1.

Financial Related literature

Delay is common in construction projects and its extent varies considerably from project to project.
Some projects are only a few days behind schedule; some are delayed by over a year (Ahmed et al.,
2003). In construction, delay could be defined as time overruns either beyond the completion date
stipulated in contract or beyond the agreed date for delivery of a project between the parties (Assaf
and Al-Hejji, 2006). Aibinu and Jagbora (2002) describe delay as a circumstance when the contractor
and the project owner jointly or severally contribute to the non-completion of the project within the
original or the stipulated or agreed contract period. Bramble and Callahan (1987) define delay as the
time during which some part of the construction project has been extended or not performed due to an
unanticipated circumstance. Hence, delay is a situation where the work is being slowed down without
stopping it entirely. Delays in construction projects lead to serious consequences that may retard the
development of the construction industry and influence the overall economical condition of a country
(Arditi et al., 1985). According to Shen (1997), delay in the completion of construction projects could
be the greatest cause for extra cost and loss in financial return or other benefits from project. Thus,
delay is costly for both owner and contractor. To the owner, a delay means loss of potential revenue;
while to the contractor, a delay means increased costs in overhead. Numerous studies (Al-Khalil and
Al-Ghafly, 1999; Assaf and Al-Hejji, 2006; Chan and Kumaraswamy, 1998; Mansfield et al, 1994)
were conducted to identify the common causes of delays in local construction projects with an
intention to lessen the extent of delays and its impact. Most of the survey results (Al-Khalil and Al-
Ghafly, 1999; Frimpong and Oluwoye, 2003) show that financial problem is one of the main causes
of delays. While the problem of delays looms large in the local construction industry, no attempt has
been made to identify the root causes of financial-related problems. According to Ahmed et al.
(2003), the possible financial-related factors that lead to delays in Malaysian construction projects are
financial problems of client such as delayed payments, financial difficulties and economic problems;
financial and cash flow problems of contractor; and external factor of poor economic conditions, such
as currency and inflation rate. Beside, difficulties in getting loans (Arditi et al., 1985) and short of
funding are adverse financial-related factors that were identified in previous works.

Sambasivan and Soon (2007) have developed 28 well-recognised construction delay factors in
construction and categorized them into eight major groups. These are client-related factors,
contractor-related factors, consultant-related factors, material-related factors, labour- and equipment-
related factors, financial-related factors, contract-related factor and external factors. Among others, a
fi nancial-related factor is one of the most critical factors that cause delays in construction projects
( Alaghbari et al , 2007 ). The statement is supported by Sweis et al (2007) stating that in Jordan,
financial difficulties faced by many contractors cause delay in construction projects. This is because
of the many changes that are made by project clients during construction. As a result, it increases the
construction cost in which contractors have to procure the material and equipment beyond their
normal boundaries. In addition, delay in paying contractors will subsequently jeopardise contractor ’ s
cash flow. Delay in payment resulted in the slow progress on site, as many sub-contractors and
suppliers are subjected to financial difficulties; hence, no material is delivered to the site.

Project finance is a technique of investing capital assets for an infrastructure or green-field project
which involves a creation of legally independent project company financed with equity from one or
more sponsoring firms and non-recourse or limited recourse debt. There is no single, generally agreed
upon definition of project financing. Some of the authors have defined project financing differently:
“A financing of a particular economic unit in which a lender is satisfied to look initially to the cash
flows and earnings of that economic unit as the source of funds from which a loan will be repaid and
to the assets of the economic unit as collateral for the loan” (Nevitt and Fabozzi, 1995); ‘.. a term that
typically refers to money lent to build power plants or oil refineries’ (Pacelle et al., 2001); ‘Project
finance is not a means of raising funds to finance a project that is so weak economically that it may
not be able to service its debt or provide an acceptable rate of return to equity investor’ (Finnerty,
1996); From all above definitions, it is quite clear that Project finance refers to the development of a
stand-alone project on a non-recourse or limited recourse financing structure, where debt and equity
used to finance the project are paid back from the cashflows generated by the project. So the project
financing requires careful selection of a project by financial engineering to allocate the risks and
rewards among the involved parties in a manner that is mutually acceptable.
 Paraf
Construction projects frequently face delays, and the impact of these delays varies significantly
from project to project. According to Ahmed et al. (2003), some projects are only a few days
behind schedule, while others are almost a year late. According to Assaf and Al-Hejji (2006), a
delay in construction could be described as time overruns that occur either after the project's
agreed-upon delivery date or after the contract's specified completion date. According to Aibinu
and Jagbora (2002), delay occurs when the contractor and the project owner jointly or severally
cause the project to not be completed within the initial or predetermined contract period.

According to Bramble and Callahan (1987), a delay occurs when a portion of the construction
project fails to be finished or is delayed because of an unforeseen event. Therefore, a delay
occurs when work is being done, but not completely stopped. Serious repercussions follow
construction project delays, which can impede the growth of the construction sector and affect a
nation's overall economic situation (Arditi et al., 1985). Shen (1997) asserts that the primary
factor contributing to increased expenses and a reduction in project benefits, such as financial
return, may be a delay in finishing construction projects.

Delays are therefore costly for the contractor and the owner. For the contractor, a delay is
increased costs overhead; for the owner, it means lost potential revenue. In an effort to reduce the
severity and impact of delays in local building projects, a number of studies (Al-Khalil and Al-
Ghafly, 1999; Assaf and Al-Hejji, 2006; Chan and Kumaraswamy, 1998; Mansfield et al.,
1994) were carried out to determine the common reasons of delays.

Were conducted to identify the common causes of delays in local construction projects with an
intention to lessen the extent of delays and its impact. Most of the survey results (Al-Khalil and
Al-Ghafly, 1999; Frimpong and Oluwoye, 2003) show that financial problem is one of the
main causes of delays. While the problem of delays looms large in the local construction
industry, no attempt has been made to identify the root causes of financial-related problems.
While the problem of delays looms large in the local construction industry, no attempt has been
made to identify the root causes of financial-related problems.
Ahmed et al. (2003) state that financial issues with the client, such as late payments, financial
difficulties, and economic issues; financial and cash flow issues with the contractor; and external
factors related to unfavorable economic conditions, such as currency and inflation rate, could all
cause delays in Malaysian construction projects. In addition, bad financial issues linked to
funding scarcity and loan acquisition challenges (Arditi et al., 1985) were noted in earlier
studies.
Finally, and not least, a further study was conducted based on the 19 possible causes for
financial-related project delay, that to group these causes under four different categories, namely
late payment, poor cash flow management, insufficient financial resources and financial market
instability. All the sub-problems are closely related to each other and will cause a significant
impact on projects’ delays
Late payment
According to Harris and McCaffer (2003), late payment is defined as a paymaster's failure to
make payments within the contractually specified timeframe for honoring certificates. Payment
delays can be caused by a number of parties participating in the payment claim process,
including the client, contractor, superintending officer, architect, quantity surveyor, lender, and
other construction participants. The whole payment supply chain may be impacted by a party's
delayed payment if they are involved in the payment claim procedure.

The identified underlying causes of late payment include:

• Client’s poor financial and business management

• Withhold of payment by client
• Contractor’s invalid claim
• Delay in valuation and certification of interim payment by consultant
• Inaccuracy of valuation for work done
• Insufficient documentation and information for valuation
• Involvement of too many parties in the process of honoring certificates
• Heavy work load of consultant to do evaluation for variation order
Poor cash flow management

The process of tracking, evaluating, and modifying a project's cash flow is known as cash flow
management (Ward, nd). The primary goal of cash flow management, according to Ward (nd),
is to prevent prolonged financial shortages that result from a too large difference between cash
inflows and outflows. Lord Denning is credited with saying that cash flow is the lifeblood of the
construction business in the Dawnays Ltd v. FG Minter Ltd (1971) case. According to the
Construction business Working Group on Payment (2007), ease of cash flow is a crucial
component of completing a successful project. Consequently, in order to facilitate the completion
of a successful project, a well-managed cash flow is essential. Cash flow issues can be identified
by regularly doing a cash flow analysis (Ward, nd). Cash flow forecasting is a crucial tool for
identifying and preventing cash flow issues in project analysis. Developing and implementing
solutions that will ensure a sufficient financial flow for the project is therefore crucial.
As a result, a project with a well-managed cash flow will have better cash flow and quicker
project completion. On the other hand, an inadequately controlled cash flow indicates the
reverse. The root causes of inadequate cash flow management can be divided into six categories:
(1) excessive project handling by the contractor; (2) unstable financial background of the
contractor; (3) unqualified contractor underbidding project cost; (4) irregular cash flow
forecasting; (5) inadequate credit arrangement with creditors and debtors; and (6) capital lock-
up.

Insufficient financial resources

The lack of resources is one of the main things delaying high-rise projects in Indonesia,
according to Kaming et al. (1997). Furthermore, Noulmanee et al. (1999) looked into the
reasons behind highway building delays in Thailand and came to the conclusion that an
organization's inadequate resources was one of the main causes of delays.
According to an Ubaid (1991) survey, the primary factor influencing a contractor's performance
and the source of delays is the contractor's resources.
The resources include financial resources, human resources, material resources and equipment
resources. However, only the financial resources are focused in the research, as Abdul-Rahman
et al (2006) addressed that lack of funds may affect the project ’ s cash fl ow and lead to delay in
site possession, which consequently causes delays in the project as whole. The factors that would
cause insufficient financial resources are (1) difficulties in obtaining loan from financiers and (2)
allocation of government budget not in place.
Financial market instability

Ahmed et al. (2003) and Wa' el Alaghbari (2005) state that the project's cash flow will be greatly
impacted by external factors such as currency and inflation rate, which will also have an impact
on the project's timely completion. The following are the root causes of financial market
instability, which will subsequently result in cash flow issues for construction projects: (1) an
increase in loan repayment interest rates; (2) an increase in labor costs, material prices, and
transportation expenses; and (3) an increase in the foreign exchange rate for imported plants and
materials.