Managing project working capital: the case of local construction firms in Tanzania

Abstract

A major portion of management time in construction is occupied in managing working capital. This paper examines how local construction firms in Tanzania manage project working capital. Questionnaires were emailed to construction firms and consultants and semi-structured interviews were conducted covering the questions in the questionnaire and beyond. The study reveals that cash flow plan is lacking in majority of small and medium enterprises which form a big part of the construction community. It was found that 27% of contractors majority in class 5 -7 do not prepare a cash flow plan and in cases where it is prepared the amounts are always less than predicted due to delayed payment by clients and slow progress on site. Yet again, when the payment is delayed 33% of contractors do not claim interest for fear of losing clients. The study also indicates that all contractors in class 1-4 access finances from financial institutions and trade credits whereas of those in class 5-7 only 17% access financial resources from financial institutions and 50% from trade credits and the rest 33% from private savings. The paper therefore recommends that contractors in class 5-7 should embark on preparing cash flow plan and develop a culture of carefully examining contract documents so as to establish effects of delayed payments and appropriate actions to be taken including identifying avenues of claims.

Keywords: construction firms, management, project, working capital