Faster Payments, Slower Progress? Evidence from the QuickPay Reform

Information Systems and Operations Management 

Intervenant: Volodymyr Babich (Georgetown University)

Salle Bernard Ramanantsoa

Abstract :

Contractors are usually not paid immediately upon submitting an invoice. Such payment delays reduce the value of projects to contractors, tighten their liquidity constraints, and affect decisions about project acceptance and sequencing, as well as competition among contractors.  We examine how payment delays affect project progress relative to its planned schedule. We develop several hypotheses linking payment delays or payment acceleration to project schedule progress and test them using the U.S. government's project data. Our identification strategy relies on an exogenous shock: the QuickPay reform that accelerated payments to certain federal projects. Surprisingly, our results show that faster payments led to slower schedule progress on these projects. We measure project schedule progress using the percent delay rate, which quantifies the extent to which a project falls behind schedule each quarter. Compared with the pre-QuickPay delay rate, the delay rate for projects subject to the QuickPay reform increased by 0.99 percentage points (a 26% increase), on average. The likelihood of a positive quarterly delay rate on affected projects increases by 0.26, and the expected delay rate, conditional on it being positive, increases by 30 percentage points. We show that contractors' liquidity constraints and competition further increase the delay rates for treated projects after QuickPay. In contrast, a treated project does not fall behind schedule as much when it is in the portfolio with projects that do not receive faster payments or when it is at an early stage in its life. By revealing how accelerating payments can affect operational performance, our work contributes to a more nuanced understanding of how to manage project schedule progress in both public- and private-sector projects.