University of Salford School of Built Environment BSc (Hons) Quantity Surveying

Has the Implementation of the Local Democracy, Economic Development and Construction Act 2009 improved Corporate Cash Flow of Sub-Contractors Operating within the Private Residential Sector of the Construction Industry?
A Grounded Theory Study

Elliot John Morton

2013

Abstract
The private housing sector was substantially affected by the economic contraction of 2008. Cash flow within the sector has been constricted and those who advocate to be affected the most are sub-contractors. It has been well publicised that the amendments to Part II of the Housing Grants, Construction Regeneration, and Construction Act 1996 would improve cash flow of sub-contractors operating within the construction industry. This study aims to explore these amendments and conclude whether sub-contractors operating within the private housing sector have witnessed any noticeable improvement to cash flow since the amendments became effective law in 2011. Grounded Theory has been adopted to conduct this research project in order empirically assess the research problem from the perspective and context of those who experience it (Birks and Mills, 2011, p.56). The main conclusion from the study is that cash flow of sub-contractors has not been improved since the introduction of the Local Democracy, Economic Development and Construction Act 2009. The study concludes this is namely due to the three main factors, the current market conditions, a lack of recognition and understanding displayed by sub-contractors and the ever present administration of paid when paid provisions contained within contractual agreements.

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Declaration
Date: Student Name: Roll Number: Title of Assignment:

3rd May 2013

Elliot Morton @00288679 Has the Implementation of the Local Democracy, Economic Development and Construction Act 2009 improved Corporate Cash Flow of SubContractors Operating within the Private Residential Sector of the Construction Industry?

Module Name:

Discipline Research Project

Programme of Study: BSc (Hons) Quantity Surveying Year of Study: Full / Part Time: Five Part Time

By submitting my work here I declare that: All enclosed work is my own, the use of other work has been duly acknowledged, the results of any research has not been falsified and that have read and understand the University Policy on the Conduct of Assessed Work, intranet URL: http://policies.salford.ac.uk/display.php?id=255 Source:

University of Salford HR Home Employee Development Elevate Project Blackboard and E-Assessment Student Declaration Signature

Print ELLIOT MORTON

Date 3rd May 2013 iii

Contents
Abstract ......................................................................................................................................... ii Declaration ................................................................................................................................... iii List of Figures and Memos ...........................................................................................................vii Acknowledgments ......................................................................................................................viii List of Court Cases.........................................................................................................................ix 1 Introduction ........................................................................................................................... 1 1.1 1.2 Background .................................................................................................................... 1 Study Rationale .............................................................................................................. 2
Research Question ............................................................................................................. 3 Specific Aim ........................................................................................................................ 3 Research Objectives ........................................................................................................... 4

1.2.1 1.2.2 1.2.3

1.3

Study Hypothesis ............................................................................................................ 4

Market Conditions.............................................................................................................. 4 LDEDCA 2009 Recognition.................................................................................................. 4 Improvement to Cash Flow ................................................................................................ 5

1.3.1 1.3.2 1.3.3

Literature Review .................................................................................................................. 6

2.1.1 2.1.2 2.1.3 The LDEDCA 2009 Underpinnings ...................................................................................... 6 The Amendments to Part II of the HGCRA 1996 ................................................................ 7 Contemporary Context of Cash Flow ............................................................................... 10

Research Paradigm .............................................................................................................. 14 3.1 3.2 3.3 3.4 Methodology Overview................................................................................................ 14 Methods ....................................................................................................................... 14 Research Problem ........................................................................................................ 16 Data Collection ............................................................................................................. 16
Selection of Participants .................................................................................................. 17 Legal and Ethical Considerations...................................................................................... 17

3.4.1 3.4.2

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3.5

Data Analysis ................................................................................................................ 17

Substantive Coding........................................................................................................... 18 Theoretical Coding ........................................................................................................... 20 Theoretical Saturation...................................................................................................... 20

3.5.1 3.5.2 3.5.3

Research Findings ................................................................................................................ 21 4.1 4.2 4.3 4.4 Recognition of the HGCRA 1996 .................................................................................. 21 Cash Flow Implications of the HGCRA 1996 ................................................................. 22 Recognition of the LDEDCA 2009 ................................................................................. 24 Improvement to Cash Flow .......................................................................................... 25
Market Conditions............................................................................................................ 25 The Transfer of Cash Flow Issues ..................................................................................... 27 Paid when Paid Clauses .................................................................................................... 28 Retention.......................................................................................................................... 29 Levying Terms of the Bill .................................................................................................. 29

4.4.1 4.4.2 4.4.3 4.4.4 4.4.5

Conclusion ........................................................................................................................... 31 5.1 5.2 5.3 5.4 5.5 5.6 Addressing the Objectives of the Study ....................................................................... 31 Meeting the Grounded Theory Criteria ....................................................................... 31 Conclusion of Findings ................................................................................................. 31 Potential areas for further exploration ........................................................................ 34 Limitations of the Study ............................................................................................... 35 Recommendations for application of findings explored ............................................. 36

List of References Bibliography Appendix 1: Interview Agenda Appendix 2: Legal and Ethical Consideration Documents Appendix 3: Participant One Interview Transcription and Open Coding Appendix 4: Participant Two Interview Transcription and Open Coding v

Appendix 5: Participant Three Interview Transcription and Open Coding Appendix 6: Participant Four Interview Transcription Appendix 7: Memos Appendix 8: ATLAS.ti Selective Codes

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List of Figures and Memos

Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Illustrative representation of the revised payment provisions Jurys working asset cycle Creditors Voluntary Liquidations by Industry Gross Value Added of the UK onstruction industry Illustration of the projects methods Illustration of the interview design Adopted Coding Process Illustrated recognition of the LDEDCA 2009 New Private Housing Orders from 2006 to 2012 Gross Mortgage Lending from 2001 to 2012 Network View of the Research Projects Conclusion

Memo 1: Memo 2: Memo 3: Memo 4: Memo 5: Memo 6:

Awareness and understanding of the HGCRA 1996 Cash flow implications of the HGCRA 1996 Recognition of the LDEDCA 2009 Levying/Enforcing the LDEDCA 2009s legislation Has the implementation of the LDEDCA 2009 improved your cash flow Evidence supporting why the act has not improved cash flow

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Acknowledgments
I would like to thank a number of people for the help and support, without whom I would not have successfully this research project: Firstly I would like to thank my supervisor Professor David Eaton who has provided me with great support and guidance throughout the course of this research project. Secondly I would like thank all the participants of the research project whom without, this research project would not have been possible. Thirdly I would like to thank all my colleagues at Seddon Homes who have provided great guidance and support throughout the course of this project. Finally I would like to thank my mother Shirley Morton, father Robert Morton and partner Alex Hanson for all their moral and technical support whilst conducting this research project.

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List of Court Cases

A.R.T Consultancy Ltd v Navera Trading Ltd [2007] EWHC 1375, (TCC) Aqua Design and Play International Ltd (in liquidation)(t/a Aqua Design) v Kier Regional Ltd (t/a French Kier Anglia) Fenlock Hansen Ltd (t/a Fendor Hansen) v Kier Regional Ltd (t/a French Kier Anglia) [2001] All ER (D) 304 Bennet (Electrical) Services Ltd v Inviron Ltd [2007] EWHC 49, (TCC) Bloor Construction (UK) Ltd v Bowmer & Kirkland (London) Ltd [2000] BLR 314 Bouygues (UK) Ltd v Dahl-Jensen Ltd (UK) Ltd [2000] BLR 49 Bridgeway Construction Ltd v Tolent Construction Ltd [2000] TCC Dawnays v Minter [1971] 1 WLR 1205 Durabella Ltd v J Jarvis & Sons Ltd [2001] All ER (D) 102

Ellis Mechanical Services Ltd v. Wates Construction Ltd [1976] 2 BLR 57

Melville Dundas Limited and others v. George Wimpey UK Limited and others [2007] UKHL 18 Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd [1973] 71 LGR 162 Pegram Shopfitters Ltd v Tally Weijl (UK) Ltd [2004] 1 WLR 2082 RJT Consulting Engineers Ltd v DM Engineering (NI) Ltd [2001] CILL 1766-1768 William Hare Ltd v Shepherd Construction Ltd [2010] EWCA CIV 283 Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720

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1 Introduction
1.1 Background
Prior to the introduction of the HGCRA (1996), a contractor had a limited number of options available to obtain outstanding monies. The most common practices were an application under the now superseded Rules of the Supreme Court for either a summary judgement or interim payment (Adriaanse, 2010). Conflicting priorities within the English judiciary system also confused the indu strys approach to the subject of cash flow. The Dawnays v Minter (1971) case concluded that sums due under an Architects certificate must be paid and that an employer has no right to set-off debt to satisfy his cross claims. Lord Denning further justified this conclusion by stating; there must be a 'cash flow' in the building tradeIt is the very lifeblood of the enterprise. The proceeding case Modern Engineering v Gilbert Ash (1973) overruled Lord Dennings conclusion. Lord Viscount Dilhourne acknowledged the Dawnays v Minter (1971) case and its elaboration on cash flow, however, he emphasised that a payee is not entitled to payment irrespective of an architects certificate if the work is defective. Lord Dilhourne concluded it is possible to deduct from a sum claimed any quantifiable counterclaim whether liquidated or un-liquidated. The Construction Industry in the 1990s was considered to be in the grip of a major and deep-seated crisis (Coulson, 2011, p.4). The general recession of the late 1980s/early 1990s had a mirroring effect on the economic health of the UK construction industry (Coulson, 2011). Institutional distortions in the housing market associated with owner occupied housing (Taylor and Bradley, 1994, p.368) meant contractors and subcontractors where continually starved of the necessary cash flow (Coulson, 2011). The amalgamation of the above resulted in what Joyce (1996, p. 3) describes as unpredictable cash flow, insolvencies and a chorus from certain sectors of the construction industry that something had to be done. Funding from the UK government and industry councils empowered the appointment of Sir Michael Latham to lead a

joint review of procurement and contractual arrangements in the UK construction industry (Latham, 1994, p.i). Sir Michael Latham (1994, p.37) was also critical of what he referred to as unfair conditions. Condemning the use of non-standard forms of contract and stating that All parties in the construction process should be encouraged to use standard forms without amendment. Furthermore Sir Michael Latham (2004, p.84) recommended that there should be a construction contracts bill specifying particular actions be deemed unfair or invalid (Coulson, 2011). These included any attempt to: Following an abundance of debates within the House of Lords, House of Commons and Technology and Construction Court, the Construction Bill was titled the Housing Grants, Construction and Regeneration Act (hereafter referred to as the HGCRA 1996), receiving royal ascent in 1996 and became effective law on 1st May 1998 (Coulson, 2011). The HGCRA 1996 affected all construction contracts entered after 1st May 1998 and set out a number of provisions including; Section 104-105 -The definition of construction contracts and construction operations; Section 106 The exclusion of the Residential occupier from the bill; Section 107 The statutory requirement for a defined construction contract and its terms wholly be in writing; Section 108 Statutory requirement for adjudication provisions to be included within construction contract and comply with those conditions set out in the bill; Section 109-111 Payment provisions and Section 112-115 A contractors right to suspend work upon non-payment, the outlaw of paid-when-paid (HMSO, 2011).

1.2 Study Rationale

The aim of the HGCRA 1996 was to create transparency in the flow of cash, improve the operation of construction contracts and promote clarity within prompt dispute resolution (Latham, 1994); the net-effect being to improve industry liquidity and the macroeconomy. Following a torrent of consultation anylasis, government backed reports, consultation events, industry lobbying and impact assessments (Sinden, et al., 2012) the legislation was revised and is now titled the Local Democracy, Economic Development and Construction Act 2009 (hereafter referred to as the LDEDCA 2009). To conduct the research project the author has selected a Grounded Theory (hereafter referred to as GT) methodology. Upon initial assessment of the research problem, it 2

became clear that a quantitative research methodology was not appropriate due to the commercial sensitivity of particular information the instigation of the research project so soon after the implementation of the LDEDCA 2009. GT provides explicit procedures for analysing qualitative research data and is effectively applied to a research project where a theoretical approach is not clear (Robson, 2011). Almost all qualitative research projects start with a research problem. Strauss and Corbin (2008) state that a topical research question may be derived from some qualitative source such as a problem suggested by a supervisor; a problem derived from technical literature; a problem derived from professional experience; or a problem emerged from the research itself. These opening research questions have been developed from the authors existing assumptions, knowledge and experience of the research phenomena. By conducting a GT study the author has attempted to develop a topic related theory by sourcing phenomena from the perspective and in the context of those who experience it (Birks and Mills, 2011, p. 16). 1.2.1 Research Question Has the implementation of the LDEDCA 2009 improved the Corporate Cash Flow of SubContractors working within the Private Residential Sector of the Construction Industry? New Private Housing significantly contributes to the UK Construction Output, and UK GDP. New Private Housing from 2006 to 2011 has on average accounted for 14.5% of UKs Construction Output, Q32012 accounted for 13.5% (ONS, 2012). The GVA of the Construction Industry in 2011 was 89.5bn, 6.7% of the total UK economy (HC, 2012, p.4). Hence the proposed study is one of importance. It will explore the organisations business environment (Johnson, Scholes and Whittington, 2008) and consider the overall effect (if any) that a review in the LDEDCA 2009 has improved the corporate cash flow of SubContractors. 1.2.2 Specific Aim To explore the introduction of the Local Democracy, Economic Development and Construction Act 2009 and the effect it has had on the corporate cash flow of subcontractors operating within the private housing sector, and geographically located in and between the West-Midlands and North Yorkshire area.

1.2.3 Research Objectives The stated research question, aim and objectives (as below) will aid in establishing boundaries to the research project. The research question being quite specific may hinder the research projects intended flexibility and dynamic nature. Though the researcher will ensure that the data collection process be open ended and broad, aiding in the discovery of unconsidered categories lying within the research data 1. Study the macro-environment surrounding sub-contractors working within the UK Housing Sector and exhibit an economical timeline of the UK housing sector, pre and post implementation of the Construction Act 2009. 2. Determine the study sub-contractors level of acknowledgement and understanding of the Construction Act 2009. 3. Determine which of the seven amendments is having the greatest effect on the study participants. 4. Explore the working relationship between the study sub-contractors and private housing contractors. 5. Conclude if sub-contractors have observed any impact on their financial performance following the implementation of the act, irrespective of how well they comprehend the act.

1.3 Study Hypothesis

1.3.1 Market Conditions It is undisputed that the recession has had a detrimental effect on organisations operating within the private housing sector. However, will the sector witness a further increase in new orders from 2Q2012? The authors hypothesis is yes, but only marginally and without the immediate discharge of further quantitative easing and the introduction of low interest borrowing (Rawlinson, 2012) it will be a very sluggish one at that (Morton, 2012). 1.3.2 LDEDCA 2009 Recognition The authors hypothesis is within a dataset of sub-contractors working under a written construction contract: I. A minority of sub-contractors would have no comprehension of the Construction Act; 4

II.

The majority would acknowledge but not fully comprehend the Construction Act, and would not levy any terms of the act;

III.

A minority would fully understand the Construction Act and would levy the act in well-defined circumstances.

1.3.3 Improvement to Cash Flow The author hypothesis that of the sub-contractors included within the study, cash flow would not have improved namely due to a number of variables: I. A lack of contractual knowledge and understanding the LDECDCA 2009 by the subcontractors; II. Additional factors of the macro-environment looming over the sub-contractors, submitting them as a business to endure financially detrimental relationships with employers; III. Employers administering un-ethical and morally onerous sub-contracts.

2 Literature Review
The literature review explores three areas relating to the subject matter, the LDEDCA 2009 underpinnings, the amendments introduced by the LDEDCA 2009, and the contemporary context of cash flow. 2.1.1 The LDEDCA 2009 Underpinnings In the years following the implementation of HGCRA (1996), issues with the act began to arise and in the March 2004 budget statement, Gordon Brown, then Chancellor of the Exchequer announced a reform in the bill. Following this announcement, Nigel Griffiths MP, then construction Minister appointed Sir Michael Latham to chair a review into how part II of the HGCRA (1996) has worked in practice since it was brought into force (DTI, 2004, p1). The commissioned review chaired by Sir Michael Latham was carried out by two working groups with the assistance of TeCSA (Technology and Construction Solicitors Association). One was assigned to adjudication, chaired by Graham Watts, Chief Executive of the Construction Industry Council and the other to payment, chaired by Richard Haryott, Vice President of the Institution of Civil Engineers (DTI, 2004, p2). The roll of TeCSA was to provide case law supporting the recommendations made by both working groups (DTI, 2004). The findings of both working groups were collated into a report, which on the 17 th September 2004 was sent to Nigel Griffiths by Sir Michael Latham (Coulson, 2011). In receipt of Sir Michael Lathams report on 17 September 2004, Nigel Griffiths responded stating that this valuable piece of workprovided an excellent starting point for the DTI to embark on a full consultation exercise (DTI, 2004m p.1). Two consultation events were held on the 1st June 2005 and 14th February 2006 labelled Improving Payment Practices in the Construction Industry The consultations were captured in reports titled Second / Consultation on proposals to amend Part II of the Housing Grants Construction and Regeneration Act 1996 and Scheme for Construction Contracts (England and Wales) Regulations (1998). The consultation received 359 responses varying from professional bodies, trade bodies, legal firms, main contractors and sub-contractors. Completion of the two consultations prompted an analysis of the recommendations captured in the reports Second / Analysis on the 6

consultation proposals to amend Part II of the Housing Grants Construction and Regeneration Act 1996 and Scheme for Construction Contracts (England and Wales) Regulations (1998) (DTI, 2006, p.1). Resourcing the information supplied by the consultation respondents, the report made a number of recommended amendments to the HGCRA 1996 bill and on 4th July 2008 an impact assessment and proposed bill was published. Consequently the Local Democracy, Economic Development and Construction Act 2009 received Royal Accent on 12th November 2009, thirteen years after the original statute was introduced. Then on the 1st October 2011 the Construction Act 2009 became effective law in England and Wales, affecting all construction contracts entered thereafter. 2.1.2 The Amendments to Part II of the HGCRA 1996 The disapplication of the Secretary of State from the adjudication provisions of the act The revision is to section 106 of the HGCRA 1996, which now falls under section 138 of the LDEDCA 2009. The amendment now gives the secretary of state the power by order that any of or all adjudication provisions contained within the 1996 (Coulson, 2011) act not apply to any description of construction contract relating to the carrying out of construction operations. (HMG, 2009, p.84). The abolition of the requirement for construction contract to be in writing Section 139 of the LDEDCA 2009 provides the requirement for construction contracts to be in writing is deleted in its entity and the failure to include adjudication provisions in writing means that those provisions stated within the scheme shall apply. This amendment was greatly supported by the decision made in the RJT Consulting Engineers Ltd v DM Engineering (2001). RJT, a consultant engineer had agreed to carry out some design work to a mechanical engineering project. Upon installation DM complained the quality of the design commenced with adjudication proceedings. RJT held that the agreement was not sufficient to bring with Section 107(2) of the HGCRA (Contracts in Writing) and therefore stated the adjudicator had no jurisdiction. The dispute reached the court of appeal and it was decided by Auld LJ that Section 107 of HGCRA 1996 required not just evidence of an existence of an agreement (DTI, 2004) but evidence of all the material terms of agreement between the parties. This decision was considered to be a narrow interpretation by the CIC payment task group (DTI, 2004), as the principles of the RJT Consulting Engineers Ltd v DM Engineering (2002 (court of appeal date)) where applied to 7

subsequent cases (Coulson, 2011); refer to Bennet Electrical Services Ltd v Inviron Ltd (2007) and A.R.T Consultancy Ltd v Navera Trading Ltd (2007). The introduction of the Slip Rule allowing adjudicators to correct clerical errors This amendment followed an abundance of case law starting with Bouygues Ltd v Dahl-Jensen Ltd (2000), which concluded that once the adjudicator has produced a decision, in accordance with his jurisdiction, then It is binding and enforceable. Followed was Geoffrey Osborne v Atkins Rail Ltd (2010) which concluded that only in the omission of an Arbitration clause within the contract does the court have the power to make a final determination (under CPR Part 8) of the issue notwithstanding the error (Coulson, 2011). Though statute was most influenced by the Bloor Construction Ltd v Bowmer & Kirkland Ltd (2000) which judge Toulmin concluded with a common sense approach to the correction of an adjudicators error. HHJ Toulmin held that in the absence of an expressive term within the contract to the contrary, there can and should be an implied term that an adjudicator on his own initiative can correct an error of accidental arising, within a very short time and without prejudice (Coulson, 2011). The Introduction of a limited right by adjudicators to allocate his own costs Section 140 of LDEDCA 2009 is designed to deal with the issue raised within the Bridgeway Construction Ltd v Tolent Construction Ltd (2000). This concluded that a clause within the contract issued by Tolent Construction (the notorious tolent clause) stated that the party wishing to bring a dispute to adjudication had to pay the other sides costs of making a claim (Coulson, 2011). It may be regarded that this amendment be rendered redundant by the decision made in Yuanda co Ltd v WW Gear Construction Ltd (2010), which concluded that such a Tolent Clause would unlawfully hamper a parties right to re fer a dispute to adjudication. The decision to give the adjudicator statutory power to the quandary proved a serviceable declaration. The replacement of the three-stage notice provision with a two stage process (Coulson, 2011) The amendments fall under Sections 142 and 143 of the LDEDCA 2009 and are illustrated in figure 1. The amendments made within section 142 serve two purposes. It first introduces a payment procedure which states that the payer must give notice specifying the sum due and the basis in which it has been calculated even if the sum due is zero. The payee may issue a notice pursuant of section 110B, stating the amount due 8

and the basis in which it is calculated. Though this is often represented by a valuation/invoice Coulson, 2011). The provisions make clear that the payer must promptly issue a payment notice to the payee otherwise the amount stated within the payees notice becomes due in full. The second purpose served by Section 142 and 143 of the LDEDCA 2009 states under the new section 110(1A) payment conditioned by the performance of obligations under another contract is not enforceable. This provision is similar to the paid when paid provision outlawed by section 113 of the HGCRA 1996 and outlaws the use of paid when certified provisions within construction contracts.

Sub/Contractor Payment Application

Payment Due Date

(Stated in the Contract) 5 Days 14 Days

Employer/Contractor Payment Notice Issued

(S142 & S143)

Employer/Contractor Pay-Less Notice Issued

(S144) Prescribed Period 5 days

Final Date for Payment

(Stated in the Contract)

Figure 1: Illustrative representation of the revised payment provisions (Knox, 2011) The introduction of Pay-Less notices The amendments fall under section 144 of the LDEDCA 2009 and are illustrated in figure 1. This amendment aims to eliminate situations where a client was obliged to pay extortionate sums due to an employers agent not issuing a withholding notice. The notice must be submitted no later than the prescribed period by the parties, or by default that of the Scheme (Coulson, 2011). The payer is then obliged to pay the amount considered due; stated within the pay less notice. In summary the provision set out by the HGCRA 1996 entitling a payee to a withholding notice has been deleted and replaced with that set out in figure 1, obligating a payee to serve both a payment notice and pay less notice. 9

The Contractors right to suspend The amendments fall under section 145 of the LDEDCA 2009. A contractor retains the right to suspend work on site upon non payment, but the amendments to part II of the HGCRA 1996 now enhances that right. 2.1.3 Contemporary Context of Cash Flow The construction industry has always recognised the requirement of cash flow within the industry. In 1973 with Lord Dennings infamous statement in the Gilbert Ash Ltd v Modern Engineering Ltd (1973) case stating There must be cash flow within the building trade. It is the very lifeblood of the enterprise. Again by the judicial system in 1976 by Lord Justice Lawton in the Ellis Mechanical Services v Wates construction Ltd (1976) case stating The courts are aware of what happens in these building disputes; the cases go either to arbitration or before an official referee; they drag on and on and on; the cash flow is held up. The Accelerating Change (Strategic Forum, 2002) report, chaired by Sir John Egan stated that the poor security of payments has dogged small and medium sized companies for many years. The Construction Matters report (HOC, 2005, p.51) recognised an issue with the flow of cash between the main contractor and sub-contractor. A topic within the report bolstered by the NSCC and SEC statement; there remains to a deep seated culture amongst main contractors of delaying, reducing or simply avoiding payment to their subcontractors. A statement which is supported by more recent news that the Carillion Group is extending sub-contract payment terms to 120 days (Pitt & Withers, 2013). An undertaking which Kevin Cammark (analyst at Cenkos Securities plc.) highlighted, was due in part to the organisations low cash reserves; adding that these terms would move up to a months worth of debt off its balance sheet (Pitt & Withers, 2013). Though emerging debates are suggesting these payment terms conflict with the revised amendments to the Late Payment of Commercial Debts Regulations that came into force on the 16th March 2013 (PLC, 2013). The Late Payment of Commercial Debts Regulations 2013 amendment to section 4 of the Late Payment of Commercial Debts (Interest) Act 1998, subsection (3C) implements where a purchaser is a non-public enterprise and a date for payment has been agreed, the payment period cannot exceed 60 days (HMG, 2013, p.4) unless it has been agreed by the contractual parties and not considered grossly unfair to the creditor. A case may be presented that the 120 day payment terms 10

proposed by the Carillion Group be considered grossly unfair. Though Ben Gardner (Commercial Lawyer, Pinset Masons LLP) suggests that these implementations will not improve the cash glow of SMEs as the act does not consider the commercial imbalances between the parties. Stating that larger companies are often the regular customers of smaller companies, meaning the latter has the power to dictate the terms of agreement (Gardner, 2013). For a business to generate cash from a service or product it must go round what Jury (2012) refers to as the Working Asset Cycle. Jurys (2012) working asset cycle is has been re-illustrated in figure 2.
Equity Debt
Interest Tax

Dividends

Creditors

Cash
Surplus Cash

Debtors

Cash

Purchase

Purchase

Sale
Finished Service

Raw Materials

Overheads

NonCash

Labour

Added Value
Work in Progress

Conversion

Fixed Assets

Figure 2: Jurys (2012) working asset cycle If expenditure is more than income then cash flow is negative (Wickam, 2006). Negative cash flow reflects a businesss liquidity, hindering the undertaking of valuable projects or further investment (Almeida, Campello and Weisbach, 2004). Almeida, Campello and Weisbach, (2004, p.1777) state that when a firm faces financial constraints (i.e. shortage of cash flow) investment spending will vary with the availability of internal funds rather than just with the availability of positive NPV on projects. This would mean the gearing ratio of a business may be forced to increase, the conversion of fixed assets may be required and/or the withdrawal of cash reserves; all to enable the undertaking of another investment or to pay creditors. However there is a limit to this process and a point is reached when equity providers and lenders are no longer interested in supporting the 11

business. The demand by creditors for payment cannot be met by resulting in a windingup petition being presented to the high court by the creditor forcing the business into compulsory or creditor voluntary liquidation (Jury, 2012; HMG, 2013). Gwartney, Stoup, and Sobel (2010) state investment and spending is required by markets to fully aid a recessed economy back to full employment (based aggregate supply-aggregate demand model). Figure 3 illustrates the number of Creditor Voluntary Liquidations within the top four industries of the UK economy from 2008 to 2012.
1,200

1,000 Real Estate, Renting and Business Activities Manufacturing Total

800

600

400

Wholesale and Retail Trade

200

Construction Total

0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2009 2010 2011 2012

Figure 3: Creditors Voluntary Liquidations by Industry (Insolvency Service, 2013) Construction has the second highest rate of liquidation of all the four industries. The GVA of construction illustrated in figure 4, over the last five years has almost mirrored the trend of insolvencies, demonstrating the push-pull effect of liquidation on GVA and ultimately the GDP; as GDP = GVA + Taxes on Products Subsides on products (ONS, 2013).

12

112.0 110.0 108.0 106.0 104.0 102.0 100.0 98.0 96.0 94.0 2008 2009 2010 2011 2012

Figure 4: Gross Value Added of the UK Construction Industry (ONS,2012)

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3 Research Paradigm
3.1 Methodology Overview
GT originated in 1961 when Barney Glaser was recruited by Anselm Strauss to carry out a research study to examine the experience of dying (Birks and Mills, 2011). The research methods used to carry out the research project demarcated the GT methods we know today (Birks and Mills, 2011). Upon completion and publication of the Awareness of Dying study in 1965, Glaser and Strauss then went onto publish The Discovery of Grounded Theory in 1965 (Birks and Mills, 2011). GT endorses the generation of theoretical insights from qualitative data (Bloor and Wood, 2006, p.96). Contesting traditional qualitative research methods in that, it attempts to generate new and useful middle range theories as opposed to testing preformulated theories (Bloor and Wood, 2006, p.96).

3.2 Methods
Methods are the practical procedures utilized to collect and analyse research data (Birks and Mills, 2011). Robson appropriately indicates that a GT study cannot begin without any initial, pre-existing theoretical ideas and assumptions (Robson, 2011, l.4934). A comprehensive overview of the GT methods adopted within this project has been illustrated in figure 5.

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Figure 5: Illustration of the Projects Methods 15

3.3 Research Problem

The development of a research problem may also be assisted in a review of existing literature (Birks and Mills, 2011). Studying and articulating existing assumptions can be an effective way of identifying ones existing perceptions and knowledge about a particular research area (Birks and Mills, 2011). The Glasserian GT philosophy again opposes the review of any literature pre-commencement of data collection. Unconditionally stating do not do a literature review in the substantive area and related areas where the research is to be done (Birks and Mills, 2011, p.23). Though Baker et al. (1992, p.1357) states that no effort should be made to put aside ideas or assumptions about the situation being studied, arguing that these preconceptions should be utilized in order to understand better the process being observed. It is emphatic that a literature review adds value to a GT project and it ought to be recognised that only a true scholar could embark on an emergent GT study. For a novice GT researcher a literature review is indispensable, though as walls, Parahoo and Fleming state (2010, p.11) ...an open mind and an objective treatment of that knowledge is necessary. Walls, Parahoo and Fleming (2011) highlight the importance of the researcher being Reflexive when conducting qualitative research. Approaching a study objectively and ...adopting a stance of distance and non-involvement; a concept Etherington (2004, p.25) abbreviates as the Gods Eye View.

3.4 Data Collection

The design of the interviews aims to capture data that will saturate the authors existing theories but influence emergent data and invite the detailed conversation of particular subjects (Charmaz, 2006). Birks and Mills (2006, l.852) explicitly captures the aim of intensive interviewing within a GT study by stating: Both grounded theory methods and intensive interviewing are open-ended, but directed, shaped yet emergent and paced yet flexible approaches (Charmaz, 2006, l.852) The interview agenda was comprised of six main topical areas relating to the research problem. The interview design is illustrated in figure 6 and the interview guide has been enclosed under appendix two. 16

Awareness & Market Conditions Understanding Awareness & Understanding

Construction Act Emerging Theories

Cash Flow

Client Relations

Research Project

Emerging Theories

Figure 6: Illustration of the Interview Design 3.4.1 Selection of Participants The author aimed to select sub-contractors with varying specialisms and levels of turnover. The author was limited by the research aim in that the data-set had to represent sub-contact organisations operating within the private housing sector and geographically between the West-Midlands and North Yorkshire. The sample size has been selected based on the authors practical knowledge and experience of the research area (Marshall, 1996, p2). Therefore, a sample size of up to 5 interviewees is judged to be sufficient. Though within a GT study the author is expected to evaluate the saturation level of each conceptual category and review the initial sample size if required (Strauss and Corbin, 2008). This process is repeated until theoretical saturation of each conceptual category has been achieved (Bloor and Wood, 2006). 3.4.2 Legal and Ethical Considerations Pre-commencement of any primary data collection, required the consideration of any foreseen ethical and/or legal issues relating to the research project. The ethical approval documentation was submitted for institutional agreement on 7th December 2012 and approved on the 17th December 2012. The ethical approval form has been enclosed under Appendix Two for review along with he signed participant consent forms.

3.5 Data Analysis

Methods core to grounded theory and adopted within this research project include initial coding; selective coding; axial coding (incorporating memo writing) theoretical sampling & comparative analysis; theoretical saturation; and theoretical integration (Coding). A substantial part of the data analysis process is the coding. Holton (2007) highlights that Classic GT considers two types of coding; substantive coding which encompasses open,

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axial and selective coding; and Theoretical Coding. The coding process is illustrated in figure 7 and explored in the proceeding chapters.
Saturated Core Theory Un-Saturated Core Theory Un-Saturated Theory

Interview

Theoretical Coding
Progression of Emergent Theories: Theoretical Sampling and Con stan t Comparis on Analysis

Phenomena

Open Coding
Labelling of an event, action or object

Selective Coding
Invitation of phenomena through selective conceptual analysis

Axial Coding
Development of Conceptual Categories

Figure 7: Adopted Coding Process 3.5.1 Substantive Coding Open coding is the initial coding of data often conducted either line by line, word by word or even incident by incident (Charmaz, 2006). The aim with open coding is to tag a line or word with a phrase that reflects action (Charmaz, 2006) scrutinising the data and breaking it down into thematic categories (Bloor and Wood, 2006). Open coding aids in gaining insights to what kinds of data to collect next (Charmaz, 2006, l.1407) enabling the researcher to see what direction to take in theoretical sampling (Holton, 2007, p.247) before becoming focused on a selective area. Glaser (1968, p57) stated set principles for the initial coding of data: What is this data a study of? What does the data suggest / pronounce? From whose point of view? What theoretical category does the datum indicate? (Charmaz, 2006, l. 1298) Open coding has been conducted on the interview transcriptions in a line-by-line manner using the Microsoft Word Comment Function. The purpose for doing this is to allow direct presentation of the codes to the author when carrying out the selective and Axial Coding. The line-by-line codes are presented within the right hand margin of the interview transcriptions enclosed within the appendices. 18

Selective Coding often referred to as focused coding, can represent the second wave of coding and aims to code text with more directed, selective and conceptual (Charmaz, 2006, l.1526) categories. Selective coding focuses on core initial codes elevating the level of conceptual analysis (Birks and Mills, 2011, p.97). Charmaz (2006, l.1554) states selective codes require decisions about which initial codes make the most analytic sense to categorise your data incisively and completely. To conduct the selective coding the author has utilised ATLAS.ti a specialist QDA software package, which aided in the development and organisation of selective codes. By creating the codes within the main interface of the QDA software package, the author was then able to map the codes allowing the study of categories and emergent core theory. Axial coding can represent the third wave of data coding, it aims to explore the thematic relationship between formerly developed categories and sub-categories (Charmaz, 2006). Axial coding represents a deeper conceptual analysis of the categories, finding central phenomena within the data. As Strauss and Corbin (2008, l.1100) appropriately suggests axial coding is the transition from just a label to a whole new set of ideas about a phenomenon. Selective and axial coding assists in the development of core categories i.e. categories relating to emergent theory (Birks and Mills, 2011). An Axial code is often represented in the form of a memo (Holton, 2007). Memos described by Glaser (1968, p.108) provide an immediate illustration of an idea. Memos are created continually parallel to the coding process (Holton, 2007); raising the data to conceptual level and developing the properties of each category (Holton, 2007, p.253). Birks and Mills (2011, p.10) refer to a memo as written records of a researchers records. Analogised as intellectual capital in the bank (Birks and Mills, 2011, p.10). Theoretical Sampling and Constant Comparison are close-knit processes that work parallel to the coding operation guiding the development of emergent theory (Holton, 2007, p.249). Constant comparison is where a researcher may begin to witness induction of a theory (Birks and Mills, 2011). Comparison analysis aims to compare incident to incident, incident to codes, codes to codes, codes to categories and categories to categories (Birks and Mills, 2011, p.11). Allowing the researcher to generate new theoretical properties and more hypotheses (Holton, 2007, p.250). Comparison analysis may uncover emerging categories which require further data to allow saturation 19

of an emerging theory (Birks and Mills, 2011). The process of analysing and strategically choosing what and where to collect that data next is referred to as Theoretical Sampling (Glaser, 1967). Theoretical Sampling and Constant Comparison analysis are the joint movement towards saturating emergent theories. The saturation of emergent theories is referred to as Theoretical Saturation. 3.5.2 Theoretical Coding Theoretical coding within this study is represented by the organisation of substantive codes to develop the core emergent theories (Holton, 2007). Unlike substantive coding, theoretical coding does not produce a physical output such as coding list or network diagram, it is simply a mechanism to develop a conceptual framework and aid in the publication of the research findings. Holton (2007) suggests that the operation of theoretical coding is simply the sorting of axial code memos by hand or electronically to develop the outline presentation of studies publication. 3.5.3 Theoretical Saturation Theoretical saturation is defined as in Bloor and Wood (2006) as the continuation of sampling and data collection until no new conceptual insights are generated at which point the researcher has satisfied the conceptual needs of the research aim (Bloor and Wood, 2006, p.165; Morton, 2012). The author has considered a theory saturated when conclusive evidence of each phenomenon is continually displayed within the interview transcriptions.

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4 Research Findings
4.1 Recognition of the HGCRA 1996
Participant one (hereafter referred to as P1) expresses that he is aware of the 1996 act through word of mouth, stating on line 119 you pick bits up obviously dealing with day to day business. Though he implicitly states his lack of understanding and comprehension of the 1996 act and furthermore the 2009 amendments by testifying on line 109 and 110 from our point of view, a small sub-contractor, you never get any time to develop or look into these forms of contract. The participant was also asked in a closed ended matter whether he was working as quantity surveyor at the time which the HGCRA 1996 became effective law in 1998. The interviewee stated yes. Furthermore he states that he was only made aware of the HGCRA via recent publications surrounding the 2009 amendments; stating on line 124 and 125 prior to this amendment that has just come in, no one has ever mentioned itever. This statement further supports the interviewees poor understanding of HGCRA 1996. In comparison to P1, Participant twos recognition was noble (hereafter referred to as P2). On line 55 to 59 the he acknowledged the positive effect adjudication had on cash flow, stating that a lot of major players had a very bad reputationfor not paying, paying late and sending firms under because without cash you dont survive. He also recognised the influence of the Latham report on the implementation of the HGCRA 1996 on line 59. Similarly to P2, Participant three (hereafter referred to as P3) displayed a reasonably good understanding of the HGCRA 1996, recognising the introduction of adjudication and suggesting on line 60 that the implementation of statute forced main contractors to deal with our payment properly and in a time period. P3 also shared P2s point of view in that, prior to the introduction of the act, there was an obvious issue with the industry with payment stating on line 64 prior to the act it was pot luck whether you would get paid or not.

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Participant Four (hereafter referred to as P4) was unable to comment on the matter as the business he was operating had only been sub-contracting for approximately two and a half years. The evidence indicates that 50% of the participants do acknowledge the HGCRAs introduction and have a reasonably good understanding of its significance to the industry; evidence acquainted with Sinden et al.s research. Sinden et al.s research also suggests that approximately 50% of subcontractors were conversant with the HGCRA 1996. (A data-set comprised of 81 respondents including sub-contractors, Clients/MainContractors). Sinden et al.s research also suggests that 61% of the sub -contractors included in the study thought that the HGCRA 1996 was a positive intervention also supporting P2 and P3s positive feedback towards its implementation.

4.2 Cash Flow Implications of the HGCRA 1996

The participants were asked if they had noticed any improvement in cash flow post introduction of the HGCRA 1996. P1s lack of awareness surrounding the introduction of the HGCRA 1996 supported the theory that his acknowledgement of any improvement to cash flow as a result of its introduction would be un-noticed. When asked the question the P1 indicated a sense of bewilderment; unsure how to answer the question. Though on line 149, P1 suggests that the statutory requirement to issue a Section 111: withholding notice may have aided the flow of cash. When prompted on the subject matter, P2 was swift in specifically stating organisations which he believed had a bad reputation for payment, suggesting its introduction was a commercial saviour, stating on lines 55-57: The industry and the introduction of adjudication was there to help the supply chain and the flow of cash in the supply chain. I think a lot of major players had a very bad reputation, with the likes of tarmac you know when they were Carillion had a real bad reputation for not paying. The organisation referred to within the interview are is still existent today and are within the top 10 of the top 100 construction companys index (supported by Sage). P3 also displayed positive signs of recognition towards the HGCRA 1996. Suggesting a sense of thankfulness towards its introduction an observation supported by his statement 22

on lines 68-69, it was almost like winning the votePrior to the act we had absolutely nothing. On lines 82 to 84 the author probes the subject matter. P3, responds strongly and enthusiastically stating that it definitely helped with cash flow because a) we knew how much we were going to get and; b) when we were going to get it. Within the interview P3s experience and understanding of the HGCRA 1996 became clear and the author prompted the participant in asking on line 88 Do you think it could have been improved in anyway? His response re-iterated the improvement to cash flow due to the post-introduction of the HGCRA 1996. But more interestingly he states on line 92 to 94: Like if you were taking on Langs in the old days and you went to adjudication, you would be liable to pay their costs and you know you just couldnt do that.you just couldnt go to adjudication because you couldnt afford it. This evidence supports the prominent use of Tolent clauses within the industry post introduction of the HGCRA 1996. Furthermore the organisation referred to by the participant was not Tolent Construction (the origin of subjective clause) but instead another organisation which again is still in existence and considered to be in the top 10 of the top 100 construction companys index (supported by Sage, 2012). P4 similarly was unable to comment on the matter as the business he was operating had only been sub-contracting for approximately two and a half years.

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4.3 Recognition of the LDEDCA 2009

The author within the research problem questioned the level of acknowledgement subcontractors may express towards the existence of the LDEDCA 2009. The author hypothesised that: a) A minority of Sub-Contractors would have no comprehension of the LDEDCA 2009; b) The majority would acknowledge, but not fully comprehend the LDEDCA 2009, and furthermore would not levy any term of the act and; c) A minority would fully understand the LDEDCA 2009 and would levy the act in welldefined circumstances. The results have been interpreted into a Venn diagram, displayed in figure 8. Each circle represents the different levels of recognition; the participants have been plotted according to the authors interpretation of the collected data. The conceptual interpretation of the data has been captured in memo three. The data illustrates that participants arent as conversed with the introduction of the LDEDCA 2009 as the previously introduced HGCRA 1996. A theme consistent with Sinden et al.s (2012) research which highlighted that only half of the sub-contractors conversant with the introduction of the HGCRA, were familiar with the implementation of the LDEDCA 2009. The author also asked the participants if they would ever enforce nay terms of the LDEDCA 2009. The answers supplied provided sufficient mechanism to suggest reason to why the LDEDCA 2009 has not improved cash flow and therefore has been presented in the proceeding chapter. Figure 8: Illustrated recognition of the LDEDCA 2009

a)
P1 P4

b)

P3

c)
P2

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4.4 Improvement to Cash Flow

The author presents the core/categories from the data which underpins the theory that the LDEDCA 2009 has not aided cash flow of sub-contractors within the housing industry. 4.4.1 Market Conditions Evidence provided by the participants (explored in memo 5) suggests that the LDEDCA 2009 has not prompted any significant increase in cash flow within the private housing sector. Though P1 was unequivocal in stating that his cash flow had improved slightly because of the LDEDCA 2009. A review of literature leads the author to believe that a slight improvement to market conditions may have influenced P1s response. The graph below represents new orders recorded by the ONS within the private housing sector.

4500 4000 3500 3000

Millions

2500 2000 1500 1000 500 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2006 2007 2008 2009 2010 2011 Q4 Q1 Q2 Q3 Q4 2012

New Private Housing Orders

Figure 9: New Private Housing Orders from 2006 to 2012 (ONS, 2013) The graph very much indicates the health of the housing market over the last 7 years, but also signifies a slight increase in orders from in 2012. Suggesting an infinitesimal improvement to the market conditions, which the author proposes may be the source of the P1s reasoning. Filed notes which have been taken throughout the period of this study by the author suggest a similar theme. It was noted that there was a general up beat feeling to the sector with organisations reporting a busy second half of 2012 and turnovers up going into 2013. Although it is unquestionable that the market has truncated since the recession hit the industry in 2007. P2 highlighted a valid point in elaborating on the political influences surrounding the housing market stating in lines 167 to 170:

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what the last 2 or 3 governments have been trying to do is get banks lending, political influence is massive as to whether they can get banks to get cash into the market place, so that clients as in those buying houses have funds available so that the private house builders can build to meet a demand led client This acknowledgment by P2 indicates his recognition of how environmental influences have affected the health of the housing market and the wider economy over the last six years. The collapse of the housing market in 2007 was what many defined as the pop in the housing bubble; what is technically referred to as mean reversion. Mean reversion is the sudden fall/rise in value to the point where it correlates with the long term average (Ryan, 2007). In 1999-2000 the UK housing market saw substantial appreciation which Bone and OReilly (2010) identify amongst other contributions, was primarily caused by: I. II. III. IV. Globally low interest rates; Highly yielded mortgage rates; Disposable income and a greater increase but-to-lets; An market unable to respond to the demand;

Though in 2007 the UK housing market reached its peak and began to depreciate back towards the point to where it meets the long term average (Morton, 2012). This depreciation was a result of a number of variables; I. II. III. An unresponsive market and exhaustion of demand The drive of price by the wealthy. And namely the withdrawal of international capital form emergent markets forcing banks to abandon mortgage lending programs, increasing interest rates and shortening the maturity or mortgage contracts. (Bardham, Edelstein and Kroll, 2011; Bone and OReilly, 2010). Figure 10 illustrates gross mortgage lending within the UK over the last 12 years and exemplifies the shrinkage of mortgage schemes across the UK.

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400,000 350,000 300,000 250,000

200,000 150,000 100,000 50,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (F)

Figure 10: Gross Mortgage Lending from 2001 to 2012 (CML, 2012) A mortgage to a homeowner is a means to purchasing a house. If a mortgage isnt at the dispense of the demand market, then a surplus is created by the supply market and the prices of the product are driven down. This results in a negative return on investment for Housebuilders, creating internal cash flow problems similar to those explored within the literature review. This contraction in the market the author believes affects subcontractors in two manners; a) A reduction in contracts raised between contractors and sub-contractors (which is greatly supported by all the participants in the opening of the transcriptions); b) An un-ethical transfer of cash flow issues, which leads to the following emergent theory. 4.4.2 The Transfer of Cash Flow Issues The bleak market conditions surrounding the housing developer is obvious. Though concerns raised by the Participants suggest that cash flow issues of housing developer may be being transferred down the supply chain. P1 on line 149-150 was probed to explore the deductions made on payment notices. P1 ventured away from the question and instead elaborated on the occurrence of cash flow issues towards the end of a project stating Well just generally speaking. Its when you tend to get to the end of the project they start withholding because, they have priced that tight, they are trying to batter the subcontractor. The transfer of cash flow issues down the supply chain correlates with issues raised regarding retention and paid when paid clauses. 27

4.4.3 Paid when Paid Clauses P2 states on lines 175 to 177; if our client hasnt been paid, sometimes it is not a case of they wont pay us because hes not been paid, its often the case he cant pay us because hes not been paid. P2 inclines that a scenario where a client who is unjustly withholding money, can generally be resolved through negotiation / mediation, a method of alternate dispute resolution. Though he suggests that a scenario where a client is withholding money due to not being paid themselves creates a serious problem, suggesting on lines 179 thats where your business fails and from a subbies point of viewyou have a bad debt. The author acknowledges that paid when paid contract provisions where outlawed by the introduction of the HGCRA 1996 under section 113. Though exempting the provision from circumstances where a paying third party becomes insolvent. Case law indicates that contractors since the introduction of the HGCRA 1996, have attempted to implement paid when paid provisions into contracts. Both the Aqua Design and Play international Ltd v Keir Regional Ltd (2001), Durabella Ltd v J Jarvis and Sons Ltd (2001) indicate this matter. P2 goes on to elaborate on the matter further stating on lines 187 to 190; that you have terms in contracts where if the client is made insolventthey dont have to pay your subcontractors. This statement is supported by the legal case William Hare Ltd v Shepherd Construction (2010). Similarly P3 also provides evidence of paid when paid provisions in stating on lines 107 and 108 People seem to think the paid when paid clauses have gone awayits like a wish that. P3 also goes onto state on line 115 Paid when paid when you quote it to people they just smile at you. P4 also is sumptuous on the matter stating on lines 73 to 74 that contractors are still operating on a pay when paid basis adding that on lines 108 to 109 companies are using cash recovered on one project to fund the start of the next. This is an issue which is directly affecting the cash flow of sub-contractors operating within both the housing and commercial sector of the construction industry. The author concludes that this in turn will have an in-direct effect on operations within the private housing sector. For example if a specialist sub-contractor was carrying out works for a private housing developer, and the specialist sub-contractor went into administration due 28

to the intervention of a paid when paid scenario by a main contractor. The housing developer may be forced into a predicament where they are unable to meet build program, in turn not achieving their estimated ROI, creating cash flow issues for the developer. Which as previously stated may be transferred to other sub-contractors operating under the housing developer. 4.4.4 Retention Retention was a strongly expressed issue within P1 and P2s interview. The issue wasnt theoretically sampled but instead naturally occurred when the participants were asked if their cash flow was hindered in any other way whilst operating in the private housing sector. P1 from the outset stated retention; expressing emotional satisfaction, satisfaction the author feels was promoted by ones interest in an issue he possess a strong opinion on. He iterates that there should be no retention on a contact stating on lines 255 and 256 you are generally obliged to a liability period, to go make and make good any defectsthis should suffice in my opinion. P3 also is also hasty to suggest that retention hinders cash flow. He iterates that 5% retention (industry standard) in present day is a contractors profit. He makes a valid point stating that The cumulative retention fund must be worth millions. Concluding in line 219 we need to get something done with retention. 4.4.5 Levying Terms of the Bill All the participants with the exception of P1 were asked if they would levy any provision of the LDEDCA 2009. Following P2s elaboration on his own understanding of the LDEDCA 2009 he was asked if he would ever enforce any provisions of the bill. P2 in a very doubtful manner, stated on line 85 its difficult, its horses for courses an idiom signifying something that may be applicable in one scenario, but not be in the next. P2 refers on line 94 to the provisions of the bill as a blunt instrument highlighting that only in well-defined circumstances would you consider enforcing any provision of the bill. P2 highlights, In a situation where he is trying to gain outstanding payment for completed works the initial and most effective approach is negotiation stating on line 89-90 you need to deal with a dispute at a local level, set meetings up, and try and resolve whatever dispute you have. Evidence 29

supplementing the effective use of Negotiation / Mediation as an ADR (Alternate Dispute Resolution). He concludes by stating that you dont threaten you statutory right, you only use it as a last resort. Signifying the participant would enforce terms of the act but only in well-defined circumstances. P3 is supportive of P2s comments in stating on line on lines 161 to 164; sometimes youve just got to be mellow about it rather than confrontational. If youre entering into dispute, youre effectively freezing the money that youve got invested in the job Also highlighting that enforcement of any provision such as those contained within the LDEDCA 2009 might force the payer into liquidation. P4 was somewhat particular on the matter, elaborating on a recent scenario where he wrote to a payer, highlighting their obligation to adhere to the LDEDCA 2009. He concluded the account by stating on lines 87 and 88 that these activities have had absolutely no effect. P4 did share the viewpoint of both P2 and P3 on lines 116 and 118 by stating: ultimately you want to still have a good working relationship with these contractors because there is still future work that you want to be doing with them, so you have to be careful as trying to enforce the act

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5 Conclusion
5.1 Addressing the Objectives of the Study
Chapter 4 (Research Findings) presents data illustrating the economic environment surrounding sub-contractors operating within the housing sector, exhibiting and comparing an economic perspective of the sector post-implementation of the LDEDCA 2009 (Objective 1). Chapter 4 also clearly defines the study participants understanding of the LDEDCA 2009 (and the HGCRA 1996 for that matter) distinctly satisfying objective number 2. Chapter 4 also implicitly demonstrates which of the amendments is having the greatest effect on the study participants satisfying objective 3. Although not vastly presented within the research findings, the relationship between private housing contractors and sub-contractors is explored within the interview transcriptions and memos (objective number 4). Chapter 4 and 5 (Conclusion) addresss objective 5 and confirms the researcher projects aim and hypothesis.

5.2 Meeting the Grounded Theory Criteria

The author concludes that utilising GT has enabled the empirical exploration of the subject matter. Though the author feels, due to the limitations on the project, some of the grounded theory methods were not sufficiently fulfilled. For example the author throughout the course of the project was unable to conduct any follow-up interviews, enabling the refinement of emergent theories. Also the author was unable to conduct any coding to participant fours interview transcription, although the interview was a welcomed supplement to the research project. Due to limitations imposed on the project the author was also unable to explore every category / concept derived from the data although a report has been produced by ATLAS.ti presenting all codes produced throughout the selective coding process (enclosed under appendix 8)

5.3 Conclusion of Findings

Based on the data collected, the author can conclude that since the introduction of the Local Democracy, Economic Development and Construction Act (2009) in 2011 the corporate cash flow of Sub-Contractors (based geographically in and between the WestMidlands and North Yorkshire) operating within the private housing sector of the construction industry has not improved.

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The study concludes this is due to a number of factors, which in the course of the research project were presented as; i. Saturated Core Theory Developed from phenomena, which had a core presence in the data and was suitably justified by existing literature (Charmaz, 2006); ii. Un-Saturated Core Theory Developed from phenomena, but occurred less frequently in the data, and supported by existing literature (Charmaz, 2006); iii. Un-Saturated Theory Developed from phenomena which had little presence in the data, not justified or explored by literature and not theoretically sampled (Charmaz, 2006). The author has utilised the networking function within ATLAS.ti to present the concluded theories on a network diagram. Saturated core theory is represented by yellow boxes on the diagram, un-saturated core theory is represented by orange boxes and un-saturated theory is represented by green boxes.

Figure 11: Network View of the Research Projects Conclusion The author can conclude that since 2012 the private housing sector has witnessed an increase in new orders. The data presented also suggests that the housing market is displaying signs of improvement moving into 2013. This was a significant area of research as it aided in critically appraising P1s contradictory view that cash flow had improved post implementation of the LDEDCA 2009. The author also concluded that the participants recognition and understanding of the LDEDCA 2009 was limited. An overview of the results found that the majority of the subcontractors perceived the recent amendments, mildly acknowledging perhaps one or two of the specific amendments but in general were ill-informed of amendments specifics. 32

The majority of the participants displayed good levels of recognition towards the HGCRA 1996 and its provisions. Though, only P4 provided sufficient evidence to suggest he acknowledged the amendments to HGCRA 1996 and made it clear he represented a company which recognised their rights and obligations. This conclusion is coherent with Akintoye, Renukappa and Lals (2011, p.523) research which concluded a similar theme. They summarised within their quantitative study that respondents are well informed about the new act conversely highlighting that understanding of each amendment varied, adding it is going to be very challenging for the industry to understand the amendments to the HGCRA 1996 (Akintoye, Renukappa and Lal, 2011, p.523). Concluding the third section of the hypothesis relied on both the authors existing assumptions on the subject matter and the emergence of theory from the data. The author distinctly concluded that corporate cash flow of sub-contractors operating in the housing sector had not improved. This was determined by three associated factors; a) Market conditions and the wider economy Not only is the apparent reduction in work throughout the supply chain having a detrimental effect on sub-contractors. But the lack of cash flow throughout the supply chain drives sub-contractors into contractual agreements which are compelling and financially un-sustainable; a phenomenon participant three referred to as suicidal bidding. b) Recognition and Understanding of the LEDEDCA 2009 It has been concluded that there is positive recognition towards the HGCRA 1996 amendments. But it is conclusive that poor comprehension and understanding of the amendments hinders the successful implementation of its provisions. c) Paid when paid agreements It is conclusive that paid when paid contractual provisions are still being illegally drafted into contracts, 15 years after they were outlawed. Though a study of case law presented in the research findings, illustrates how complex but up to date contractual drafting can give a contractor and/or developer sufficient grounds to implement paid If paid contract provisions. There is a mutual covenant between the author and Akintoye, Renukappa and Lals (2011) research, that although the amendments to Part II of the HGCRA 1996 are deemed a positive reaction to concerns expressed by the Improving payment practice

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consultations, without industry-wide awareness and understanding of the legislation and its provisions are ineffective in improving cash flow to sub-contractors.

5.4 Potential areas for further exploration

The author recommends further exploration be conducted on theories which were not saturated throughout the course of this research; un-saturated core/theory. a) Retention It is recommend that further research be conducted on the financial implications of retention on sub-contractors operating within the private housing sector. As the research findings suggest, sub-contractors deem it to be financially detrimental mechanism. The author also suggests that the research be directed at studying how project bank accounts could replace retention clauses within the private housing sector (Withers, 2011). b) Transfer of cash flow issues It is also recommended that further research be conducted to conclude whether cash flow issues incurred by housing developers (and main contractors for that matter) are being unethically transferred to subcontractors. c) Contractual Understanding It is recommended that further studies be carried out to examine contractual understanding throughout the construction industry, determining its economic value. d) Blacklisting It is recommend that further research be conducted into the recent blacklisting accusations and attempt to determine whether blacklisting schemes are in operation throughout the private housing sector (refer to memo 3) e) Reluctance to Change Reluctance to change is a phenomenon undeniably ingrained into the culture of the construction industry. Though it is recommended that further research be conducted to determine whether this phenomenon is a related to sub-contractors recognition of the LDEDCA 2009. f) Slow Up take to Adjudication - P1 also suggested there has been a slow uptake to adjudication (refer to memo 1). Therefore the author recommends further research be conducted in this area.

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5.5 Limitations of the Study

The limitations documented by the author throughout the period of research included; Firstly, the research project was conducted using the data collected from four participants. The author recognises the research findings were based on a small sample size and therefore may not be generalizable across the housing sector or construction industry. Secondly the author felt the word count seriously limited the potential of the study. This research project was carried out with four participants, though the author feels if the sampling range was extended to sample emergent theory then the word count would not have been sufficient to present the findings. Thirdly, closely linked to the matter of word count was the issue of time. The author is in working full time within the industry, which limits the time available to spend on core Grounded Theory methods such as theoretical sampling and coding. Fourthly, it soon became apparent throughout the interview process that the participants operated evenly within the private housing sector and commercial contracting sector. Retrospectively the author recognises that the validity and reliability of the data may have been distorted and reflects on the work Shenton (2004) to analyse the issue. Two methods of refinement Shenton (2004) suggests are the Random sampling of Individuals to serve as informants and triangulation (Shenton, 2004, p.65). Random sampling may have been utilised in the form of selective case studies which Is the utilisation of stakeholder opinion to develop a greater knowledge of a wider group. Shenton (2004) also suggests Triangulation, which is the use of different qualitative research methods. The adoption of questionnaires may have been utilised in order to validate the participants contribution to the research. Finally it is to be noted that the author is new to GT, and the methodological knowledge acquired to carry out such a study was obtained from literature. This raises two subissues; a) the authors capability and capacity to efficiently interpret the data and b ) that valuable time and effort may have been sapped from the study through learning the methodology.

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5.6 Recommendations for application of findings explored

The author hopes that this research project is valid evidence of a widespread problem across the construction industry, and its credentials would prompt some form of awareness and understanding scheme. This was considered a core emergent theory within the research project, and is a proposition Akintoye, Renukappa and Lal, (2011) also propagates.

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List of References
Adriaanse J., (2010). Construction Contract Law (3rd Revised edition). Palgrave. Akintoye, A., Renukappa, S., and Lal, H., (2009). Perception of the UK industry on the new 2009 Construction Act: An empirical Study. Construction and Building Research Conference (COBRA), September 12-13, University of Salford, Manchester, U.K. Almeida, H., Campello, M., and Weisbach, S., (2005). The Cash Flow Sensitivity of Cash. The Journal of Finance, Vol 59, Issue 4, pp. 1777-1804. Retrieved from: http://onlinelibrary.wiley.com Andrews, N., (2012). The Three Paths of Justice: Court Proceedings, Arbitration and Mediation in England. Springer: Cambridge Baker, C., Wuest, J., and Stern, P.N., (1992). Method Slurring: The Groudned theory / Phenomenology example. Journal of advanced nursing, 17(11), pp.1355-1360. Retrieved from http://onlinelibrary.wiley.com Bardham, A., Edelstein, R., and Kroll,C., (2011). Global Hosuing Markets: Crises, Policies and Institutions. New Jersey: Wiley Birks, M., and Mills, J., (2011). Grounded Theory: A Practical Guide. London: Sage Bloor, M., and Wood, F., (2006). Keywords in Qualitative Methods: A vocabulary of Research Concepts. London: Sage Publications Bone, J., and OReilly., (2010). No place called home: the causes and social consequences of the UK housing bubble. The British journal of sociology, Vol 61, issue 2, pp.231-225. Retrieved from: http://onlinelibrary.wiley.com Bradley, S., and Taylor, J., (1996). Human Capital Formation and Local Economic Performance. Regional Studies, Vol. 30, Issue 1, pp. 1-14. Retrieved from:
http://www.tandfonline.com

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