Impact of Design Changes on Contractors’ Cash Flow

Several factors affect the cash flow profile of contractors. Among these design changes play a vital role. This research explores the impact of design changes on contractors' cash flow. Twenty completed building projects were selected for the analysis. It was found that design changes have a significant contribution amounting to 50% of the total cost overruns. Most of the cost overruns took place during 75% to 100% stages of the projects. Further, the results show that the impact of design changes to the contractors' cash flow was significant for M3 grade contractors than M1 and M2. When design changes occur, contractors have to search for additional interim finance than planned, often at a higher cost, which reduces their profit margin. Therefore, contractors need to consider the requirement for additional finance that may become a necessity during the execution of a project and incorporate necessary provisions when preparing a cash flow forecast.

DOI: 10.4038/besl.v8i1.1905

Built-Environment Sri Lanka Vol.8(1) 2008 2-10