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

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