ANALYTICAL PROCESS LEADING TO FINAL COST DEFFERENTIAL OF
CONSTRUTION PROJECT IN NIGERIA: THE DEVELOPERS
PERSPECTIVE
By
1UGULU R.A. B.sc M.Sc (Const. Mgt), MNIQS 2IKWUOGU A. B.Sc M.Sc (Arch.)
1Department
of Quantity Surveying 2Dept. of Building Technology
Delta State Polytechnic, Ozoro, Delta State, Nigeria
ABSTRACT
Construction projects has a lot of activities associated with it, each
activity is again associated with a cost. In order to develop a strategy or plan
for successful construction project the most cost influential factors should be
determined and considered in making any decision. This paper discusses the
main issues leading to the final sum differential of construction of Building in
Nigeria. The research design for the study was an opinion survey research, is
that which questionnaire is administered face to face to the subject by either
researcher or his assistant. The completed questionnaires are either filled on
the spot and given back to the researcher or the researcher come back after
some days or weeks to collect them. A survey of Real Estate investors was
carried out. The survey included different factors affecting the construction
cost of residential Building Project and their degree of importance. The
severity of these factors where measured by the level of importance and
ranked according to the severity index. It was discovered that dispute on site,
previous experience, lack of coordination, extra-work shift and educational
level are the most sever issues. it was concluded that the recommendation if
implemented is expected to be an early warning device to both clients and
professionals as to the likely cost over-run they should expect on projects.
KEY WORDS:
INITIAL CONTRACT SUM, FINAL COST, COST DEFFERENTIAL,
CONSTRUTION PROJECT AND REAL PROJECTS DEVELOPERS
INTRODUCTION
The construction industry renders services which are needed for the
production of durable buildings and works, the industry is unique especially
when cognisance is given to the physical nature of the project; the structure
together with the organisation of the construction process, the demand; and
the method of price determinations. Construction projects refer to structures,
which are erected in accordance with the idea or design of the structures
already stated either in sketches, drawings, and directives or in mathematical
instructions to satisfy its purpose functionally, structurally and aesthetically
exhibit a skill and conditions which are already variable.
The products of construction project are Building roads, bridges, parks,
air-fields,
wharfs
and
myriad
of
other
structures.
Characteristically,
construction projects are unique, complex and time consuming undertaking.
As a matter of facts, no two are ever alike rather, each structure is tailored to
suit its environment, arranged to perform its own particular functions and
designed to reflect personal tasks and references. The actualisation of a
typical production of a construction industry commences with the client
conceiving the nature or likely type of the product he want.
These he
articulate in the form of a brief or user requirement and make available to the
design team. The design translate these users requirement into an initial
preliminary design and preliminary cost for the client’s approval after the
approval the design team then produces tender document with which after
other tendering processes and procedures resulting to the award of contract
for a contract sum (initial) to be completed at an agreed contract time. The
contractor proceeds to execute and complete the project according to the
contractual requirements.
THEORITICAL FRAMEWORK
INITIAL COST
The estimate stage involves the development of a cost and duration
estimate for the construction of a building as part of the proposal of a
contractor to an owner. It is the stage in which assumptions of resource
commitment to the necessary activities to build the building are made by a
planner. A careful and thorough analysis of different conditions imposed by
the construction project design and by site characteristics are taken into
consideration to determine the best estimate. The success of a contractor
depends upon this estimate, not only to obtain a job but also to construct the
building with the highest profit. The planner has to look for the time-cost
combination that will allow the contractor to be successful in his commitment.
The result of a high estimate would be to lose the job, and the result of a low
estimate could be to win the job, but to lose money in the construction
process. When changes are done, they should improve the estimate, taking
into account not only present effects, but also future outcomes exactly echoes
the estimate offered to the owner. (Hendrickson, 1998).
In the monitoring and control stage of the construction process, the
construction manager has to keep constant track of both activities durations
and ongoing costs. it is misleading to think that if the construction of the
building is on schedule or ahead of schedule, the cost will also be on the
estimate or below the estimate, especially if several changes are made.
Constant evaluation is necessary until the construction of the building is
complete. When work is finished in the construction process, and information
about it is provided to the planner, the third stage of the planning process can
begin. (Collier, 1974).
The evaluation stage is the one in which results of the construction
process are matched against the estimate. A planner deals with this
uncertainty during the estimate stage. Only when the outcome of the
construction process is known is he/she able to evaluate the validity of the
estimate. It is in this stage of the planning process that he or she determines if
the assumptions were correct. If they were not or if new constraints emerge,
he/she should introduce corresponding adjustments in future planning.
PRE-DESIGN COSTING
In pre-design stage, the approximate estimating method may often be
used in sequence on an individual scheme. Firstly, a unit cost estimate is
used for investigating the feasibility of the project, followed by an estimate
based on floor area at the sketch planning stages, and approximate quantities
for cost checking. The next estimate of cost produced by the contractor for
use in his tender is vital importance, since it forms the financial basis for the
contract and, as a by-product, provides all the cost information used by
surveyors. Nevertheless, despite the fact that the tender is based on an
accurate measurement of the items of work to be carried out, presented in the
standardized form required by the method of measurement, the calculation of
the rates is another form of approximate estimating (Clough,1972).
FINAL COST
The final contract sum, usually stated as the total on the summary of
account is determined after the adjustment of prime cost and provisional sum
items, re-measurement of provisional quantities, measurement of variations,
valuation of fluctuations and ascertainment of contract claims.
The express provisions under which the contract sum of a construction
project can be altered are normally stated in the conditions of contract Giwa
(1988) the quantifiable factors for the adjustment of the contract sum to obtain
the final account includes variations, re-measurement of provisional and prime
cost sums, fluctuation and claims. The bigger the project, the higher the
difference between initial and final cost of construction. As the project takes
longer to complete, effects of fluctuation are more pronounced especially in
an unpredictable and inflationary economy like Nigeria. Also, bigger projects
are more complex and hence attract more variations.
Hastily, Patel (2000) cited delays in sections and disbursement, time
taken in getting approvals from various government agencies, laid litigation,
water and power supply problems, non-availability of resources, infrastructural
constraints, failure of vendors and transporters, design changes in project
parameters, review of installed capacity faulty planning, labour problems etc.
as reasons for time and cost overruns. The attendant effects of these factors
on construction projects are not far fetched. Korgaonkar (1987), Pinto and
Priscott (1988) in unity agreed that they causes delay in time by which initial
investment is recovered by the business organisation partially the pay back
period.
Buckley (1996) and Helland (1993) agreed that delay in project
construction has many associated costs. They highlighted them as interest
on invested capital, overhead expenses:- like wages, salaries, insurance,
materials carrying cost etc., compensation to consultants and contractors,
loss of production due to delay and loss of competitive edge resulting in
control reports are pointer these cost overruns, particularly report on cost and
time. Reports on actual cost compared to budget are relatively methods of
investigating cost flows.
The interpretation of the cost report gives the
possibility that there exists the fact that actual costs are less than the
budgeted. In this light quality may have suffered. For this reason there must
be an independent way of estimating the cost requirements and this could be
misleading if the interpretation of cost performance is by mere comparison of
actual0 cost with which the required decision is taken will depend upon the
delegation of power in the project team. The most important is the speed and
quality of correction actions whenever the need arises as it affects the cost of
the initial contract sum to final cost.
RSEARCH METHODOLOGY
The research methodology was an opinion survey research. Also severity
index computation is used to rank the factors according to their significance in
affecting cost. It is illustrated by equation 1.0 below
( ∑ wi x fi) x 100% ………………………………. (1.0)
S. I. =
n
Where
i
=
represents the rating 1,2,3,4,5.
fi
=
frequency of responses
n
=
total numbers of responses
wi
=
weight for each rating
0
W1 = 1/5
W2 = 2/5
W3 = 3/5
W4 = 4/5
W4 = 5/5
RANKING
OF
PROCESS
FACTORS
BASED
ON
REAL
ESTATE
DEVELOPER RESPONSES
The ranking based on real estate developers and investors input is
shown in the table 1.00 below. The ranking of cost leading process on final
sum is done based on the severity. The severity index of each process is
determined by above mentioned formula and the results are tabulated below.
Table 2.00 Real Estate Ranking
REAL-ESTATE DEVELOPERS
Severity Index
COST FACTORS
5
100%
RANK
Disputes on site
4.4
88
1
Previous experience
4.2
84
2
Lack of coordination
4
80
3
Extra work and shift
3.8
76
4
Education level
3.8
76
4
High interest rates charge
3.8
76
4
Poor financial control on site
3.6
72
7
Mode of financing, bonds and payments
3.6
72
7
Cost of machinery
3.6
72
7
Level of competitors
3.6
72
7
Economic stability
3.6
72
7
time
3.6
72
7
Labour nationality
3.4
68
13
Contract management
3.4
68
13
Social and cultural impact
3.4
68
15
Design quality
3.2
64
16
Cost of material
3.2
64
16
Supplier manipulation
3.2
64
16
Climatic condition
3.2
64
16
Government policies
3.2
64
16
Inflationary pressure
3
60
21
Lack of productivity standard
3
60
21
Absence of construction cost data
3
60
21
Duration of contract period
2.8
56
24
Incorrect planning
2.8
56
24
Project location
2.8
56
24
Number of construction going at the same
Inadequate labour availability
2.6
52
27
Cost of labour
2.6
52
27
Contract procedure
2.6
52
27
High machinery maintenance costs
2.6
52
27
Material standard
2.4
48
31
Design change
2.4
48
31
foreign firms and aids
2.4
48
31
Currency exchange
2.4
48
31
Domination of construction industry by
FIG. 1.00 REAL DEVELOPER’S RESPONSE
For real estate developers the following were the top five factors:
Table 3.00 Real Estate Top Five causes of cost differentials
1 Disputes on site
4.4
2 Previous experience
4.2
3 Lack of coordination
4.0
4 Extra work and shift
3.8
5 Education level
3.8
SUMMARY OF FINDINGS
The study revealed the following findings as process leading to the final
cost differentials in construction project in Nigeria.
I.
Dispute on site: A reference to the research severity ranking showed
that dispute on site has very severe effect on the final cost of
construction projects in Nigeria.
2.
Previous Experience: The researcher discover from the ranking that it
have a very severe effect on the final cost of construction projects.
3.
Lack of Co-ordination: A reference to research ranking showed that it
have a very severe effect on the final cost of construction projects.
4.
Extra work and shift: The researcher discovers from the ranking that it
has very severe effects on the final cost of construction projects.
5.
Educational level: It was discovered from the ranking that it has very
severe effect on the final cost of construction project.
CONCLUSION
The actualisation of a typical production of a construction industry
commences with the client conceiving the nature or likely type of the product
he want. These he articulate in the form of a brief or user requirement and
make available to the design team.
The design translate these users
requirement into an initial preliminary design and preliminary cost for the
client’s approval after the approval the design team then produces tender
document with which after other tendering processes and procedures
resulting to the award of contract for a contract sum (initial) to be completed at
an agreed contract time. The contractor proceeds to execute and complete
the project according to the contractual requirements.
RECOMMENDATIONS
1.
Since housing and infrastructure are basic necessity of a man
government should reduce bureaucracy, provide the enabling environment
that will encourage private participation in the provision of housing project.
2.
Government should ensure that the standard and policies relating to
the construction industry are implemented to the latter by awarding contracts
to firms with previous experience so as to minimize costs associated with poor
quality jobs.
3.
The government should develop a long term and short term strategic
Plan in order to achieve the success in the construction project. The
Implementation of this plan is also equally important.
4.
Government should strongly enforce the aims and objectives of public
procurement Act 2007 as a way of eradicating desperate political contractor
who summit contract sum (initial) that is not capable of delivering the project
when selected, the project suffer because during construction the contractor
will be submitting several claims that will lead to delay. High cost of
completion and even abandonment.
5.
Government should improve the training of technical people by
developing technological and engineering institutes all over the country as
away of improving level of education in Nigeria.
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