Keywords: payment methods, cash flow, construction process.

This paper describes the development and the architecture of an IT system which is intended to help industry practitioners in selecting the most appropriate payment method for given sets of project requirements and characteristics. The system will act as an aid to design or "fine-tune" payment methods to individual projects characteristics and needs. It can also be used by project stakeholders to forecast and plan their cash flow once a payment method is defined.

Choosing the appropriate pricing and payment method has a positive effect on the management and delivery of projects. Different payment methods are available and each has its own advantages and disadvantages. From the overwhelming consensus for process and team integration in construction projects emerges the requirement for a cash flow model that promotes integration and early project based planning considering the potential payment method. This integration will allow the payment methods to be dealt with during the procurement stage. Payment methods play a key role in the formation and facilitation of the links in team integration, as the agreed payment method motivates the team to perform efficiently. Different members of the supply chains are affected differently by the factors influencing cash flow. Payment methods therefore, have to be designed in such a way that this uneven sensitivity to cash flow factors is addressed and linked to value and utility.

Contracts types are, in many cases, categorised by the types of payment methods [1,2,3,4]. These alternative payment methods require and encourage collaborative working between the project team to ensure risk is allocated accordingly, provide a source of motivation and make project delivery much more effective and to the full satisfaction of clients.

Spreadsheets are always used to analyse the cash flow which may be linked with the project plan. This analysis does not normally consider the most appropriate payment method for the desirable cash flow. Therefore, the proposed tool aims to consider the function performed by the spreadsheets and simulate alternative payment methods from a supply chain perspective. This simulation part will help in identifying the most appropriate payment method for each project member considering the integrated workplace. The tool defines four elements to analyse a payment method, namely "the process map", "the supply chain", "the pricing method" and "the payment method". The "process map" defines the products and services needed for the project. The "supply chain" defines the project stakeholders, the products and the services they will be providing. The "pricing method" defines the way in which each product or service is to be priced and the "payment method" defines how these products and services will be paid including factors such as payment time lags, retention arrangement.

An example has been developed to illustrate the system use. The system results can be easily tested against any changes to the data, e.g. the dates of the stage payments to improve the cash flow of a company.

1

K. Williams, "Civil engineering contracts - volume 1: the law, administration, safety", West Sussex: Ellis Horwood Limited, 1992.

2

M.P. O'Reilly, "Principles of construction law", Essex: Longman Group UK Ltd, 1993.

3

K. Potts, "Major construction works: contractual and financial management", Harlow: Longman Group Limited, 1995.

4

N.J. (ed.) Smith, "Engineering project management", second edition. Ames, IA: Blackwell Science, 2002.

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