial risks are one of the aforementioned risks that have a significant impact on parties, and more studies should be conducted to investigate the possibility of minimizing these financial risks and assuring the financial safety of projects. Thus, this research aims at identifying the relationship between procurement systems and payment methods towards assuring the financial safety of construction projects. Researchers selected government funded building projects to limit the scope because such projects frequently deal with financial risks. Frequent financial risks in a Government Funded Building Projects (GFBP) were identified as material shortages, fluctuation of inflation rate, legislation changes. The study used a mixed method approach, and data was gathered through semi structured interviews and questionnaires. Data was analyzed using manual content analysis and basic statistics. Common procurement systems and payment methods available in a GFBP were identified through interviews. Accordingly traditional, design and build, management oriented and collaborative procurement systems were identified and lumpsum, measure and pay, Guaranteed Maximum Price (GMP) and cost reimbursement were identified as payment methods. Furthermore, findings revealed that there are six common combinations between procurement systems and payment methods in GFBP. The identified combinations were further tested for their ability to minimize financial risks of GFBP and it was revealed that the combination consisting of Lumpsum with Design and Build was the best combination to assure financial safety in GFBP. Other combinations are traditional with measure and pay, design and build with lumpsum, design and build with GMP, management oriented with lumpsum, management oriented with measure and pay. Ultimately, a framework has been developed by harmonizing all the research findings in which parties can select the most viable combination to assure the financial safety of their project.