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FACTORS AFFECTING PROMPT SETTLEMENT OF FINAL ACCOUNT
EMILIA BINTI AHZAMI
UNIVERSITI TEKNOLOGI MALAYSIA
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(full text)
EMILIA BINTI AHZAMI
23RD FEBRUARY 1982
FACTORS AFFECTING PROMPT SETTLEMENT OF
FINAL ACCOUNT
2017/2018
820223-04-5200 AP. DR. NUR EMMA BINTI MUSTAFFA
PSZ 19:16 (Pind. 1/07)
QUANTITY SURVEYING”.
“I/ We* hereby declare that I/ we* have read this thesis and in
my/ our* opinion this thesis is sufficient in terms of scope and
quality for the award of the degree of Bachelor of
Signature : ……………………………………
Name of Supervisor : Assoc. Prof. Dr. Nur Emma Mustaffa
Date : …………………………………..
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Name of Second
Reader : Dr. Hamizah Liyana Tajul Ariffin
Date : …………………………............
* Delete as necessary.
FACTORS AFFCETING PROMPT SETTLEMENT OF FINAL ACCOUNT
EMILIA BINTI AHZAMI
A dissertation submitted in partial fulfillment of the
requirements for the awards of the degree of
Bachelor of Quantity Surveying
Faculty of Built Environment
Universiti Teknologi Malaysia
DECEMBER 2017
ii
DECLARATION
I declare that this thesis entitled “Factors Affecting Prompt Settlement of
Final Account” is the result of my own research except as cited in the
references. The thesis has not been accepted for any degree and is not
concurrently submitted in candidature of any other degree.
Signature : ....................................................
Name : EMILIA BINTI AHZAMI
Date : …………………………………
iii
ACKNOWLEDGEMENT
I would like to take this opportunity to express my sincere appreciation to all
that has been helping me throughout the research. The great support and
contributions from various parties make this research a success.
A big thank you is dedicated to my supervisor, Associate Professor Dr Nur
Emma Mustaffa on the guidance, support and continuous encouragements.
Lastly, I would like to thank all my friends for their support and dedication in
helping me to complete this research.
Thank you very much.
iv
ABSTRACT
The assessment and agreement of a Final Account in construction projects can be a
challenging and time-consuming process. Any delay of Final Account settlement can
have an adverse impact on the financial of contractual parties such as contractors.
Project success must not only limit to the completion of the projects, but it shall also
take into consideration the satisfaction of all stakeholders. Therefore, it is crucial to
identify the factors that affect the prompt settlement of Final Account. This research
is to provide an overview on the current problems faced in the Final Account
settlement. The purpose of this study is to identify the most significant factors and
causes of disputes for Final Account settlement in Malaysia. The scope of study is
only limited to the contractual liability for the contractors. Questionnaire survey was
distributed to collect the perspectives of experienced contractors on the factors
influencing the settlement of a Final Account. The study revealed that ‘variation’ and
‘delay in finalisation of variation orders’ were the most significant factor and cause
of dispute. Further to the findings, potential solutions are proposed such as
leveraging information and communication technology in the construction industry
to improve the information management; and focusing on the effectiveness of project
delivery and successful completion in totality. Thus, the findings and analysis will
assist to raise awareness to quantity surveyors and/or contractors by reducing the
potential conflict and remedy future delay so that to ensure Final Account can be
completed in a timely manner.
v
ABSTRAK
Penilaian dan persetujuan perakuan muktamad dalam projek pembinaan merupakan
satu proses yang mencabar dan memakan masa. Kelewatan penyelesaian perakuan
muktamad boleh memberi kesan buruk terutamanya kepada kewangan pihak
kontraktor. Kejayaan projek haruslah dinilai bukan hanya terhad kepada penyiapan
sesuatu projek, tetapi juga perlu mengambil kira kepuasan semua pihak
berkepentingan. Oleh yang demikian, adalah penting untuk mengenal pasti faktor-
faktor yang mempengaruhi penyelesaian perakuan muktamad. Penyelidikan ini
adalah untuk memberikan gambaran mengenai masalah semasa yang dihadapi dalam
penyelesaian perakuan muktamad. Tujuan kajian ini adalah untuk mengenal pasti
faktor-faktor penting dan masalah pertikaian bagi penyelesaian perakaun muktamad
di Malaysia. Skop kajian ini hanya terhad kepada liabiliti kontrak bagi kontraktor
sahaja. Tinjauan soal selidik diedarkan untuk mengambil kira perspektif kontraktor
yang berpengalaman dalam penyelesaian perakuan muktamad. ‘Perubahan Kerja’
dan ‘Kelewatan menyelesaikan perubahan kerja’ adalah faktor yang paling penting
mempengaruhi penyelesaian perakuan muktamad. Beberapa langkah penyelesaian
dicadangkan seperti memanfaatkan teknologi maklumat dalam industri pembinaan;
dan keberkesanan dan penyelesaian projek perlu dilihat dari setiap sudut secara
holistik. Oleh itu, penemuan dan analisis dalam kajian ini dapat membantu
menigkatkan kesedaran pada juurukur bahan dan/atau pihak kontraktor agar
penyelesaian akaun muktamad dapat dilaksanakan dalam tempoh masa yang
ditetapkan.
vi
TABLE OF CONTENTS
CHAPTER TITLE PAGE
DECLARATION ii
ACKNOWLEDGEMENTS iii
ABSTRACT iv
ABSTRAK v
TABLE OF CONTENTS vi
LIST OF TABLES ix
LIST OF FIGURES x
LIST OF ABBREVIATIONS xi
LIST OF APPENDICES xii
1 INTRODUCTION
1.1 Background of Problem Statement 1
1.2 Problem Statement 3
1.3 Research Objective 4
1.4 Scope of Study 5
1.5 Significance of Study 6
1.6 Research Structure 6
1.6.1 Chapter 1 – Introduction 6
1.6.2 Chapter 2 – Literature Review 7
1.6.3 Chapter 3 – Research Methodology (Data Collection) 7
vii
1.6.4 Chapter 4 – Results & Discussion (Data Analysis) 7
1.6.5 Chapter 5 – Conclusion & Recommendations 7
2 LITERATURE REVIEW
2.1 Introduction 9
2.2 Definition of Final Account 10
2.3 The Importance of Final Account Settlement 10
2.4 Final Account Provisions in Standard Form of Contract 11
2.5 Final Account Procedure and Process 15
2.6 Factors that lead to the delay closing in Final Account 17
2.6.1 Variations 20
2.6.2 Measurements 20
2.6.3 Claims 21
2.6.4 Document and Records 22
2.7 Root cause of the delay in preparing Final Account 24
2.8 Conclusions 28
3 RESEARCH METHODOLOGY
3.1 Introduction 30
3.2 Research Methodology 31
3.2.1 Qualitative Research 31
3.2.2 Quantitative Research 31
3.3 Research Population & Sampling 32
3.3.1 Population 32
3.3.2 Sampling 33
3.4 Data Collection 34
3.4.1 Research Instruments - Questionnaire 35
3.4.1.1 Part A: Profile of Respondents 36
viii
3.4.1.2 Part B: Factors Affecting Final Account 36
Settlement
3.4.1.3 Part C: Root cause of the delay in preparing 36
Final Account
3.5 Data Analysis 37
3.5.1 The Survey Analysis 37
3.6 Conclusion and Recommendations 38
4 DATA ANALYSIS
4.1 Introduction 39
4.2 Data Collection 40
4.3 Analysis of Result
4.3.1 Respondents’ Profile 41
4.4 Factors that lead to the delay closing in Final Account 45
4.5 Root cause of the delay in preparing Final Account 47
4.6 Summary 50
5 CONCLUSION AND RECOMMENDATIONS
5.1 Introduction 52
5.2 Research Findings & Conclusion 52
5.2.1 Objective One: Factors Affecting Final Account 53
Settlement
5.2.2 Objective Two: Root cause of the delay in preparing
Final Account 54
5.3 Limitation of Study 55
5.4 Recommendations for Further Research 56
5.5 Conclusion 60
REFERENCES AND BIBLIOGRAPHY 61 Appendix
ix
LIST OF TABLES
TABLE NO. TITLE PAGE
1.1 Contract clauses in Standard Form of Contract 3
2.1 Contract provisions in relation to Final Account in 14
Standard Forms of Contract
2.2 Summary of underlying factor affecting Final Account 19
settlement
2.3 Cause of dispute that lead to the delay 24-25
4.1 Distribution and responses of questionnaires 40
4.2 Factors that affecting Final Account settlement 46
4.3 Causes of dispute in delay closing of Final Account 48
x
LIST OF FIGURES
FIGURE NO. TITLE PAGE
1.1 Value of construction work done by location of project, Q1 2017 5
1.2 Flow Chart of Research Methodology 8
2.1 Final Account Process and Procedure 15
2.2 Final Account closing delay theoretical framework 27
3.1 Likert Scale 35
3.2 Relative Important Index (RII) Formula 38
4..1 Respondent’s positions in the organisations 41
4..2 Education level of respondents 42
4..3 Respondents’ years of experience in construction industry 43
4..4 Respondents’ experience in Final Account 43
4..5 Respondents’ involvement in number of projects for 44
Final Account
4..6 Number of project’s Final Account concluded within the 45
stipulated time
5.1 Building Information Modelling (BIM) 56
5.2 Construction Industry Structure (CIS) 59
xi
LIST OF ABBREVIATION
ABBREVIATION FULL NAME
DLP Defects Liability Period
PAM Pertubuhan Arkitek Malaysia
JKR Jabatan Kerja Raya
CPC Certificate of Practical Completion
CIDB Construction Industry Development Board
CIMP Construction Industry Master Plan
CITP Construction Industry Transformation Program
CIPAA Construction Industry Payment and
Adjudication Act 2012
CMGD Certificate of Making Good Defects
IEM The Institution of Engineers Malaysia
S. O Superintendent Officer
P.C sum Prime Cost sum
RII Relative Importance Index
StdDev Standard Deviation
BIM Building Information Management
BVP/PIPS Best Value Procurement/Performance
Information Procurement System (BVP/PIPS)
xii
LIST OF APPENDICES
APPENDIX TITLE
A QUESTIONNAIRE
CHAPTER 1
INTRODUCTION
CHAPTER 1
INTRODUCTION
1.1 Background of problem statement
The construction sector has proven to be one of the resilient
industries in Malaysia due to the strong demand for residential and commercial
buildings. In 2016, the construction sector’s share of GDP was 4.5% valued at
RM50.1 billion. The sector registered 7.4% output growth in 2016 (2015: 8.2%) but
this growth was lower than the projected growth of 10.3% per annum targeted in the
11MP. (Malaysia Productivity Corporation, 24th Productivity Report 2016/2017).
In recognition of the importance of the construction sector in
providing spillover effects to other economic sectors like manufacturing and
services, the Construction Industry Transformation Programme (CITP) has been
rolled out by the Construction Industry Development Board (CIDB) to transform the
sector into a modern, highly productive and sustainable which encompasses four
strategic thrusts, namely quality, safety and professionalism (QSP); environment
sustainability; productivity; and internationalisation.
2
The construction industry is large, volatile and requires tremendous
capital outlays. A unique element of risk in the industry is the manner in which
disputes and claims are woven through the fiber of the construction process (Tumi et
al., 2009). Payment problem are an old age issue that has been spread in Malaysian
construction industry over the long time (Siti and Rosli, 2010). Late payments are
often associated with other issues in Malaysia’s construction industry such as
productivity, non-conformance, safety, delay and abandonment issues (Oon, 2002).
The rapid increase of the late payment issues nowadays has gone to the point that it
tends to decrease the good image of construction industry in Malaysia.
As stated by Davis Langdon & Seah Consultancy (2003), the
construction payments blues have domino effects. A delayed payment by one party
may affect the whole supply chain of payment of a construction project. Ameer Ali
(2005) further indicate that late payment causes cash flow problems which in return
can affect the overall progress of works. The most common impact of late and non-
payment are (i) creating negatives chain effect on other parties, (ii) resulting in delay
in completion project, (iii) leading to bankruptcy or liquidation and (iv) affecting
both owner and contractor’s reputation (Azhari et al., 2014).
Meng (2005) in his works stated that all problems in construction
begin when payment is not received at the exact amount or date. Disagreements then
leads to the arguments that will jeopardise the relationship which eventually will lead
to projects exceed initial time and cost estimates and experienced extensive delays.
Hence, it is vital to ensure the construction projects are executed
effectively and efficiently. The practice of efficient and timely payment in
construction is a major factor leading to the project’s success. Problems of cash flow
due to the issues on late, under and non- payment can severely affect the
implementation of construction projects and thus the provision of the nation’s
infrastructure and built environment.
3
1.2 Problem Statement
Lord Denning in Dawnny’s Ltd vs FG Minter (1971) said cash flow is
the life-blood of the construction industry therefore it is critical to ensure that the
cash flow is monitored and managed well to avoid any risk to the implementation of
the projects.
Although there are adequate mechanisms provided in many standard
forms of contracts in Malaysia for payment application and certification clauses,
problem of late and non-payment issues still remains a chronic problem in
construction industry (Naushad Ali Naseem Ameer Ali, 2006).
Table 1.1: Contract Clauses in Standard Form of Contract
Payment Certificate Relevant Contract Clauses
PAM 2006
PWD 203A (2010)
JKR DB/T
IEM 1989
CIDB 2000
Interim Certificate 30.10 28 50.3(c) 47(d) 42.9 Penultimate Certificate 30.13 - - - 42.6
Final Certificate
30.14 30.15 31 51.2 48(c) 42.8(f)
The non-payment issues eventually will sacrifice the timely
performance and quality of work due to the insufficient cash flow. This will as well
give the impact on the total value chain in the event non-payment took place in any
level of the construction hierarchy. Delay in Final Account may also cause problems
to contractor in making working capital and eventually lead to bankruptcy (Zarabizan
et al. 2012).
Final Account for construction project is prepared to show the final
cost of a project that has been completed by the contractor. Final Account included
the cost of defect liability period, all additions, alterations, deductions resulting from
project changes and other related payment as stated in the contract (Zakaria et al
4
2012). Hence, the assessment and agreement of this Final Account sum, ie the Final
Account, is usually of the utmost importance to both the client and contractor
(Ashworth and Hogg, 2002).
Ashworth and Hogg (2002) stated that in construction projects, the
preparation and agreement of the Final Account can be time consuming and
expensive process for both parties to the contract. It is a lengthy and complex process
that frequently extends beyond the period stated in the construction contract. Zainon
et al. (2011) further indicate delay is perceived one of the biggest problems faced by
the construction firms and it is claimed to be the reason for the increase in the
number of the construction projects Final Account which are settled unreasonably
late or far beyond the period stipulated in the contract. Sundra Rajoo (2013) further
emphasis that payment issues during post-contract stages such as delayed progress
payments and final payments (due to delay in closing final accounts), non-payments
and conditional payments have been persisting in Malaysian construction industry,
Baccarini (1999) and Khang and Moe (2008) stated that when all the
final settlement of financial transaction/dues were completed at the completing phase
of a project, such project met the satisfaction of the end users and all key
stakeholders (including contractors) indicating that it is successfully achieved. The
contract formed between Contractor and Client ends when the project is completed.
Therefore, it is crucial to ensure the Final Account is closed promptly in accordance
to the agreed forms of agreement. Project success must not only be limited to the
completion of the projects, but it shall also take into consideration the satisfaction of
all stakeholders (Westervald, 2003).
1.3 Research Objective
The aim of this research is to investigate the causes that lead to the delayed
settlement of Final Account in construction projects in Malaysia. The objectives are as
5
follows: -
i) To identify the factors that lead to the delay closing of Final Account
in construction project in Malaysia
ii) To identify the root causes of the delay in preparing Final Account
1.4 Scope of Study
This study will be focused to the following areas:
i) Limited to contractual liability for the contractors only.
ii) Survey is conducted for the Contractors in Selangor and Wilayah
Persekutuan Kuala Lumpur only.
Figure 1.1: Value of construction work done by location of project, Q1 2017 (Department of
Statistics Malaysia)
According to construction first quarter 2017 report by Department of
Statistic Malaysia, the state of Selangor recorded the highest value of construction
work done of RM 8.3 billion and followed by Wilayah Persekutuan Kuala Lumpur
RM 7.7 billion. Hence, the research is focusing on the states of Selangor and Kuala
6
Lumpur only in view of the active construction activities undertaken by the
contractors.
1.5 Significance of the Study
This research is important to provide the overview on current
problems faced in the Final Account settlement and provide potential solutions by
understand and analyses the findings of this study thoroughly. This shall help the
quantity surveyor and/or the Contractor to identify the factors and challenges that
contribute to the delay settlement of their Final Account.
This also serve as a guideline to the various parties that the delay in
the preparation of the Final Account might lead to the legal implications. Thus, this
study can raise the awareness to quantity surveyors and/or contractor by reducing the
potential conflict, act as preventive measure or remedy future delay so that to ensure
Final Account can be completed in a timely manner.
1.6 Research Structure
This research is implemented in five (5) chapter to achieve the
research objective. The sequential order of the methodology is as following:
,
1.7.1 Chapter 1: Introduction
The initial literature review approach adopted in understanding the
overview of the topic. The issue and problem statement of the topic is identified
through collection of information from primary and secondary sources. The sources
include journals, books, previous thesis, newspaper, internet and various information
papers relevant to construction industry. The objective of the research is formed after
the issue and problem has been identified.
7
1.7.2 Chapter 2: Literature Review
A literature review on Final Account was undertaken to understand
the topic thoroughly and comprehensively to identify the significance factors.
Identified factors thereafter are used as variables in the survey questionnaire.
1.7.3 Chapter 3: Research Methodology (Data Collection)
This chapter outlines the rationale on selected research method, how
the questionnaire is designed, how the participants are selected, how the distribution
and collection of the questionnaire to determine the sample size and data analysis
methodology.
1.7.4 Chapter 4: Results and Discussion (Data Analysis)
This chapter presents data collected form the questionnaire, detail
analyses if the data and discusses the results of the analysis.
1.7.5 Chapter 5: Conclusion and Recommendations
Lastly, the review of the whole process of the study is carried out to
evaluate whether the objectives has been achieved. Recommendation and conclusion
on the study will be discussed in Chapter 5 to conclude the study and further study
will be suggested.
The framework of methodology employed in this study is illustrated
in the following Figure 1.2.
8
Figure 1.2: Flow Chart of Research Methodology
• Title Selection
• Background of the
Study
• Statement of Issue
• Aims, Objectives &
Hypothesis
• Scope of Study
CHAPTER 2
INTRODUCTION
Evaluate
LITERATURE REVIEW DATA ANALYSE FINDINGS & RECOMMENDATION
CHAPTER 1
• Published Journal
• Books
• Webpage
• Paper relevant to
construction
industry
• Newspaper
• Regulatory body of
construction
CHAPTER 2
LITERATURE
REVIEW
• Research Design &
Method
• Sampling size
• Analysis
Methodology
Research Instruments
• Questionnaire
CHAPTER 3
DATA
COLLECTION
• Analysis of
respondents’ profile
• Analysis on the
cause of delay for
prompt settlement
of Final Account
• Analysis on the
challenges faced
CHAPTER 4
DATA
ANALYSIS
• Conclusion & Recommendations will be draw based on data analyses in Chapter 4
CHAPTER 5
CONCLUSION &
RECOMMENDATION
FACTORS AFFECTING PROMPT SETTLEMENT OF FINAL ACCOUN T
2
CHAPTER 2
LITERATURE REVIEW
9
CHAPTER 2
LITERATURE REVIEW
2.1 Introduction
Certification involved throughout the progress at various stages in the
construction industry. There are three (3) types of certification identified as interim
payment, final certificate and certificate recording an event (Murdoch and Hughes,
2000). In general, an interim valuation procedure, the valuation submitted by the
contractor for the agreed period will comprise values of work properly executed on
site and materials delivered to site. Payment of the valuation will be made on the
issuance of Interim Certificate during the course of the work until practical
completion, following which further certificate may be issued to release one-half of
the retentions held by the employer. Thereafter the contractor will submit a Final
Account to the architect and a reconciliation of the contract sum will be made. Final
payment of outstanding monies will be released after Defect Liability Period and a
Final Certificate will be issued.
Contract sum may be changed for a variety of reasons (Murdoch,
1993). Therefore, Final Account is prepared through the process of evaluation and
determination of the changes to the contract as incurred during the course of the
works so as to ascertain the final contract sum as well as the final payment upon
10
completion of project which the Contractor is entitled to receive and the Employer is
obliged to pay in accordance with the contract provision.
2.2 Definition of Final Account
The cost during the tender stage does not cater for neither future
omission nor addition as these are not foreseeable or predictable at the preliminary or
tender stage of the project. The cost at tender stage will only reflect the cost of
client’s original brief and does not contain any allowances for subsequent omission
or addition to the design on which the bill of quantities is prepared. Therefore, at the
Final Account stage, the contract sum will include such items as day works charges,
adjustments in accordance of the variation orders, and so on, hence, in some way a
clearer picture of the total cost is presented (Cartlidge, 1973).
Final Account for the construction project is prepared to show the
final cost of a project that have been completed by the contractor. Final Account
included the cost of defect liability period, all additions, alternations, deductions
resulting from project changes and other related payment as stated in the contract.
Final Account should be prepared immediately after the projects was completed
based on the type condition of contract. Sometimes, it also refers to the calculation
and agreement of the final construction cost between the employer, contractor and
incorporates a fair valuation of the work carried out (Ashworth and Hogg, 2002).
2.3 The Importance of Final Account Settlement
Final Account in construction project is an important document in
project management process to show the final cost of a project that has been
completed by the contractor (Van Der Westhuizen and Fitzgerald, 2005). A Final
Account brings about a sense of finality to the negotiations leading up to the
agreement of the Final Account between the parties to the contract. Ashworth &
Hogg (2002) perceived Final Account as the calculation and mutual agreement of the
11
final construction cost between the employer and contractor and incorporated a fair
valuation of the works carried out.
Final Account is available shortly after the contractor meets the
obligations set in the contract. Therefore, from the project management perspective,
the Final Account closing is claimed as successful if the Final Account is settled
within the time frame and the project is completed in accordance with the provisions
stipulated in the contract. The effectiveness and efficient closing of construction
Final Account is increasingly regarded as of utmost importance in particular, the
contractor who desires to achieve project success (Zakaria et al. 2013). Also, monies
received from the Final Account can be used as capital to implement new projects.
2.4 Final Account Provisions in Standard Form of Building Contract
There are various types of form contract used in construction
industry in Malaysia. The selection forms of contracts depend on the basis of
pricing and the contract strategy that best meets the project objectives. The various
types of contract offer different ways of handling pricing, risk transfer,
responsibility for performance, cost certainty, and complexity. Standard forms of
contract are readymade terms and conditions when the contract is created
(Kwakye, 1997).
Most commonly used standard forms of building contract in
Malaysia are namely, PAM 2006 (Pertubuhan Arkitek Malaysia) have been widely
used for private sector. The PWD203A (Rev. 10/83) are applied for all projects
funded by Malaysian public sector and are compulsory for government works.
Besides that, Construction Industry Development Board (CIDB) has produced
two standard forms of contracts for Building Works (2000 edition) and the CIDB
Standard Form of Sub-Contract for nominated Sub-Contractor; however, these two
forms of contract have not been widely used. Other form of contract that much
adopted in private-sector financed civil engineering construction works is IEM
12
Conditions of Contract. Therefore, the selection of each forms of contract
mentioned above depending on type of project, owner/clients of projects, nature of
a project and financing involved.
All the standard forms of building contract in Malaysia contain the
provision of the Final Account upon the completion of a project. The purpose for
the provision is to govern the payments made between parties involved. The
contract clauses related to the Final Account is illustrated in Table 2.1.
PAM Contract 2006 Clause 30.10 states that the Contractor shall send
to the Architect and Quantity Surveyor, all document with supporting of the draft
final statement within six (6) months after Practical Completion of the Works.
PWD Form 203A (Rev. 2007) states that Contractor shall submit full
particulars complete with supporting documents within but not later than three (3)
months after the issuance of the Certificate of Practical Completion. The
Superintendent Officer (S.O) shall issue the Final Certificate within three (3)
months after the expiry of the Defects Liability Periods for the whole of the Works
or three (3) months after the issue of the Certificate of Completion of Making
Good Defects (Clause 31) (PWD, 2007)
CIDB 2000 states that Contractor shall submit full particulars complete
with supporting documents within but not later than three (3) months after the
issuance of the Certificate of Practical Completion. The Superintendent Officer
(S.O) shall issue the Final Certificate within three (3) months after the expiry of
the Defects Liability Periods for the whole of the Works or three (3) months after
the issue of the Certificate of Completion of Making Good Defects (Clause 31)
(PWD, 2007).
FIDIC 1st edition states within fifty-six (56) days after receiving the
Performance Certification; the Contractor shall submit the draft of final statement
with supporting documents showing in detail in a form approved by the Engineer
(Clause 14.11) (FIDIC, 1999).
13
In summary, the difference found in the forms of contract is the time
frame for the closing of Final Account; while the similarity is in the process of
submitting final claim after the Certificate of Making Good Defect (CMGD) or
Defects Liability Period (DLP) Certificate was issued.
14
Table 2.1: Contract provisions in relation to Final Account in Standard Forms of Building Contract
Standard
Form of
Contract
Contract
Clauses
Submission of Final
Account by contractor
Issuance of Final Certificate Document to be included in Final Account
PAM 2006 30.10 Within 6 months after
Practical Completion of
work
• 3 months from DLP
• 3 months after CMGD
(whichever later)
• Latest construction drawings and details
(bound together)
• Details of all quantities, rates and prices
• Additional works supported by relevant
documents
PWD203A,
2010
31 Not later than 3 months
after the issuance of
Certificate of Practical
Completion
• 3 months from DLP
• 3 months after CMGD
(whichever later)
• Full documentation inclusive of vouchers
records and receipts to substantiate the
Final Account
• Provide documents of Nominated Sub-
Contractors or Nominated Suppliers (if
any)
FIDIC 1999 14.11 • Within 56 days after
receiving Performance
Certificate
• Full documentation to substantiate the
Final Account
15
2.5 Final Account Procedure and Process
Figure 2.1: Final Account Process and Procedure (Sundra Rajoo, 2006)
16
According to Harbans Singh (2003), when the Certificate of Making Good
Defects (CMGD) is issued, following matter will take effect:
(a) It officially brings to an end the defect liability period stipulated in the
contract.
(b) It finally discharges any remaining contractual rights of the contractor to
physically attend to the defects, ie to enter the site and remedy defects
(c) It establishes the commencement of the contractually stipulated period
for the preparation of Final Account and the issue of the Final Certificate
by the contract administrator
(d) It contractually obliges the employer to release the second moiety of any
retention sum withheld
(e) It discharges the liability of the guarantor to the body issuing the
performance security deposit and hereby released the same, and
(f) It releases the insurers from any obligations and/or liabilities under the
various insurances issued which are valid up to such milestone only.
Subsequent effect after CMGD is the issuance of the Final Certificate. Final
Certificate is issued to agree that both parties are satisfied with the balance amount due
to the contractor before his final discharge from the contract obligations. Final
certificate is the conclusive evidence that the work has been completed accordance to
the terms of contract.
As stated in PAM 2006, clause 30.11 item to be show in Final Account
are:
30.11(a) the adjustment made to the Contract Sum
30.11(b) the amount to which the Architect considers that the Contractor
is entitled under the express provisions of the Contract
30.11(c) the omission of all P.C Sums and the related profit provided by
the Contractor in the Contract Documents and the substitution
of the amounts payable by the Employer to the Nominated
17
Sub-Contractors and Nominated Suppliers together with the
pro-rata amount for profit and
30.11(d) the adjustment of Provisional Sums and omissions of any
Provisional Sums if not expended
There are matters that to be resolved separately before proceeding for the Final
Account settlement:
30.11 (e) any Liquidated Damages imposed by the Employer under
Clause 22.1
30.11(f) set-off by the Employer where it is expressly provided in the
Contract under Clause 30.4
30.11 (g) interest payable by either of the parties to the other party under
Clause 30.17
2.6 Factors that lead to the delay closing in Final Account
The majority of construction projects result in a final cost that is different
to the agreed by the client and contractor at commencement of the construction works
(Ashworth and Hogg, 2002). Most of the time, contractor tends to submit the Final
Account without completion of any contractual matter that has to be done prior to the
Final Account. This will become a challenge in prompt settlement of Final Account as
there will be more time spent on accessing and evaluate the work done by the contractor
and therefore this will become an expensive process.
This challenge is resulted from various direct and indirect factors. The
parties involved in the contract need to ensure that Final Account incorporates a fair
valuation of the work carried out. Therefore, usually the price agreed by the client at
commencement will require adjustment for several matters within the contract condition
including: (Ashworth and Hogg, 2002)
18
• Variations
• Provisional measurements
• Provisional sums
• Prime cost sums
• Fluctuations
• Claims
Ashworth and Hogg, 2002, stated that there are others external potential
factors that have the material effects to the performance of a construction project and
also likely to influence the project environment, contract administration and the
preparation of Final Account. The implication of which type of factors may applies may
depend on a range of variables such as status of documentation at the formation of the
contract, skills of the contract administrator and cost management team, market forces,
client and contractor attitude, accuracy of contingency allowance and resources.
According to Magnussen and Olsson (2005), the observed difference
between the contract sum and Final Account is due to factors which are not only hard
to predict but difficult to manage. Morris and Hough (1991) state that cost overruns are
caused by circumstances which are outside the project’s area of control. According to
them, many project overruns on cost because of price escalation, government actions,
strikes and others. Therefore, an important issue is the ability to predict such factors
and the impact they will have on the projects.
This complexity is derived from various factors. Time, contract, price,
human factors, and variations to scope are the determinants of the final costs of
construction projects. (Sing et al, 2013)
There are numbers of variables identified by the previous researcher and
considered as the dominate causes of delay to the preparation and closing of Final
Account is presented in Table 2.2 with reference of the published literature.
19
Table 2.2: Summary of Underlying Factor affecting Final Account Settlement (Ko, 2009)
Underlying Factors affecting Final
Account Preparation and Settlement
Authors
1. Variation Dawood (1998); Akinsola et al (1997). Beale et al. (2001); Rubin et al. (1992); Stokes (1997); Ashworth & Hogg (2002); Love & Li (2000); Baloi & Price (2003)
2. Measurements Merna et al. (1998); Bower (2000); Charlton (2000); Molloy (2007)
3. Claims – Delay / EOT; Cost /
Additional Payment
Rubin et al. (1992); Mak (2002); Lo et al. (2006); Yogeswaran and Kumaraswamy (1998); Carmichael and Murray (2006); Rooke et al. (2004); Bower (2000); Yiu et al. (2005); Luk (1996); Ashworth & Hogg (2002); Ndekugri (1996); Twyford (2007); Khang & Moe (2003); Bordoli & Baldwin (1998); Wong & Hui (2006); Chan & Kumaraswamy (1995); Jensen & Craig (1998)
4. Documentations and Records (*) Rubin et al. (1992); Bernstein et al. (1998); Stephenson (1998); Carmichael and Murray (2006); Simon (1979); Levitt and Dubner (2006); Allen (1998); Harris et al. (2000); Cato (1999); Perea & Imriyas (2004); Woodward (1997); Rusell et al. (1992); Scott (1991); Ndekugri (1996); Bowdery (2007); Levitt & Dubner (2006); Allen (1998); Powell-Smith & Sims (1998); Scott & Assadi (1999); Powell-Smith et al. (2000); Abrahamson (1979); Clarke (1989); Seeley (1993); Jergeas & Hartman (1994); Wickwire et al. (1989); Alkass et al. (1991); Vidogah & Ndekugri (1998)
Annotation (*) Include Daywork as sub-variable
20
Table 2.2 summarized the “underlying factors” which are the principal
determinant as to the closing of Final Account project. These factors are originated
from the fundamental aspects which are inevitable in construction projects (SO Cheung
et al, 2002).
2.6.1 Variations
In Patman Forteringha Ltd vs Pilditch 55 (1904) BC 368, the court
held that “bill of quantities is to be regarded as defining the amount of work included in
the price, so that if the work actually carried out is more or less than is in the quantities,
there will be variations and in consequence an addition to or to be deduction from the
contract price”
Additional variation claimed will increase the initial contract sum.
Therefore, most of the time, dispute in agreeing the variation orders claimed are most
likely to be push to the end of the project completion. Baloi & Price (2003) stated
variations and claims are inherent in the construction projects because uncertainties
lead, invariably, to need of the adjustment. Therefore, in all construction projects, the
final contract amount includes all additional, alterations and deductions resulting from
the project changes.
Variations and claims are inherent in construction projects because
uncertainties lead, invariably, to the need of the for adjustments. The final contract sum
shall include all the alterations made resulted from the project changes. From the
contractual perceptive, upon the completion of the contracts requirement, Contractor is
entitled to final payment including any retained sums. (Stokes, 1997).
2.6.2 Measurements
In Hashim Corp Sdn Bhd vs New York Plastic Co Pte Ltd (1990)
MLJ 345 quoted that “the basic obligation of the sub-contractor under this contract was
to carry out the works specified and priced in the bill of quantities, at the rates therein
stated, subject to final re-measurement.”
21
Many construction projects in which the price finally paid is based on re-
measurement of the actual quantities of work completed (Bower,2000). Ko (2009)
further stated that the common problems usually encountering in the course of final
measurement are: method of measurement as specified or amended in the SMM; item
missed or omitted in the BoQ in pursuance to the preamble and item coverage; errors in
the description in the Bills of Quantities; non-availability of as-built drawings; non-
availability of sub-contractor’s measurement which may have substantial difference
with the Contractor’s own measurement records; Contractor’s record of site
measurement as agreed with Engineer’s residential staff, errors in the BoQ as identified
in and compared with contract drawings and method of measurements.
The common highlights from these factors not merely focusing only on the
difference in standard method of measurement but also associate to missing items,
errors in bills of quantity, as built drawings and the comparison between subcontractors
and site measurement quantity. Sometimes, the most challenging moment occur when
the unit rates do not represent item to be omitted or/and to be addition to original scope
of work. Many significant costs are related to both time and method of execution and
are most affected by disruptions such as effects of variation orders, and such are major
source of claims and disputes (Merna et al., 1996)
2.6.3 Claims
Claims commonly arise between the parties to construction contracts. This can
be as a result of problem such as; delays, changes, insufficient information and conflicts.
Claims and formal disputes are now encountered on may projects. Their resolution
entails unacceptable costs and delays resulting in reduced profitability of construction
organisations and severe disillusionment of many of the construction industry’s client
(Ndekugri, 1996)
Bramble, D’onofrio and Stetson (1990) grouped claims under four types:
change claims, impact claims, performance quality claims and bad faith claims. Change
22
claim included formal/directed changes, constructive changes, cardinal changes,
changes due to differing site conditions and design related changes. Impact claims were
related to claims from delays, disruptions and acceleration. Zanedin (2006) discovered
that claim types in construction projects could be classified into six main types: contract
ambiguity claims, delay claims, acceleration claims, change claims, extra work claims
and differing site conditions claims. Moura and Teixeira (2007) conducted further
survey and outlined the 10 different types of claims: direct changes, errors and
omissions, indirect changes, delays, acceleration, force majeure, beginning and ending,
measurement and payment, suspension of work and termination of contract.
Claims might be made for loss and expenses, extension of time, liquidated
damages and others. Client at times tends to leave the claim issue that arises earlier at
the initial stage of project to be resolved during the Final Account.
In Pembangunan Pulau Pinang vs Trikkon Construction Sdn Bhd (2012) 2 MLJ
28 cited that “notice of such a claim must be made within one month from the
occurrence of the event or circumstance. Together with the notice, the respondent must
provide proof of such loss and expenses. The notice requirements have been constructed
to be strict requirements which must be met before a claim arises”
Reeves (2003) states one of the main reason for delays payment is when there
are errors in submitting claims by the contractors. These errors include claims without
adequate supporting documents, wrongly calculated claims, submit uncompleted claims
and submission without using the right procedures.
2.6.4 Documentation and Records
Documentation is very important in a construction project because it provides a
“memory” of the project. It is the only contemporaneous record of what was actually
happening at any given time during the course of the project. It is essential, industry
practice, and standard internal corporate policy for construction companies to
23
maintain a project documentation system. According to Rubin (1992), documentation
should be maintained whether or not neither party foresees a change or a claim. In
particular, anything that might conceivably affect the cost of the project should be
documented. Any changes, however inconsequential they may seem at the time, must
be recorded.
The role of complete and accurate documentation procedures is important in the
construction industry as a means of reducing risk. It is the foundation on which all
proposals, disputes, or claims are built. Without documentation, there is essentially no
contemporaneous evidence and, therefore, it is difficult to present a persuasive case.
Thorough documentation can be critical when mounting a legal defense against
construction defect claims/lawsuits and may limit the extent of liability in the event
that a judgement is awarded.
To keep track of all information, it is an issue on record taking and the thing that
needs to be uppermost in minds is the status of information. In case of arbitration,
arbitrators should require parties to produce in good time documents upon which a
party intends to rely that arbitrators should require the parties to produce
documentation without which the arbitrator could not properly decide the dispute
(Bernstein et al., 1998).
Documentation is critical to resolving disputes in two ways: -
(1) Documentation provides a contemporaneous record of what was actually
happening on a project at any given time during the course of the project.
(2) Documentation provides a contemporaneous record of the parties positions
regarding particular events at the time of the event.
Scott and Assadi (1999) stated that the good site records are the information
required for the assessment of construction claims typically will be in the form of very
detailed accounts of work progress, delays, additional resources and materials used.
24
Further to the above, Vidogah and Ndekugri’s (1998) study on management of
construction claims, highlight that the reasons for rejection of part or all of contractors
claims are inter alia include, inadequate information, lack of breakdown of claim by
cause, quantification of claim, validity of engineer’s instructions, non-entitlement in
principle, inadequate effort at mitigation, and non-compliance with contractual
procedures.
2.7 Root cause of the delay in the preparation of Final Account
Delay settlement of Final Account closing is a common issue in the developing
countries in the world and it is a global phenomenon in the construction industry. The
major factor leading to a project’s success is the practice of efficient and timely payment
in construction projects. The cause of the problem to closing final account is because
dispute and delay. Dispute occurs when the contracting parties failed to manage the
problems and dissolve it. Carmichael (2000, 2002) stated that the case where contractor
does not receive the payment as a cause of escalated disputes. When payments due
under the contract are delayed or of lesser value than anticipated, the contractor’s
financial position suffers, and this in turn may affect a project performance (Sears et. Al,
2008; Gould 1997; Antill and Farmer, 1991; O’Brien and Zilly, 1971; Halpin and
Woodhead, 1980; Carmechael, 2000).
Delay in payment give bad impacts to the contractors and creates a negative
chain effect within the players in construction industry. Problem to settle the final
account will create further problem in cash flow and finance to the contractor in terms
of obtaining cash flow to perform other projects.
There are two type of delay, namely non-excusable delays and excusable delays.
A non- excusable delay is a delay caused by the contractor or its suppliers and through
no fault by the owner; excusable delays are divided into two: compensable delay and
non-compensable delay (N. Hamzah et. al 2012). Various studies have been undertaken
from respective author to evaluate the factors that contribute to the delay settlement of
Final Account. Table 2.3 below outlined the factors derived from respective study.
25
Table 2.3: Cause of dispute that lead to delay (Zakaria Z, 2013)
Researcher Significance cause of delay
Kala and Price (1991)
Chan and Kumaraswamy
(1995)
1.contactors sub-contracting 2. resources allocated by the contract administrator to the Final Account project; 3. resources allocated by the contractor to the Final Account project
Bromilow et al (1998) 1. contactors sub-contracting 2. resources allocated by the contract administrator to the Final Account project; 3. resources allocated by the contractor to the Final Account project 4. involvement of claims consultant in the Final Account
Odeh and Battaineh (2002) 1. owner’s interface 2. inadequate contractor experience
3 3. finance and payment 4. labour productivity 5. slow decision making 6. improper planning 7. subcontractor
Ahmad et al. (2003) 1. building permit approval 2. change order 3. changes in drawings 4. incomplete documents 5. inspections 6. changes in specifications 7. decision during development stage 8. shop drawings approval 9. design development 10. changes in law and regulations
Assaf and Al-Hejji (2006)
1. slow preparation and approval of shop drawing 2. delays in payments to contractor 3. changes of design/design error 4. shortage of labour supply 5. poor workmanship 6. slow decision making 7. mistakes and defective work
Sambasivan and Soon
(2007)
1. contractor’s improper planning 2. contractor’s poor site management 3. inadequate contractor experience 4. inadequate client’s finance and payments for completed work 5. problems with subcontractors 6. shortage in material supply 7. labour supply 8. equipment availability and failure 9. lack of communications between parties 10. mistakes during the construction stage
26
Table 2.3 illustrated the “other potential factors” that are external factors
extrinsic to the Final Account project. These factor have no contractual relationship with
any scope of the Final Account but, because of its critical effect to the project
performance and project success, the Final Account process may be delayed and
undermined by the significant impact of such potential factors (Ko,2009).
Chan and Kumaraswamy (2002) conducted a survey to evaluate the
relative importance indices of eighty-three potential delay factors which were grouped
into eight major categories. The results of their research indicated that the five principal
and common causes were poor site management and supervision, unforeseen ground
condition, low speed of decision making involving all projects team; owner initiated
variations and necessary variation works.
Odeh and Battaineth (2002) reported that among the top ten most
important causes of delays in construction projects from the view point of contractors
and consultants: owner interference, inadequate contractor experience, financing and
payments, labour productivity, slow decision making, improper planning, and
subcontractors. They were categorized into eight majot groups: Client, contractor,
consulant, material, labour, equipment, contract and external related delay factors.
Assaf and Al-Hejji (2005) conducted a time performance survey of
different types of construction projects to determine the causes of delay and their
importance according to each project participant (owner, consultant, and contractor)
They identified seventy-three causes of delay during research which were categorized
into seven major groups.
Sambasvian and Soon (2007) identified the delay factors and their impact
on project completion. The results indicated that the ten from a list of twenty-eight
different causes of delay were contractor’s improper planning, contractor’s poor site
management, inadequate contractor experience, clients’ inadequate financial resources
and payments for completed work, problems with subcontractors, shortage in material,
27
labour supply, equipment availability and failure, lack of communication between
parties and mistakes during the construction stage.
In 2012, Zarabizan Zakaria conducted further study on the same issue
and problems but looking from a different perspective where a delay framework has
been proposed in Figure 2.2.
Figure 2.2: Final Account closing delay theoretical framework (Zarabizan Zakaria, 2013)
Zarabizan et al (2013) divided the proximate causes of disputes of Final Account
into inexcusable and excusable causes. Inexcusable causes refer to the faults of either
contract party such as contractors or management team according to the findings of
above study. If the contract parties perform their duties and responsibilities according to
the contracts, there is likelihood of disputes. However, if either party breaches the
contract or fails to perform according to contract, the other party will tend to dispute the
matter. Such disputes are due to inadequate conduct or insufficient information given by
either party. Examples of inexcusable causes include the inadequate contract
28
administrations, unreasonable late payments or non-payments by employer and
inexperienced contractors.
Excusable causes refer to circumstance beyond the control of the contract parties
such as inadequate or uncertain express provisions of contract. These causes are not due
to default of either party but due to certain or inappropriate contract provisions. If
contract provisions are uncertain, it will cause the contract parties to apply or rely on it
according to own interpretations. When the other party disagrees with the interpretation
and application of the provision, dispute will arise. Examples of these issues are
conclusiveness of Final Account due to subsequent defects, reasonable time to finalize
variation and uncertain back to back clause in sub-contracts.
Zarabizan et al. (2013), further categorized these causes into contractor-related
which involves contractor team; management-related which involves management team
such as architects, quantity surveyors, engineers and employers; and contractual-related
matter which involves uncertain contract terms. The examples of contractor-related
causes are errors in submitting Final Account and failure to agree to valuation of claims
as well as inexperienced contractors. The examples of management-related causes are
delay in certifications and unreasonable rationalization of rates as well as unreasonable
late payments and non-payments by employers. Whereas the example of contractual-
related causes are questions of provisions of contracts such as the criteria of conclusive
Final Account, reasonable time for the finalisation of variation amounts and uncertain
back to back clauses.
The improvement of delay factors not only limited to technical factors, but also
factors in project management perspective, both from the aspect of processes involved
and the influence of human attitudes, mentality, skills and behavior.
29
2.8 Conclusion
Agreeing to Final Account can be a complicated, time consuming and
adversarial process, often resulting in disputes. The process can be made easier if
adjustments to the contract sum are agreed as the project progresses rather than saving
them up for the end. It is also beneficial if the drafts of the Final Account before
agreement is sought. It is preferable that a draft copy of the Final Account is signed off
by the contractor as an 'in full and final settlement prior to issue.
The slow processing of variations, Final Account and difficulties in
reaching settlement further add to the agenda of payment issues (Lip, 2005). Project
personnel changes, poor documentation, no written instruction and incomplete or
unavailable information are often stated as the reasons when pressured to bring the
accounts to conclusion. Delay in finalizing variations and accounts serve no one’s
interest in time and expenses. (Lip, 2005)
30
CHAPTER 3
RESEARCH METHODOLOGY
30
CHAPTER 3
RESEARCH METHODOLOGY
3.1 Introduction
It is important to develop a research design to understand the problem
statement or issue of the research before the research methodology commence. This
step is required to facilitate the researcher to employ the appropriate process and
methodology in order to achieve the research objective. The main purpose of the
design is to have a proper follow through of the research process to avoid the
circumstances in which fails to meet the objective set. The design acts as a
chronology order of the research dealing with the research issue commencing from
the understanding of the issue, obtaining relevant data, analyze the data and drawn up
a conclusion and recommendation from the analyzed information.
Research methodology is a strategy of enquiry, which moves from
the underlying assumptions to research design, and data collection (Myers, 2009). It
is pre-requisite process to ensure that a research is well planned and systematically
follow through to achieve the objective of the study. It is also an approach to collect
the data appropriately according to certain techniques and consolidate it into the
required information. However, it is crucial to design the research before proceeding
with the data collection or data analysis.
31
3.2 Research Methodology
Fellows and Liu (2008) stated “When undertaking research study, it is
vital to pick up the most suitable research method in order to ensure that the research
maximizes the chance of realizing its pre-defined aims and objectives.” The most
common approaches of conducting a research are qualitative and quantitative.
3.2.1 Qualitative Research
Qualitative research is an approach that involves discovery.
Qualitative research can be described as an effective model that occurs in a natural
setting that enables the researcher to develop a level of detail from being highly
involved in the actual experiences (Creswell, 2003). This method is use to describe
explain and interpret collected data. According to Leedy and Ormrod (2001),
qualitative research is less structured in description because it formulates and build
new theories.
There are five areas of qualitative research: case study, ethnography
study, phenomenological study, grounded theory study and content analysis. This
represents that the method is built upon inductive reasoning and associated
methodologies.
3.2.2 Quantitative Research
Leedy and Ormrod (2001) alleged that quantitative research is specific
in its surveying and experimentation, as it builds upon existing theories. The
methodology of a qualitative research maintains the assumptions of an empiricist
paradigm (Creswell, 2003). As a result, data is used objectively to measure the
research.
Quantitative Research can be used in response to relational questions
of variables within the research. It begins with a problem statement and involves the
32
formation of a hypothesis, a literature review and quantitative data analysis. Creswell
(2002) states, quantitative research “employ strategies of inquiry such as
experimental and surveys, and collect data on predetermined instruments that yield
statistical data. The findings from qualitative research can be predictive, explanatory,
and confirming.
McQueen and Knussen (2002), Andi and Minato (2003)
recommended that survey questionnaire is one the most cost effective to involve
large numbers of people in the process in order to obtain better result.
Therefore, in this research, the data collection various factors were
determined by respondents through questionnaires due to the following rationale:
• The data collected are directly related to the professionals past
experience and opinions.
• Large amount of information can be collected from a large
sampling in a short period of time and in a relatively cost effective
way
• The result of the questionnaire can be easily quantified and
can be analysed more objectively.
However, the challenge that might be faced is on the low response
rate that could possibly affect the data collection and findings. Therefore, consistent
follow up is essential to mitigate this risk.
3.3 Research Population and Sample
3.3.1 Population
The research population for this study comprised all the contractors in
the state of Selangor and Wilayah Persekutuan Kuala Lumpur. These state were
selected due to the highest number of construction activities in these location
accordance to the construction first quarter 2017 report by Department od Statistic
33
Malaysia as elaborated in Chapter 1. Eligibility criteria specify the characteristics
that the sample in the population must possess in order to be included in the study
(Polit & Hungler 1999). In this study, the respondents had to be contractors located
in state of Selangor and/or Wilayah Persekutuan Kuala Lumpur; had involved in
construction projects and had to be willing to participate in the study.
3.3.2 Sampling
Non-probability or convenience sampling was used because
questionnaires were distributed to contractors who is located in Selangor and/or
Wilayah Persekutuan Kuala Lumpur. Not every contractor had an equal chance of
being included in the sample because there was no complete list of number of
projects undertaken by contractors. Consequently, there was no sampling frame from
which a sample would be drawn randomly to ensure that every contractor had an
equal chance of being included in the sample. Hence, this study adopted non-
probability or convenience sampling. Convenience Sampling is the rational choice in
cases where it is impossible to identify all the members of a population.
Works by M.H. Alvi (2016) indicate that convenient sampling is used
when the target population is defined in terms of a very broad category; the elements
of population who are easy or convenient to approach are selected; any member of
the target population who is available at the moment is approached and asked for
participation in the research and it is easy, inexpensive and consume less efforts.
The size of sample required to conduct this study was calculated
based on statistical principles typically used for this exploratory research. As
recommended by Smith (2013) and Cochran (1977), the sample size was calculated
as follows: -
34
Z-score: a constant value for the above equation and its value depend on the chosen
confidence level. The table demonstrate on the right selection of Z score to be uses
based on desired confidence level.
Standard Deviation: variance that is anticipated in the response
Margin of Error: a percentage that describes how closely the answer is to the “true
value”
Confidence level chosen for this study is 90% with Z score value of 1.645. The
Standard Deviation is taken as 0.7 and the Margin of Error is taken as 10%
Therefore, the Necessary Sample Size are as follows:
(1.645)2 * 0.7 (1-0.7) = 58
(10)2
Based on the above calculation, the minimum required sample size is 58.
3.4 Data Collection
In this study, questionnaires were used to obtain data relevant to the
study’s objective and research questions. The purpose of the study was to identify
factors and cause of dispute as a result of delay closing in Final Account. Contractors
who has the experience in construction projects located in Selangor and Wilayah
Confidence level Z-Score
90% 1.645
95% 1.960
98% 2.326
99% 2.576
Necessary sample size = (z-score)2 * StdDev (1-StdDev)
(margin of error)2
35
Persekutuan Kuala Lumpur was approached randomly. Every contractor who was
willing to participate will receive a set of questionnaire survey distributed through
email or hardcopy. Respondents are given a month and half to complete and return
the questionnaire.
3.4.1 Research Instruments - Questionnaire
A structured questionnaire was developed in order to meet the
research objectives and to validate the research hypotheses. Respondents are required
to rate each factor to indicate the importance through the Likert Scale establish in the
questionnaire.
Likert scale is invented by psychologists, Rensis Likert in 1932. This method
is commonly used in Social Science and Education research. The advantage of this
method is the effectiveness of data collection. The questions are organized and this
helps to facilitate the hassle free completion by the respondents. Other than that, the
data collected is more reliable and accurate compared to other scale such as
Thurstone and Guttman. Likert scale is design accordance to the following criteria: -
i) Identify a variable
ii) Evaluate the suitability of a variables
iii) Determine the suitability of a variables
iv) Organise the variables into the Likert scale
The typical five level of Likert items are:
Figure 3.1: Likert Scale (Rensis Likert, 1932)
1 2 3 4 5
Strongly
Disagree
Disagree Not Sure Agree Strongly
Agree
36
The questionnaire consists of two documents namely the
“introductory letter for questionnaire” and “survey questionnaire form.” The
“introductory letter for questionnaire” is to informs the respondents about the aims of
the research and the contribution to the success of the research as well as maintaining
the confidentiality of information is observed at all time. The “survey questionnaire
form” is divided into three sections as follows:
• Section A: Profile of Respondents
The section aims to identify general information and background of the
respondents. The data collected will help in selecting the relevant data to be
used. Response to question such as position in organization, level of
qualification, years of experience in the construction industry, involvement in
Final Account preparation, number of projects executed and completed for
the past five years, the number of Final Account that were concluded beyond
time and the average time of delay is expected for this research.
• Section B: Factors that lead to the delay closing in Final Account
This section identified the factors affecting the Final Account settlement from
the literature review. These cause are categorized into three groups.
Respondents are requested to rate each cause using a 5-point scale ranging (1)
Strongly Disagree to (5) Strongly agree. At the end of this section,
respondents are asked to share their experience/perspective on the cause of
delay.
• Section C: Cause of Dispute as a result to the delay conclusion of Final
Account
This section examined the root cause of delay in preparing Final Account as
pre-identified in the literature review. Respondents are requested to rate the
frequency of occurrence using a 5-point scale ranging (1) Strongly Disagree
37
to (5) Strongly agree. At the end of this section, respondents are asked to
share their experience/perspective on the challenges.
3.5 Data Analysis
Statistic is required to interpret the collected data accurately. In the
event this step is not materialized by the researcher, the effort of collecting,
analyzing and explanation on findings will be wasted. Statistic is a tool that assists
the researcher to elaborate and understand the interconnectivity of the variables in
the research.
Likert scale value is an ordinal scale. Hence, the method employ for this
research analyze is descriptive statistic by using the value of percentage and
frequency. This analysis required data collection in order to answer the questions to
access the current situation of a study. Descriptive method is elected due to it able to
explain the connectivity and varies opinion of an issue as quoted by Best and Khan
(1998).
3.5.1 The Survey Analysis
The questionnaire is designed based upon number of delay causes and
respondents were asked to rate the level of importance of each cause;
(1) Strongly Disagree
(2) Disagree
(3) Not Sure
(4) Agree
(5) Strongly Agree
38
Once the data has been collected from respondents on the factors and cause of
dispute according to the above rating scale, each factor is calculate using the Relative
Importance Index (RII). Microsoft excel is the tool adopted to formulate the
calculation.
Figure 3.2: Relative Importance Index (RII) Formula
3.6 Conclusion and Recommendations
To complete the data analysis obtained from previous chapter, the
result of the analysis will be interpreted in conclusion and recommendations sections
of the thesis. The challenges and limitations experienced by the researcher in
completing this study will be discussed in this chapter as well. This chapter is derived
from proper process of data collection, data analysis, findings and discussion. This
chapter will help to reveal the success of the research in achieving its objective or
otherwise.
RII = ΣΣΣΣ W A * N
Where;
W = the weight given to each factor by the respondents (scale 1-5)
A = highest weight (scale 5)
N = total number of respondents
28
CHAPTER 4
DATA ANALYSIS
39
CHAPTER 4
DATA ANALYSIS
4.1 Introduction
The data gathered for this chapter is analyzed from the 58 respondents of the
survey questionnaire. Descriptive statistics method is adopted in this analysis. The
findings are analyzed in three (3) different sections, namely:
Section A : Respondent’s profile
Section B : Factors that lead to the delay closing in Final Account
Section C : Cause of dispute as a result to the delay conclusion of Final Account
The effectiveness of the questionnaire can be evaluated in this final section.
The analysis in this section is the most critical as it will help in determine whether the
objective of the research to identify the significance factors that affecting the delay
settlement of Final Account is achieved.
4040
Once the primary data required were gathered, the data were categorized and
arranged. The data were rearranged into categories by using Microsoft Excel and
Microsoft Word. This application is used to ensure the IT aid will assist in organizing
the data systematically in order to achieve more accurate result and easy to interpret.
This method is efficiently assisted in data sorting and filtering.
The data are transferred and translated into understandable format such as
form of table, pie chart, and bar chart by using Microsoft Excel and Microsoft Word.
The identified factors in this research will assist to address the issue on delay
settlement of Final Account. The information provided by respondents will help to
determine the factors that lead to the delay Final Account settlement of projects in
construction industry.
4.2 Data Collection
Eighty (80) sets of questionnaire were distributed to the respondents within
Selangor and Wilayah Persekutuan Kuala Lumpur. Respondents were given a
duration of a month and half to complete the distributed questionnaire. There is only
72.5% of response rate from the respondents with the numbers of fifty-eight (58)
collected questionnaire set as illustrated in Table 4.1. The minimum required sample
size as discussed in Chapter 3 is calculated to be 58, and the actual sample obtained is
58, which meets the minimum sample requirement.
Table 4.1: Distribution and Responses of Questionnaires
Description Data Collected (Set)
Numbers of questionnaire distributed 80
Total questionnaire received 58
Response rate 72.5%
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There are various reasons for the unreturned of the questionnaire. Some
respondents reverted that they do not have enough time to complete given
questionnaire, while some respondents did not complete the questionnaire with the
reason of no experience in Final Account.
4.3 Analysis of Results
4.3.1 Respondent’s Profile
• Position in the organization
The respondents were requested to indicate their position in the
organisation. Figure 4.3.1 below showed that 43% of the respondents are Projects QS
and followed by Project Manager with 26%. These group of respondents would be
able to provide reliable information on project issues as they are directly involved in
the operation and management activities of the organisation and has the ability to
provide the courtyard vision of the construction industry.
Figure 4.1: Respondent’s positions in the organisations
• Education level of Respondents
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The respondents were requested to indicate their level of education. The
results obtained are shown in Figure 4.3.2 below. 52% of the respondents indicated
they had obtained their bachelor degree; 26% responded they had obtained the post
graduate diploma; followed by Master and PhD with 17% and 2% respectively. This
proves that respondents’ construction-related knowledge would be able to provide
reliable information.
• Years of experience in construction industry
Figure 4.2: Education level of Respondents
The respondents involved in the survey had several years of experience of
handling construction projects. Survey statistics showed that 55% of the respondents
have experience of 5 to 10 years, 31% of respondents with below 5 years of
experience and only 14% of respondents with above 10 years of experience. The
results are presented in Figure 4.3.3
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Figure 4.3: Respondents years of experience in construction industry
This will assist in getting accurate and validate the analysis through the
experience involved in the construction industry which enable the respondents to
provide and share real life experience in this research.
• Experience in Final Account
Figure 4.4: Respondents’ experience in Final Account
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Figure 4.3.4 stated that respondents with experience in project Final
Account have greater percentage which contribute to 46 numbers of respondents that
is equivalent to 79%. The remaining of 12 respondents contribute to 21% do not have
any experience in project Final Account. Therefore, the number of years working and
the experience in Final Account that these respondents shared would be able to give
insights on the management of Final Account in construction projects
• Involvement in number of projects for Final Account
Figure 4.3.5 shown that 25 respondents equivalent to 43% were involved for
11-15 projects’ Final Account, 16 respondents involved for 6-10 projects which
contribute to 28%, 12 respondents or 21% with involvement of below 5 projects, 3
respondents which equivalent to 5% with involvement of 16-20 projects and only 2
respondents with the involvement for above 20 projects which conclude the
remaining 3%. The data gathered for this research therefore shows that the majority
of the respondents have been handling quite a number of Final Account in
construction projects.
Figure 4.5: Respondents’ involvement in number of projects for Final Account
Figure 4.3.6 shown that 28 respondents (48%) highlighted that less than 10
projects’ Final Account are were concluded within the stipulated time. The
4545
information from respondents will assist to assure and validate the quality of supplied
information. This indicated that the majority of Final Account are not concluded in
accordance with the time stated in the standard form of contract.
Figure 4.6: Number of projects’ Final Account concluded within the stipulated time
4.4 Factors that lead to the delay closing in Final Account
This section presents the ranking of each factor cause using the relative
important index (RII). The RII of each delay cause was calculated to identify the
most important causes that contribute to the delay in Final Account settlement.
There are four main intrinsic dominant factors that addressed the constituent
parts of the Final Account project which are governed by contractual provisions. The
four factors are identified as variation, claims, measurements and documents and
records required to support Final Account. The results of analysis and ranking of
these causes are shown in Table 4.4.1 below.
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Table 4.2: Factors that lead to the delay closing in Final Account
Causes of Delay in Final Account Settlement 1 2 3 4 5 W RII rank
1. Variation 0 1 2 34 21 249 0.86 1
2. Measurements 1 1 5 33 18 240 0.83 2
3. Documents and records required to support
Final Account
0 4 2 42 10 232 0.80 3
2. Claims 5 0 7 35 11 221 0.76 4
According to the respondents, variation is the most significant cause of delay
settlement of Final Account and is placed at first rank with RII value of 0.86.
Variations and change occur in all types of construction projects (Thomas et al,
2002). According to Al-Hammad (2000), even if cautiously planned, changes are still
inevitable in the contract as work progresses. Mohamad (2010) and Arain and Pheng
(2005) findings indicated that changes initiated by the project owner or owner’s
agents are key causes of the discrepancies between the initial contract price and the
final project costs. This is further observed by Dominic and Smith (2014) that client
change orders could significantly affect initial budget, scope of work and the
completion time for a project. These are the common variation problems frequently
encountered and considered as one of caused of delay to the Final Account
preparation.
Second ranked factor is measurements with RII value of 0.83. This factor also
can be related with the many construction projects in which the price finally paid is
based on re-measurement of the actual quantities of work completed (Bower,2000).
The has been a further research conducted by Ko (2009) to identify measurement
related factor such as volume of measurement, method of measurement, omitted
items, as-built drawings, sub-contractors final measurement, record of site
measurement and BoQ errors.
Documents and records required to support Final Account is ranked at third
place with RII value of 0.80. As stated by Rubin (1992), documentation should be
4747
maintained whether or not neither party foresees a change or a claim. In particular,
anything that might conceivably affect the cost of the project should be documented.
Successful contract documentation requires that measurements and calculations
supporting contract payments are accurate and that records of these actions are
complete. Contract records and documentations must be sufficiently detailed and
maintained in a manner that will withstand an audit and clear enough to be read and
understood by anyone unfamiliar with the project.
For the fourth rank with RII value of 0.76, the respondents placed claims as
the factor. Reeves (2003) states one of the main reason for delays payment is when
there are errors in submitting claims by the contractors. These errors include claims
without adequate supporting documents, wrongly calculated claims, submit
uncompleted claims and submission without using the right procedures. This factors
may lead to the longer process and assessment of the claims and additional time spent
on negotiation which eventually contribute to the delay conclusion of Final Account.
4.5 Cause of dispute as a result to the delay conclusion of Final Account
Table 4.4.2 below shows the result on the cause of dispute as a result to the
delay conclusion of Final Account and top five significant source of dispute that
contribute to the delay settlement of Final Account are delay in finalisation of
variation orders (RII=0.87), disagreement on valuation process (RII=0.81), records
are not kept properly (RII=0.80), longer time to certify claims (RII=0.78) and Final
Account can only be resolved after the expiry of maintenance period (RII=0.74). The
above top five factors indicated that the majority of the factors are governed by the
contract provisions. Of the ten factors listed, misinterpretation of contract and amount
of outstanding works/extra works in the maintenance period have the lowest rank.
4848
Table 4.3: Cause of dispute as a result to the delay conclusion of Final Account
Causes of Dispute as a result to the Delay
in Final Account Settlement
1 2 3 4 5 W RII rank
1. delay in finalisation of the variation
orders
0 0 7 24 27 252 0.87 1
2. disagreement on valuation process 0 3 13 19 23 236 0.81 2
3. records are not kept properly 0 4 2 42 10 232 0.80 3
4. longer time to certify claims 0 2 12 35 9 225 0.78 4
5. Final Account can only be resolved after
the expiry of maintenance period
1 5 15 27 10 213 0.74 5
6. fail to agree with the valuation of work 1 2 33 15 7 199 0.69 6
7. errors in claims submission 2 10 19 16 11 198 0.68 7
8.lack of communications between parties 0 1 50 5 2 182 0.63 8
9.misinterpretation of contract 3 8 35 5 7 179 0.62 9
10.amount of outstanding works/extra
works in the maintenance period
5 13 18 17 5 178 0.61 10
As seen, delay in finalisation of variation orders faced by contractors is placed
at first rank and second ranked factor for source of dispute is disagreement on the
valuation process. In a research undertaken by Ko (2009) highlighted that variations
and claims have been the main reasons of disputes due to both conflicting interest of
the parties and the complexity of contractual provisions when dealing with the
valuation of variations and settlement of claims. This is due to the conflicting
interests that lead to adversarial relationsips between clients and contractors; which
have their economic roots namely within client’s costs and contractor’s profit (Baloi
and Price, 2003).
Records are not kept properly is ranked as the third factors. Kumarasamy and
Yogeswaran (2003) in their research found that inadequate records are a main cause
of delays in processing construction claims. Carmichael and Murray (2006) further
4949
indicated that records are inconsistenly kept in multiple forms and in various
locations. Further to the deficiencies in documentation, more time and resources is
allocated to complete the documentation at the later stage. Longer time to certify
claims is fourth ranked factor in the overall ranking which very much inter-related to
the third ranked factor.
Final Account can only be resolved were placed at the fifth place in the
overall ranking of the factors. This finding is coincide with other research works such
as Ko (2009) on “other potential factors” that are external factors extrinsic to the
Final Account project. These factor have no contractual relationship with any scope
of the Final Account but, because of its critical effect to the project performance and
project success, the Final Account process may be delayed and undermined by the
significant impact of such potential factors. Zarabizan Zakaria (2012) also conducted
a study not only focuses on the technical factors but also factors in project
management perspective, both from the aspect of processes involved and the
influence of human attitudes, mentality, skills and behavior.
Factor ranked number six is fail to agree with the valuation work. It is normal
in the construction industry where one of the contracting parties disagrees about the
valuation of work done. The disagreemet may cause delay in certifying the amount of
work executed on site. According to Mohamas et al. (2010), contractors fail to agree
with the valuation of work at site would then results in conflicts between clients and
contractor and the claims would not be certified and consequently; late payment
occurred.
Subsequent factors ranked at the seventh place namely fail errors in claims
submisison which supported by by Alwis (2005) that errors, ommissions and
misinteroretations in contract documents are the main reasons for claims and dispute.
Lack of communications between parties is ranked as eighth factor. Lack of
communications may also lead to misunderstanding, conflicts and disputes. It is vital
to have effective communications for the success of a project. Murali et al,. (2007)
stated the factors such as lack of communications between the various parties,
5050
unforeseen site conditions, delay in payments for completed work, improper
construction method, delay caused by the subcontrcator and discrepancies in contract
documents will give rise to dispute between various parties.
Factor ranked at nineth place is misinterpretation of contract. K.C Ko (2009)
stated that it is acknowledged that the problems arising thereby include not on the
number of claims to be resolved but also the associated notification compliance, the
contractual provisions and validity of claims, contract interpretation, the method of
assessment as well as the substantion of claims in terms of records and as-built
programme.
Lastly, Amount of outstanding works/extra works in the maintenance period
ranked as number tenth factor. Employer may withhold payment to the main
contractor or sub-contractor for a variety reasons. Such as major defects in
construction works, dispute works, failure to comply with any material provisions of
the contract, third party claim field or reasonable evidence that the claim will be filed
and failure to make timely payment for the project resources. (Zakaria Z, 2013).
4.6 Summary
In this chapter, in relation to factors and cause of dispute that affecting the
delay conclusion of Final Account, data through questionnaire survey was obtained
from 58 respondents who are involved in the construction industry. The data has been
analysed and rank based on the RII.
From four pre-defined factors, the top most significant factor has been
identified in Table 4.4.1. The most common cause of dispute has been identified in
Table 4.4.2.
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The next chapter will present the conclusions drawn from the research
findings and recommendations will be discussed to improve the project Final
Account settlement in Malaysia.
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CHAPTER 5
CONCLUSION AND
RECOMMENDATION
52
CHAPTER 5
CONCLUSION AND RECOMMENDATION
5.1 Introduction
In previous chapter, the data collected through the questionnaire survey is
analyzed to show the ranking of factors and the causes of disputes that contribute the
delay settlement of Final Account in Malaysia’s construction projects.
This chapter presents the conclusion drawn from the research findings and
providing tangible recommendations that could help in improving the prompt
settlement of projects Final Account in Malaysia.
5.2 Research Findings & Conclusion
Valuable data was drawn from a series of response to survey questionnaire
provided by 58 experienced professionals. 43% of the respondents are directly
involved in the operation and management activities, 55% has the working
experienced of five to ten years with 79% of the respondents participated in Final
Account and indication of 48% experience the conclusion of Final Account is
beyond the stipulated time frame. The professionals had all the experienced working
in the construction projects and involved in delay settlement of the Final Account.
5353
The research has addressed the two pre-defined objectives that have been
listed in Chapter 1 and are summarized and further discussed as follows:
5.2.1 Objective One: To identify the factors that lead to the delay closing
of Final Account in construction project in Malaysia.
A comprehensive literature review was conducted to identify the common
factors that contribute to the delay settlement of Final Account, which are the
subject matter of this research.
As a result, the literature review revealed there are four major factors that
are associated with the contract provisions which cause the delay settlement in
Final Account. Data collected through survey questionnaire were analyzed and
the results as shown below:
• Variations is placed as the first rank, followed by measurements as the
second rank, third rank is documents and records required to support
Final Account and fourth rank is Claims.
• Payment of variation is not quite as simple as payment for the
contracted work and there are various situations of payment arise
from variations. There are common problems which usually hinder
the settlement of variations. The major problems are validity of
instruction to the Contractor not under a specific variation clause of
the Contract; the on-cost percentage to be added on top of the direct
cost of variation works; the method of valuation such as how
reasonable is the new rate as assessed for the variation works to which
similar Bills of Quantities rates apply; degree of substantiation of
rates proposed by the Contractor and the sources of labour and plant
rates applicable for the valuation of variations at new rates (KC Ko,
2009)
5454
• It is advisable to start finalizing the measurement upon completion of
any part of the Works.
• It is acknowledged that time is the essence and Final Account is a
lengthy and long process, a strategic approach may need to be
formulate in the process to manage and tackle the potential
challenges. It may be beneficial to maintain a “running” Final
Account for which measurements and agreements occur throughout
the project (Ashworth and Hogg, 2000).
5.2.2 Objective Two: To identify the root causes of the delay in
preparing Final Account
Pursuant to second objective, a total of ten causes of disputes were
identified all based on the comprehensive literature review that has been
elaborated in Chapter 2.
Data collected through survey questionnaire were analyzed and the results
as shown below:
• The process of assessment on variations and agreement on the
valuation are the main cause of dispute. Variations and claims should
be prepared, assessed and agreed as soon as completion of each event.
• Late process and assessment will also have resulted in late payment.
Late payment problem is interrelated with the cash flow issues. Cash
flow in the construction industry is critical due to the relatively long
durations of projects. Any deviation due to the either delay of project
or cash flow can have adverse impact on the project. The times for
receiving payments from the client will affect cash flow of a project.
Many construction projects have negative cash flow until the very end
of construction when the final payment is received or advanced
5555
payment is received before starting the project (Hung et al, 2005). The
delay of payment from owners will affect the cash flow of the of the
contractor and retainage withheld by the owner will also create cash
flow problem to the contractor.
Based on the findings of the study, the conclusion drawn are the
intrinsic factors that contribute to the delay settlement of the closing of Final
Account is not only in relation to contract provisions but as well as other
factors such as process of assessment and agreement on the variations and
claims.
5.3 Limitation of Study
The following are some of the limitation of the study that may impact on the
accuracy and reliability of the result:
a) The study has concentrated only for the state of Selangor and Wilayah
Persekutuan Kuala Lumpur. This may be limited by the way in which
subjective experience is quantified.
b) Challenges encountered in organizing the data due to lack and late of
response to the questionnaire survey.
5.4 Recommendations for Further Research
The following recommendations are offered based on the findings and
conclusion of the study:
a) The construction industry shall embrace the information technology (IT) in
their filed especially on the information management. Each of the
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documentation involved in the construction industry may have the direct or
indirect impact to the projects. With the aid of IT most of the redundancy and
unproductive time spent on rework will be solved and this will be able to
address the issues in relation to contract provisions. It serves as a centralized
data based where everyone that involve in the project are referring to the
same source as illustrated in Figure 5.1.
Figure 5.1: Building Information Modelling (BIM) (Buildepedia.com, 2010)
Building Information Modeling (BIM) is an integrated process for exploring
a project’s key physical and functional characteristic digitally before it’s
built, helping to deliver projects faster and more economically, while
minimizing environmental impact. Coordinated, consistent information is
used throughout the process to begin innovative projects, better visualize and
simulate real-world appearance, performance and cost, create more accurate
documentation. BIM helps everyone working on a project to communicate
and coordinate seamlessly with all project team members working on the
same building information model. The knowledge transferred is streamlined
leading to improved accuracy and reduced rework. Furthermore, BIM helps
5757
to convey design intent from the office to the site, reducing change orders and
site coordination problems.
Dato’ Sri Fadillah Yusof, Works Minister in recent launch of BIM Centre on
20 November 2017 shared that “The use of technology is no longer just a
choice, it has to be a necessity in our aim to increase the productivity level in
the local construction sector. Only with this, we can be on par with other
developed nations,”. He further deliberated that by being able to virtually
analyse key physical and functional characteristic of each element even
before construction works commence, it helps improve the efficiency and
quality, and most importantly, the productivity of the overall construction
process. This is reflecting the roll out technology advantage across project
lifecycle as one of the initiative advocated in CITP program leveraging
information and communication technology in the construction industry.
b) To provide effective post contract cost control and to expedite the settlement
of Final Account, Quantity Surveyors shall aim at having periodic cost
review meetings to settle the valuation of instructed variations (The Hong
Kong Institute of Surveyors, 2012). The Final Account process should occur
throughout the contract period. As a matter of preparation, Quantity Surveyor
should ensure all contracts variations have been accounted for and other
potential cost-related items are properly recorded. If cost can be tracked
properly during the duration of the projects, the monthly certification can
serve as the common point to starts the Final Account discussion.
There is various study conducted by researcher to address the delay
settlement in Final Account from different perspective such as project management.
The following are a few thoughts to be shared and considered for the
future study of delay settlement in Final Account. The recommended idea is to
further explore on other potential factors affecting project success and the Final
Account closing.
5858
There are two ways to analyze the problem of construction
nonperformance (not on time, not meeting the quality expectations of the owner, and
not having cost increase change orders). The first is a project-specific approach,
which assumes that the problems are being caused by the uniqueness of each project.
This approach stresses; finding solutions in better trained personnel and craftspeople,
more standards, construction management and inspection. The other is a process
approach, which assumes that the problems are being caused by the process. Despite
technical advancements such as Building Information Management (BIM), LEAN
practices, forward thinking scheduling/costing software, and design enhancements,
the construction industry has continued to have performance issue (Kashiwagi, D., et
al, 2005). Kashiwagi, D. (1991) opined that Best Value Procurement/ Performance
Information Procurement System (BVP/PIPS) is a new way to deliver services, run
organization and optimize supply chain. It forms a leadership structure that assists
inexperienced project managers to get optimal results.
In further analyzing on the successful closing of Final Account,
further study could involve and explore on the impact of the Best Value
Procurement/ Performance Information Procurement System (BVP/PIPS). Whereby,
the study will focus on the effectiveness of project delivery and successful
completion in totality inclusive of closing Final Account.
BVP/PIPS is a process/structure to deliver services. It changes the
procurement agent’s role from being the guardian over the award of a contract, to a
facilitator of the delivery services. The new role of facilitator starts when a user has a
requirement and ends when the service has been delivered. Instead of being a
procurement process, it assists in the development of an intent of the client by expert
vendors, identifies the best value vendor (most value for the lowest price), assists the
best value vendor to determine if they can meet the intent of the client, and ensuring
that the vendor can deliver on their proposal.
5959
Figure 5.2: Construction Industry Structure (CIS) (Kashiwagi D, 2011)
The development of BVP/PIPS identified the delivery system of
services as the problem and not the lack of technically qualified personnel (Meyer,
Witt, Kashiwagi, D, 2010).
The finding of the study will equip the industries with positive impact
on workforce productivity and improve financial performance. Likewise,
academicians will also benefit from the research findings by updating and revising
the knowledge to equip future industry professionals with appropriate knowledge to
lead successful organization in the twenty-first century.
5.5 Conclusion
This study focus on the identification of the underlying factors and causes of
disputes in delay settlement of Final Account and to recommend effective potential
solutions to improve the successful and prompt settlement of Final Account in the
6060
construction industry. This study also highlighted significant points to be aware by
the practitioners in the construction on the potential factors and challenges during the
process of closing Final Account.
This will encourage all the parties in construction industry to have an insight
into the challenges of prompt settlement in Final Account and search for effective
solutions. The potential solutions in return will helps to increase the productivity of
the construction industry by ensuring a successful project delivery thorough the
project life cycle.
6161
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APPENDIX A
QUESTIONNAIR
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QUANTITY SURVEYING DEPARTMENT
FACULTY BUILT ENVIRONMENT UNIVERSITI TEKNOLOGI MALAYSIA
*************************************************** *****************
QUESTIONNNAIRE
SARJANA MUDA UKUR BAHAN
Research Objective: The questionnaires survey is carried out to gather information on the issues of factors and causes of dispute in delay settlement of Final Account from contractors in the construction industry.
The questionnaire is design to obtain following information:
1. To identify the factors that lead to the delay closing of Final Account in construction project in Malaysia
2. To identify the cause of dispute as a result to the delay conclusion of Final Account
The information given will be treated as confidential and no disclosure of
information in any circumstances without the agreement from the respondent.
Your cooperation is highly appreciated.
*************************************************** *****************
Prepared by:
Name: Emilia Binti Ahzami
Matric No.: SX080304BQJ04
e-mail: [email protected]
Please return the completed questionnaire in the enclosed stamped envelope.
Factors Affecting Prompt Settlement of Final Account
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Please tick (√) appropriate answer in the given boxes or write the answer in the space provided.
1. What is your position in the organization?
Project Director
Project Manager
Project Engineer
Project QS
Other, please specify
2. What is your level of qualification?
PhD
Msc
Bsc
Post Graduate Diploma
Other, please specify
3. How long have you been in the construction industry?
< 5 years
5 – 10 years
> 10 years
4. Do you have experience in closing the project Final Account?
Yes
No
Section A: Respondent’s Profile
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5. How many project Final Account has you involved?
< 5
6 - 10
11 - 15
16 – 20
> 20
6. Number of projects that are concluded within the stipulated time or on time?
less than 5 project
less than 10
less than 15
less than 20
more than 20
Company’s stamp:
Signature: _____________________________________________
Date: _____________________________________________
7171
Purpose: This section is to identify the factor affecting the delay closing of Final Account
Please rate your level of agreement with the following questions by circle the appropriate chosen scale.
Each scale represents the following:
Question: How relevant does the following factors contribute to delay settlement of Final Account?
1 Variations 1 2 3 4 5
2 Claims 1 2 3 4 5
3 Measurement 1 2 3 4 5
4 Documents and records required to support Final Account 1 2 3 4 5
Please add other factors you think are important but not listed above.
5 __________________________________________________
6 __________________________________________________
Section B: FACTORS THAT LEAD TO THE DELAY CLOSING IN FINAL ACCOUNT
1 2 3 4 5
Strongly
Disagree
Disagree Not Sure Agree Strongly
Agree
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Purpose: This section is to identify the of cause dispute in prompt settlement of Final Account
Please rate your level of agreement with the following questions by circle the appropriate
chosen scale.
Each scale represents the following:
Question: What are the source of dispute in the prompt settlement of Final Account?
1 disagreement on valuation process 1 2 3 4 5
2 fail to agree with the valuation of work 1 2 3 4 5
3 delay in finalisation of the variation orders 1 2 3 4 5
4 errors in claims submission 1 2 3 4 5
5 longer time to certify claims 1 2 3 4 5
6 records are not kept properly 1 2 3 4 5
7 misinterpretation of contract 1 2 3 4 5
8 amount of outstanding works/extra works in the maintenance period
1 2 3 4 5
9 Final Account can only be resolved after the expiry of maintenance period
1 2 3 4 5
10 Lack of communications between parties 1 2 3 4 5
Please add other factors you think are important but not listed above.
11 __________________________________________________
12 __________________________________________________
THANK YOU VERY MUCH FOR YOUR COOPERATION
Section C: CAUSE OF DISPUTE AS A RESULT TO THE DELAY CONCLUSION OF
FINAL ACCOUNT
1 2 3 4 5
Strongly
Disagree
Disagree Not Sure Agree Strongly
Agree
