Financial Challenges Leading to Premature Contract Termination in Ghanaian Construction Industry: Causes and Mitigation Strategies

Abstract

This study examines the link between financial challenges and premature construction contract termination in Ghana’s construction industry. The study is grounded in Keynesian economics, which offers insights into the broader economic impacts of these financial challenges, and cash flow management theories, which help analyze the financial viability and liquidity issues that exacerbate these risks. Additionally, financial risk management models are employed to assess the risks related to banking disputes and economic instability, providing a comprehensive framework for understanding the financial difficulties contributing to contract termination. Employing a quantitative research approach, Data from 315 industry professionals revealed three key dimensions of financial challenges: Financial Integrity Risks (FIR), Financial Mismanagement and Economic Instability Risks (FMEIR), and Financial Risk Due to Banking Disputes and Instability (FRBDI). Structural equation modelling confirmed the robustness of the proposed model, highlighting the strong correlations between these financial risks and contract termination. The findings emphasize the need for proactive risk management and comprehensive contractual strategies to prevent contract disputes and ensure project viability. For stakeholders in the construction industry, this study underscores the practical importance of implementing rigorous financial risk management strategies. By enhancing project planning, fostering stakeholder collaboration, and ensuring robust contractual arrangements, the industry can mitigate the adverse effects of financial instability and improve overall project outcomes.