Managing payment risks in international projects

Abstract

Most construction projects are long-term in nature and involve significant payment risks. Often, these risks cannot be easily and safely predicted. Although parties to construction projects enter into legally valid contract, it is difficult to eliminate payment-related risks. Taking into consideration that international construction projects mostly involve large amounts of money, it is vital to identify payment-related risks early in order for it to be alleviated, managed or even avoided. The objective of this dissertation is to identify payment-related issues that arise in connection with construction projects, especially international projects. This dissertation starts with the identification of common payment-related risks in domestic and international projects. Then, the dissertation zooms into the specific payment-related risks in international projects. Lastly, various ways to avoid and minimise payments risks are recommended. Literature review was done to have a general understanding on the payment-related matters in construction industry. In order to get specific insights into the payment risks in international construction projects, feedback was gathered from construction industry practitioners through survey questionnaires and interviews. Notwithstanding whether a construction project is categorised as domestic or international, there always exist payment risks. Most common risks for both domestic and international projects are late payment and non-payment by employer. In addition to that, international projects have specific risks. These risks mainly arise as a result of parties coming from different jurisdictions, for example, when the employer and the contractor come from two jurisdictions. It is very likely that the parties would negotiate to include international commercial law principles and neutral dispute resolution mechanisms to overcome or mitigate such risks. However, early identification of the payment risks involved in international projects would allow the parties to minimize or avoid those risks. Some of the recommendations in this dissertation are payment guarantees by a third party, advance payment, use of Disputes Review Boards (DRB) and its variants.