CONTRACTUAL IMPLICATIONS OF CASH FLOW ON OWNER AND CONTRACTOR IN VILLA CONSTRUCTION PROJECTS

Mohammed Al Mohsin, Ali Alnuaimi, Sumayia Al Tobi

Abstract: Cash flow forecasting is one of the most essential tools toward assessing the distribution of expenditure and revenues of construction projects with respect to the time of the project. The work presented in this paper aims to find out the minimum fund required for cash outflow in case of delay in payments and to identify contractual implications and consequences due to failure of meeting planned cash flow on both the owner and the contractor. Data from record files of 25 villas, in Muscat, Oman, with different sizes was analysed to identify the minimum fund required with the contractor to maintain the progress of work in-case of delay of interim payments. The analysis also included identification of consequences of delay of interim payments. It was found that the minimum fund required is 8.5 per cent of the contract value for maximum interim payment delay of four weeks. The value of required minimum fund increases as the period of delay increases. In most cases the percentage of the required minimum fund increases with the increase of the contract value. Work stoppage, delay in completion, penalties and incompletion of projects are major consequences of delay on interim payments.

Keywords: Cash flow, Villa construction contract, Oman

DOI: https://doi.org/10.15623/ijret.2014.0304079