Project Management

Project Management Contracts With Delayed Payments

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Executive Summary

When managing projects with considerable uncertainty such as those arising in construction, defense, and new product development, it is customary for a manufacturer (project manager) to offer contracts under which each supplier (contractor) receives a pre-specified payment when she completes her task. However, there are recent cases in which the manufacturer imposes "Delayed payment" contracts under which each supplier is paid only when all suppliers have completed their tasks. By considering a model of one manufacturer and n ?? 2 identical and independent suppliers with exponential completion times, author analyzed the impact of both a delayed payment regime and a no delayed payment regime on each supplier's effort level and on the manufacturer's net profit in equilibrium.

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