Risk

Delayed, reduced, or refused payments from the project owner

The project owner as an organization or the project officer as an individual might misuse their authority over payments at the expense of the contractor.

Risk type: Practice

Risk driver: External

DESCRIPTION

Payments from the project owner to the contractor can deliberately be delayed, reduced, or refused to benefit either the project owner as an organization or the project officer as an individual.

The project owner can bribe the quantity surveyor to delay the issuance of a certificate for payment if insufficient funds are available at the time the claim for payment is received. Another way the project owner can breach the payment terms is to impose additional costs on the contractor although it has met contract specifications. The project owner for example imposes false rectification costs on the contractor or tries to pass on the costs of delay in project execution or completion to the contractor, even if the delay was caused by the project owner.

A project officer can also illicitly delay or refuse due payments to extort speed money from the contractor. The project officer may act alone without the knowledge of his or her organization and pocket the extorted money.

RED FLAGS

  • Payments by the same project owner are repeatedly delayed or refused
  • The contractor provides goods or services without a delay, but is asked to pay the project owner damages for a delay
  • There are high amounts in accounts receivable in the balance sheet despite visible progress in project work
  • Project officers ask for a fee to issue a payment certificate

KEY GUIDING DOCUMENTS

Stansbury, C. and Stansbury, N., 2008, Examples of Corruption in Infrastructure, Global Infrastructure Anti-Corruption Centre (GIACC)

TARGETED EXAMPLES

Examples of collusion between project owner and supervisor/engineer/architect1

Target group: SMEs

Location: n.a.

  • A contractor has properly completed the works and is entitled to receive a final certificate. The engineer appointed by the project owner refuses to issue the final certificate to the contractor unless the contractor pays him 5% of the final certificate value. […]
  • The project owner offers the architect a future appointment on another project if the architect delays the issue of payment certificates, which are due to the contractor. The architect agrees. […]
  • A contractor has completed the works and applies for final payment. Under the contract, the architect appointed by the project owner is required to specify outstanding defects. The project owner persuades the architect to include, in the schedule of defects, additional purported defects that in fact are not outstanding. The project owner then sets off the alleged cost of rectification of these defects against the balance due to the contractor. The contractor disputes the deduction. The project owner informs the contractor that if the contractor does not accept the reduced sum, then the contractor will have to litigate or arbitrate to get the remainder from the project owner. The contractor cannot afford litigation, and so accepts the reduced amount.

FULL REFERENCES

  1. Stansbury, C. and Stansbury, N., 2008, Examples of Corruption in Infrastructure, Global Infrastructure Anti-Corruption Centre (GIACC)
Last updated 10 October 2017

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