Effect of Expedited Payments on Project Delays: Evidence from the Quickpay Reform

42 Pages Posted: 17 Jul 2023

See all articles by Vibhuti Dhingra

Vibhuti Dhingra

York University - Schulich School of Business

Volodymyr Babich

Georgetown University - McDonough School of Business

Harish Krishnan

University of British Columbia (UBC) - Sauder School of Business

Jie Ning

Case Western Reserve University - Weatherhead School of Management

Date Written: July 7, 2023

Abstract

Contractors are usually not paid immediately after an invoice is submitted. Such payment delays affect the value of projects to contractors, their financing costs, decisions about project sequencing and acceptance, as well as competition among contractors. We study how these consequences of project payment delays translate into projects delays. We develop theories about the link between the two delays and test the corresponding predictions using the U.S. government's project data, taking advantage of an exogenous shock from the QuickPay reform that expedited payments to certain federal contractors. We find that, surprisingly, faster payments led to greater project delays. Compared with the pre-reform delay rate per quarter, there is a 26% increase, on average, in delay rate for projects subject to the reform. Both the likelihood of a project delay and the expectation of the delay magnitude conditional on it being positive are significantly higher for the affected projects after the reform. We present evidence indicating that project delays can be explained by liquidity constraints of the contractor, and by competition among contractors. We identify other factors that moderate the effect of QuickPay. For example, the delays are not as severe if a treated project is in the same portfolio with projects that do not receive faster payments, or if it is at an early stage in its life. We show that the delay is not caused by contractors taking on more projects in response to the reform.

Keywords: Government procurement, Payment timing, Interface of OM and finance, Empirical operations management, Project management

JEL Classification: G, M

Suggested Citation

Dhingra, Vibhuti and Babich, Volodymyr and Krishnan, Harish and Ning, Jie, Effect of Expedited Payments on Project Delays: Evidence from the Quickpay Reform (July 7, 2023). Georgetown McDonough School of Business Research Paper No. 4503894, Available at SSRN: https://ssrn.com/abstract=4503894 or http://dx.doi.org/10.2139/ssrn.4503894

Vibhuti Dhingra (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

HOME PAGE: http://vibhutidhingra.com

Volodymyr Babich

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Harish Krishnan

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Jie Ning

Case Western Reserve University - Weatherhead School of Management ( email )

Department of Operations
11119 Bellflower Rd
Cleveland, OH 44106
United States

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