THE PERFORMANCE OF DISBURSEMENT PROCEDURES IN HIGHWAY PUBLIC WORKS IN THAILAND

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1 THE PERFORMANCE OF DISBURSEMENT PROCEDURES IN HIGHWAY PUBLIC WORKS IN THAILAND Dr. B. Israngkura Na Ayudhya, Prof. M. Kunishima Senior lecturer of Civil Engineering Department, Rajamangala University of Technology Krungthep, Bangkok, Thailand, Professor of Civil Engineering and International Studies Department, University of Tokyo, Kashiwa-shi, Chiba, JAPAN, ABSTRACT This paper analyzed performance of disbursement procedure of highway public works projects in Thailand. The results of research were summarized and compared which based on contracts, submitted invoice, inspection dated, copies of payment dated between client and their main contractor and interviewed with persons involved in government project during The data collection was to investigate the reasons related to delaying in payment during construction project (Actual duration of exercise the payment in each month were compared with contract agreement). Literature review, interview and a questionnaire survey targeted at government and local government agencies had been used as the tools to carry out this study. A graphical presentation of a duration analysis of the projects illustrated significant disbursement formation in each project. It was established that the source of fund, the financial stability of clients, method of disbursement and economics situation has play major role on efficiency of disbursement to main contractors in highway public works projects. Key words: Construction delay, Highway construction, Disbursement process, Public works 1. INTRODUCTION Organizational weakness can be observed from several factors. One of significant factors is prolonging debts. Owner tended to stick to a play safe policy in a chronically uncertain environment by keeping the minimum number of permanent employees on their payrolls, elongated their payment due if it is possible without any penalty from employees or suppliers [1-3]. Construction projects can be delayed for several numbers of reasons. The delaying in construction projects are almost accompanied by cost and time overruns. Projects delays are difficult to predict with any accuracy and each delay causes certain risk factors. Delay factors may be prioritized based on the importance of the activity being delayed and the amount of risk involved in each activity. The degree of seriousness of delaying in construction projects varies considerably from projects which were only a few days behind the schedule to projects which delayed over a year [4-5].The successful execution of construction projects within estimated margin cost and planned schedules depend on chosen method that requires good in both engineering and economic judgments [6-7]. Assaf and Al-kahali [8] identified the main causes of delay factors in large building projects and their relative importance. They found 56 causes of delay exist in Saudi construction projects. The main delay factors were preparation and approval of shop drawings, delays in contractor s progress, payment by owners and design changes. The architects and engineers point of view were cash problems during construction period, the relationship between subcontractors and the slow decision making process of the owner. The owners agree architects and engineers on the design errors, labour shortage and inadequate labour skills were important delay factors. Al-Hammed A [9] describes the various elements of cost upon individual public projects but does not deal specifically with construction delays. The government or in another words, the efficiency in making payment to those main contractor, nominated subcontractors and materials suppliers has not been accordingly to agreement contract. Kaming et al [10] studied factors influencing time and cost performance on high-rise projects in Indonesia and conclude that cost and time overruns were very frequent. Therefore, poor cost performance of construction projects seems to be the norm rather the exception particularly in most developing countries where the problem is more acute. ISSN:

2 2. LITERATURE REVIEWS The nature of delays encountered on international construction projects is different from the types of delays experienced on domestic projects. Various factors needed to be taken into consideration. Each country has their rule and regulations for exercise the payment. Government restrictions are imposed in contract agreement. Governmental regulations exasperates banking can cause disbursement delays manifested themselves in the form of delays in the release of foreign currency required for importing materials and equipments, delays in customs clearance and bureaucratic procedures [11]. Furthermore, traditional construction contract has also play a momentum impact on delaying disbursement process as it governs both procedure and duration of each activity is needed in order to assessing the structures or making payment after quantity surveyor has verified the work [12]. The work is paid after the work has been done, usually by installments as agreed amount of progress, rather than in advance. Consequence, the whole industry is economically affected by any drying up of the cascade of payments downward from the top of the pyramid. Elazouni and Metwally (2000) suggest that subcontracting is a practice that contractors reply on to partially finance projects. The funds generated from operations are potentially far greater than the value of the organization managing them [13]. This gives the contracting organization significant opportunities, but leads also to significant risk for the system. Several investigations of the reasons behinds construction delay in construction projects have been carried out in the last two decades. Some of these studies concentrate on specific construction project or types of construction [14]. Others identify the general problems crated by delays and cost overruns, on macro level in aspect of economy [15]. Some delay may occur in the preconstruction stage which is defined as the period between the initial conception of the project and the signing of the construction contract between the public owner and the main contractor. On the other hand, may occur in the construction phase that is basically the period when actual construction is under way. The findings reported in this paper are confined to the reasons for delays in the construction stage. The objective of this research is to determine the performance of actual disbursement against schedule payment of highway public projects and to aid construction managers in establishing adequate evaluation prior to the contract award using quantitative data. The key task was to design research so that the information obtained permits the assessment of their impact. Therefore, the best approach to assessing these potentials was to adopt randomly selected samples. The sampling population was established by selecting 113 public projects. The data was found in contract agreement between central, local government agencies and main contractor. This research projects upon results obtained from a pilot study undertaken on investigating key elements that contribute to the level of success or failure payment system in linkage between client and main contractor for those domestic and international construction companies engaged with the provision of construction infrastructure projects in Thailand. Therefore, this paper aims to add to the body of knowledge of efficiency in disbursement through providing valuable insights from very senior level executives in these organizations. It is often very difficult to gain access for in-depth discussion with such individuals. 3. RESEARCH METHODOLOGY This approach mainly concerns with the examination of statistical data of domestic construction markets from both domestic and international main contractors in Thailand. There were two main data sources in this approach namely: original and residual. The original data consists of original documents or official files and records, such as government book keeping record for disbursement and construction company s record books. The original data consisted mainly of the calculated or justified data which was derived personally. ISSN:

3 Methodology of collective data and analysis data Quantitative data Interview data - Collecting Invoices papers etc. - Reviews published papers Interviews involved persons in disbursement procedure Type of agencies -Central government - Local government Source of funds -Central government - Local government - Oversea funds Calculate the duration of each stage of disbursement and tabulated into graphical data Confirmed the results of quantitative data with interview Analyze the performance of projects Conclusions Fig.1 Methodology of collecting and analysis data The original data was used in order to find the number of days used in disbursement procedure. The disbursement procedure is divided into three stages. It is based on FIDIC recommendation for disbursement procedure [16-17]. The designed method was divided into three stages. The first stage was the submission of invoice from main contractor to client or client s representative when fully requested invoices from main contractor has been approved and verified according to client requirement. Second stage was inspection and issued the certificate of inspection. It was counted as quantity surveyor/engineers inspection has approved on amount of work which has been done and the certificate has been issued to main contractor. Third stage was payment. It was counted as the actual date of transferring the payment from client to the date of receiving the payment from main contractor account. Therefore, the duration of days used in each stage was defined as number of days used in exercise subtracted with the number of day allowed in contract agreement and subtracted with sum of the unforeseen events (days) which ceased work progress and holidays. These were three stages which had been implemented in this research. The residual data consisted mainly of interview with person involved in each activity of each stage of disbursement procedure. The target group for questionnaire and interview were head of engineer division, law and land acquisition, procurement, accounting, budget administration, project managers, engineers, accountants, consultants and quantity surveyors. The interview consisted of a series of closed questions related to the reasons for delays in the disbursement procedures. The interviewees were asked to interpret the reasons for delays which they had indicated. The residual data would be conducted after the original data had been completed and tabulated into graphical data. The residual data provided factors and reasons which the performance of each activity in the disbursement procedure is performed. The archival research method was mostly applied approach in this research, as it enabled to access to a vast quantity of data from the already widely accepted publications. If there was a difficulty in collecting original data, the residual method was used in the analysis. However, the collection of such types of data suffers from the biases existing in the original data. The greatest difficulty in this research is the possibility acquires the contract agreement as well as the actual dated of each activity in payment procedure. ISSN:

4 4. FINDINGS AND DISCUSSION 4.1 The performance of disbursement Highway agencies data related to the 113 public projects were shown in Table 1, 2, 3 and 4. Information on the type of clients, financial sources and the performance of each construction works were categorized into Tables 1, 2 and 3 respectively. Table 3 represents the summary of client s performance. The number indicates an average number of days used in each stage of disbursement procedure. In each stages of activity, the performance was calculated by following the designed method. It had been found from Table 3 that the number of days used in submission of invoice stage of central, local government and oversea funded projects were varied between -1 and +2 days. Whereas, the number of days used in the inspected and issued the certificate of inspection stage and the payment stage were fluctuated. Classification Number of projects Government 96 Local-government 17 Total 113 Table 1. Summary of public projects information Classification Number of projects ADB 22 IBRD 18 JBIC 24 Central 32 Local 17 Total 113 Table 2. Profiles of financial projects Performance of disbursement Submit (days) Inspect (days) Payment (days) Sum (days) ADB IBRD JBIC Local Central Average mean Note: (-) = under due date, (+) = overdue date Table 3. Performance of disbursement procedure (Days) It had further been found from Table 3 that the disbursement procedure of oversea funding agency (IBRDfunded projects) used lesser time than the other disbursement procedure of oversea funding agencies. IBRD disbursement procedure consumed thirteen days lesser than contract agreed While domestic disbursment procedures, the disbursement procedure of central government agencies used lesser time than disbursement of ISSN:

5 local government agencies. The disbursement procedure of central govenment funded projects took an extra one day than contract agreed. 4.2 Pattern of disbursement The disbursement of each project was calculated and plotted into graphical data. It had been found from result (figure 2-7) that the overall performance of disbursement in highways construction works can be generalized in 3 major patterns. First pattern was a moderate straight line with few jumping points. Each month of these first pattern projects obtain indicents which caused the number of delayed days in disbursement process lesser 30 days than contract agreement. It had seen as general patterns of construction work with few obstructions. Second pattern was gradually increasing with time and have few jumping points. The projects obtain incidents which caused the number of delayed days in disbursement process in each month greater 30 days but lesser 60 days when it was compared with contract agreement. This pattern had similarity to pattern one but the degree of seriousness was higher than the first pattern. It can be noticed from graphical results that pattern two have few higher in amplitude points and more often to occur. Third pattern was frustrated line. The project obtained the incidents which caused the number of delayed days in disbursement process in each month greater than 60 days but lesser 120 days than contract agreement. This pattern represents the highest sensitivities of factors. The degree of seriousness was the most severe in all three patterns which brings the point to a sudden high amplitude level. The summary of patterns of disbursement in highway construction works were shown in Table 4. The patterns of disbursement of highway public works were caused by these factors. It had been found from interview and questionnaire with persons involved in each stage of disbursement procedure. The factors which caused submission, inspection and issue the certificate and the payment stage delay were showed in Table 5-7. Type of funds Pattern one Pattern two Pattern three JBIC IBRD ADB Local Central TABLE 4. Summary of patterns in highway construction works Fig. 2 Summary of duration in disbursement process of highway works Fig. 3 Characteristic of highways works with central government fund projects ISSN:

6 Fig. 4 Characteristic of highways works with local government fund projects Fig. 5 Characteristic of highways works with ADB fund projects Fig. 6 Characteristic of highways works with JBIC fund projects Fig. 7 Characteristic of highways works with IBRD fund projects 4.3 Influenced factors in disbursement process Further study was conducted in order to find factors which reflect its performance. Interview and questionnaire had been implemented with persons involved in each stage of disbursement process in each project. The scale of degree of seriousness was The most seriousness was scored as 10 and the least degree of seriousness which affected to disbursement performance was 1. The influenced factors of each stage were shown in Table 5-7. The first finding was financial conditions of main contractor. It caused a decrease in their disbursement performance. The financial of main contractor played an important effect on the number of days delay [18-19]. In order words, the financial of main contractor had affect on their performance as completed works could not be claimed. Unless, all completion of each work of each stage had been fully completed and submitted to client or client s representative. Therefore, main contractors faced cash flow problem and might not able to purchase for construction materials and pay for labour fee. These factors caused the performance of work ISSN:

7 decreased. Interviewees agreed further on the size of construction firm had influence on the performance of progress work. Especially, a larger construction companies had advantage on rise the capital to alleviate the cash flow problem in shorter time than small-medium construction companies [20-21]. The second finding was source of fund. It was found that the performance of disbursement of each fund faced both delay and advance in payment schedule. It had been found during interveiw that main contractors found difficulties in receiving monthly payments from agencies. According to respondents with administrative position, explicitly define the timing of montly installment. The reason for these delays lied in the timing of the cash flow from the comptroller agency to the agencies s budegets. The payment were not made on time. This was due to agencies did not have the necessary funds in thier budget. Or because they are not able to organize the flow of expenditures in their budget properly. It was difficult to maintain such a level of high performance. This might be a close link between disbursement procedure of each fund and working culture of each country during communications. Nonetheless, there was no evident to analyze and conclude. The third finding was shortage of staff. This factor has been mentioned in each stage of disbursement process. Interviewers admitted the shortage of staff factor caused an overload to their staffs which affected to their performance. Source of fund Factors Degree of seriousness Government/Overseas Main contractor s financial diffculties 10 Shortage of experienced staffs 9 Unfamiliar with overseas required 8 documents Communication between main contractor 7 and engineers and government agencies Deficiencies in main contractors company 6 Bureaucratic 5 Change in works 4 Long holiday break 3 Traveling allowance 2 Government acts 1 TABLE 5. Summary of delayed factors in submission stage Source of fund Factors Degree of seriousness Government/Overseas Delayed dispute resolution 10 Defective design 9 Unclear drawings 8 Frequent change orders 7 Adverse weather 6 Shortage of technical personnel 5 Unexpected natural events (flood) 4 Contractor competence 3 Third party delays 2 The relationship between overseas and local staffs 1 TABLE 6. Summary of delayed factors in inspection and issued the certificate stage ISSN:

8 Source of fund Factors Degree of seriousness Government/Overseas Fiscal budget 10 Bank procedure 9 Deficiencies in public agenies organization 8 Shortage of staff 7 Change in works 6 Unfamiliar with overseas required 5 documents Traveling allowance 4 Communication with overseas agencies 3 Long holiday break 2 Financial crisis Further Finding TABLE 7. Summary of delayed factors in payment stage Main contractors expressed their point of view on an extra work ordered by public agencies. The main contractors have an obligation to execute extra works in accordance with the term of conditions stipulated in the contract and specifications. It acquired extra time to settle new agreement, legal formalities and procedures which caused significant delays. Furthermore, the disbursement of procedure in Thailand has to comply with Bank of Thailand (BOT) rules and regulations which might not suitable and workable with oversea rules and regulations. Therefore, there might be difficulties in bringing the performance of disbursement as it was stated in contract agreement. Experiencing in disbursement procedure was also one of the important factors which has influenced on improving the performance of disbursement procedures. Nonetheless, the performance of disbursement of project should be kept as contract agreement was written. Therefore, this thought was a result of prevention in fearing of conspiracy and generosity theory from public thought and awareness. 5. CONCLUSIONS 5.1 Performance of disbursement The overseas funded projects had lesser time consumed in disbursement process than government and local government funded projects The performance of central government had better performance than local government funded projects IBRD fund agency had lesser time consumed in disbursement practice than other overseas fund agencies Payment stage caused in the delay in total performance of disbursement process than inspection and issue the certificate and submission stage. 5.2 Pattern of disbursement Pattern of disbursement in highway public works could be categorized into 3 patterns: First pattern was a moderate straight line with few jumping points. The projects obtain the incidents which caused the number of delayed days in disbursement process lesser 30 days than contract agreement in each month Second pattern was gradually increasing with time and have few jumping points. The projects obtain incidents which cause the number of delayed days in disbursement process greater 30 days but lesser 60 days than contract agreement in each month. ISSN:

9 5.2.3 Third pattern was frustrated line. The projects obtain incidents which caused the number of delayed days in disbursement process greater 60 days but lesser 120 days than contract agreement in each month. 5.3 Influenced factors in disbursement performance It had been found and concluded that: Main contractor s financial difficulties, shortage of staff and unfamiliar with overseas required documents were among highest factors concerned from practitioners in submission stage Delayed dispute resolution, defective design and unclear drawings were among highest factors which are concerned from persons involved in inspection and issued the certificate stage Fiscal budget, Bank procedure and deficiencies in public agenies organization were among highest factors which are to be concerned from accountants in payment stage. ACKNOWLEDGEMENT This study was partly financially supported by Grant-in-Aid for Scientific Research No from Ministry of Education, Culture, Sports, Science and Technology. 6. REFERENCES [1] Greenwood, D. Subcontract procurement: Are relationship changing? Construction Management and Economics, 19,2000, pp.5-7. [2] Gray, C. and Flanagan, R. The changing role of specialist and trade contractor, Chartered Institute of Building, Ascot.(1989). [3] Mansfeild, N.F. Ugwu O.O. and Doran, T. Causes of delay and cost of overruns in Nigerian construction projects, International Journal of Project Management, 12(4), 1994, pp [4] Odeyinka, H.A. and Yusif, A. The causes and effects of construction delays on completion cost of housing projects in Nigeria, Journal of Financial Management of Property and Construction., 2(3), 1997, pp [5] Ayudhya Israngkura. B, Kunishima M, Study of Payment Procedures of Public Works in Thailand, Proceeding of Annual Forum on Construction Management, 23, 2005, pp [6] Love, S. Subcontractor partnering: I ll believe it when I see it, Journal of Management in Engineering, 13(5), 1997, pp [7] Bordoli, D.A and Balwin, A.N. A methodology for assessing construction project delays, Construction Management and Economics, 16, 1998, pp [8] Chan, D.W.M and Kumaraswamy, M.M. A comparative study of causes of time overrun in Hong Kong construction projects, International Journal of Project Management, 15(1), 1997, pp [9] Elazouni, A.M and Metwally, F.G. Factor-based path analysis to support subcontractor management, International Journal of Project Management, 23(2), 2000 pp [10] Arditi D, Akan G.T. and Gurdamar S. Reasons for delays in public projects in Turkey. Construction Management and Economics, 3, 1985, pp [11] Assaf S.A., Alkhalil M. and Al-Hazmi M. Cause of delay in large building construction projects, Journal of Management in Engineer, ASCE., 11(2), 1995, pp [12] Hancher, D.E and Rowing, J.E. Setting highway construction contract duration Journal of the Construction Division, ASCE., 107(2), 1981, pp [13] Chalabi, F.A and Camp, D. Causes of delay and overruns of construction projects in developing countries, CIB Proc, W-65; 2, 1984, pp [14] Kabatepe, E. Deficiencies observed in the omplementation of project completion deadlines, Tuskish Prime Ministry Sate Planning Organization, Ankara, [15] Hacaloglu, A. The construction Sector: Problems, Developments, measures. Turkish Prime Ministry state Planning Organization, Ankara [16] International Federation of Consulting Engineers (FIDIC)., Conditions of contract (contract agreement) [17] International Federation of Consulting Engineers (FIDIC)., Conditions of contract (construction) [18] Perry, J.G. and Hayes, R.W. Risk and its management in construction projects, Proceedings of Institution of Civil Engineers, 78, 1985, pp [19] Khalil, I.A. and Ghafly, A.A. Delay in public utility projects in Saudi Arabia, International Journal of Project Management., 17(2), 1999, pp ISSN:

10 [20] Aibinu, A.A. and Jagboro, G. O. The effects of construction delays on project delivery in Nigerian, International Journal of Project Management, 20, (2002) pp [21] Ayudhya Israngkura, B.Ph.D Study of Payment Procedures of Public Works in Thailand, thesis, University of Tokyo BIOGRAPHICAL NOTES Dr. Borvorn Israngkura Na Ayudhya is senior lecturer at Department of Civil Engineering at Rajamangala University of Technology Krungthep. He holds B.Eng in Civil Engineering from University of London, a Master in Structuring Engineering from University of Surrey and a Ph. D. in Construction management and infrastructure system from University of Tokyo. His current research interests included international disbursement procedures, project administration, construction delays and claims. Dr. Kunishima Masahiko is a professor at Civil Engineering Department and International studies Department at University of Tokyo. He holds a B.Eng. and a Master in Civil Engineering, and a Ph.D in Construction management and infrastructure. His current research interests include Bidding and contracting systems, public works bidding system and safety control on construction sites. CONTACTS Dr. Borvorn Israngkura Na Ayudhya Rajamangala University of Technology Krungthep Address 2 Nanglinchi rd. Tungmahamek Sathorn Bangkok City Bangkok Country THAILAND Tel Fax ayudhya2003@yahoo.com Dr. Kunishima Masahiko. Professor of Civil Engineering and International studies Department, University of Tokyo Address Kashiwanoha, Kashiwa-shi, Chiba, City Chiba Country JAPAN kuni@civil.t.u-tokyo.ac.jp, kuni@k.u-tokyo.ac.jp ISSN: