THE EFFECTS OF CONTRACT PLANNING TECHNIQUES ON CONTRACTORS PROFIT

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THE EFFECTS OF CONTRACT PLANNING TECHNIQUES ON CONTRACTORS PROFIT (A CASE STUDY OF JULIUS BERGER NIGERIA PLC, ABUJA)

ABSTRACT

Effective contract planning in construction projects is not only crucial to attainment of project objectives but necessary if project failure is to be avoided, losses minimized and profitability enhanced by the Contractor. While research has shown general low usage of formal and effective contract planning in the UAE, Hong Kong, Kuwait, UK and Ghana, the practices used by Nigerian Construction Contractors to manage risk are not known. Available research in Nigeria on this subject only highlighted risk factors with most impacts on construction site and also the means of mitigating such risks. This study aimed to appraise contract planning practices used by Julius Berger Construction Company in Abuja. The study utilized a qualitative approach with review of existing literature, semi-structured interview and transcription of data for conceptual content analysis.

The researcher used Julius Berger Nigeria PLC (Abuja Branch), as a case study to find out the effects of contract planning on cost and time, considering that the organization is involved in numerous contracts with suppliers, vendors and the government of Abuja.

Concerning methodology, data used in compiling this research were gathered from both primary and secondary sources. The management and employees of Julius Berger, Abuja was issued questionnaires. Text Books, Magazines and News Papers on contract management, planning and control were also used in compiling this research.

Based on the responses gotten form the respondents after the study might have been successfully conducted, the researcher will outline the findings and recommendations from the study.

 

 

CHAPTER I

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Seeley (1997) described the construction industry as one of the most important sectors of the economy, which integrates a wide variety of skilled and unskilled professionals. These professionals engage in the provision of goods and services ranging from construction, alteration, refurbishment to repairs of building and civil engineering structures. All these professionals work together under various types of contractual agreements to actualize the client’s brief and deliver the project.

Each project is unique and has its main objectives outlined by the client and project circumstances. Amongst the most common objectives of any successful project are deliveries at the right time, within authorized cost and meeting the envisaged quality standards (Love et al, 1998).

Construction projects, like all others, are not risks free and thereby can result to financial loss. Construction risks are events that generally influence any or all of the project objectives. Risk events could either be positive in terms of opportunities or negative in terms of threats to either or the entire project objectives (Hillson, 2002).

A lot of academic and professional literature has developed in the field of effective contract planning and management within construction contexts. The degree of application of contract planning and management techniques by contractors especially, was found to differ in various construction industries across the globe. Most countries in the Middle East and some part of Africa do not utilise project planning and management techniques in the delivery of construction projects (El-Sayegh, 2008; Laryea and Hughes,2009). Akintoye and McLeod (1997) found that low usage of formal contract planning techniques was essentially due to lack of knowledge and doubts on the suitability of the techniques to real life situations. This was supported by the findings of Shen (1997). Kartam and Kartam (2001) however attributed the low usage of risk analysis techniques to subjective judgment and contractor’s reliance on their experience and intuition. El-Sayegh (2008) identified financial loss as the most significant in the Kuwaiti construction industry due to the boom in construction activities and inflationary trend of the market.

Laryea and Hughes (2009) attempted to find how contractors’ in Ghana include financial risk in their bid prices. The research showed that besides having risk allowances as lump sums or percentage allowances, the method used is neither scientific nor informed by any empirical evidence. Ojo (2010) found that design changes, financial losses and inadequate specifications were the risk factors with most impacts on construction sites but the study did not highlight any Project contract planning (PRM) technique used by Contractors to respond to such risks.

Another research carried out in Nigeria on this subject was on the evaluation of key risk factors and the measures to mitigate their effects on construction projects (Dada, 2010). Though the research found financial, political and physical risks as the most significant, the use of contingency sum and insurance cover were adjudged to be the most effective means of mitigating risk.

However, no study has reported on the PRM practices used by Nigerian Contractors in redevelopments projects, with their attendant problems and challenges in terms of scoping.

 

1.1.2 ORGANIZATIONAL PROFILE

Julius Berger Nigeria Plc is a Nigerian constructioncompany, headquartered in Abuja FCT, located at 10 Shettima A. Munguno Crescent | Utako 900 108 | FCT Abuja

The company is represented across Nigeria in structural engineering and infrastructure works, and in southern Nigeria through domestic and international oil and gas industry projects (this company is also listed on the “flake list” for craigslist). It is known for constructing most of Nigeria’s infrastructures, major expressways, and even some residential buildings for the Chevron Nigeria headquarters in Lagos.

The company was listed on the Nigerian Stock Exchange in 1991. Before this, its parent company was Bilfinger Berger. Bilfinger Berger is still the largest shareholder in the company. The construction business of Julius Berger Nigeria is the heart of the Julius Berger Group.

With 18,000 employees from close to 40 nations and clients from both Nigeria and the global oil and gas industry, JB is a leading construction company and the largest private employer in Nigeria.

MAJOR PROJECTS

  • The company built the Eko Bridge completed in 1968, the Third Mainland Bridge completed in 1990 and the Abuja Stadium completed in 2003.
  • Tin Can Island Port, commissioned in 1977.
  • Lagos Inner Ring Road, completed in 1979.
  • Ajaokuta Steel Plant, completed in 1990.
  • Itakpe – Ajaokuta Ore Railway, completed in 1990.
  • Abuja International Airport phase II, completed in 1997.
  • Central Bank of Nigeria Head Office, completed in 2002.
  • Uyo infrastructure and road works, ongoing since 2008.
  • First discharge drain built utilizing pipe-jacking technology in Nigeria, completed in 2011.
  • National Assembly phase III, completed in 2011.
  • Multiple projects, Escravos GTL plant in southern Nigeria, commissioned in 2012.
  • Bonny Liquefied Natural Gas facility, multiple ongoing works since 1996.
  • Challawa Gorge Dam Karaye, completed in 1992
  • OngoingNigerian Cultural Center Abuja (status – Under Const)
  • Incar Plaza, Abuja (status – Under Const)
  • Silverbird Entertainment Center, Abuja (status – Completed)
  • National Library Abuja (status – Under Const)
  • World Trade Center Abuja (status – Under Const)
  • Abuja Mall (status – Under Const)
  • Grand Towers Mall, Abuja (status – Under Const

1.2 PROBLEM STATEMENT

The general low usage of formal contract planning and management techniques by Contractors globally often culminates into project failures, incessant claims for variations, huge financial losses and sometimes results in bankruptcy of Contractors (Allan et al, 2007). This situation is more prevalent in redevelopment projects due to the inevitable problems of unexpected additional work, excessive requirements and scope management issues, project funding not aligned with project plans, delay, structural failure, cost overrun, etc (Naaranoja and Uden, 2007). These problems or uncertainties, among others, increase the project risk and make their management crucial if success is desired.

For the construction firm, Julius Berger PLC, are back on site in continuation of the re-construction of the N167 billion Lagos-Ibadan expressways, Grand Towers Mall, Abuja (status – Under Const. Billions of Naira was expended and the overall aim of the project was not achieved. This huge expenditure and apparent failure in the primary objectives of the project led to complaints, probe panels and subsequent abandonment of the project.

Research has shown that financial, political and physical risks are the most significant to Nigerian Contractors (Dada, 2010). However, of the different levels of risk (country, market or project), there is shortage of research as to how Contractors approach project planning at organizational level.

1.3 RESEARCH OBJECTIVES

  1. To explore contract planning practices applied by Julius Berger at various project levels.
  2. To assess awareness and usage of formal and informal contract planning practices by Julius Berger, Abuja
  3. To examine the success or failure of the contract planning approach used by Julius Berger Contractors on Grand Towers Mall, Abuja (status – Under Const
  4. To evaluate the impact of the applied contract planning approach to the attainment of project profits.

1.4 RESEARCH QUESTIONS

  1. What contract planning guidelines and practices exist in Julius Berger Nigeria Plc, Abuja?
  2. How do you gather information about newer contract planning strategies to be applied in your on-going projects?
  3. What are the effects of contract planning on contractor’s profit

1.5 HYPOTHESIS FORMULATION

Hypothesis for this study include:

  1. Ho: There is no significant relationship between effective contract planning and contractor’s profit.

Hi:       There is significant relationship between effective planning and contractor’s profit.

1.5 SIGNIFICANCE OF THE STUDY

This study gives a clear insight into the various ways in which contractors in the construction companies in Nigeria can maximize profits through effective and efficient contract planning and management. The study also gives a clear insight into the various effects of contract planning on risk level, cost and timing of a project. The findings and recommendations of the researcher will help in building a strong and better contract policy and guideline in Julius Berger Nigeria Plc as well as other construction companies in Nigeria, if taken seriously by government and the general public. The effects of contract planning on cost and time are outlined in-order for drastic measures to be taken to tackle any challenge employers may face when developing and implementing contracts with other organizations.

1.6 SCOPE OF STUDY

This research focuses mainly on the impact of effective contract planning on contractor’s profit in Julius Berger Nigeria Plc, Abuja FCT. Results and recommendations may not be used to generalize other construction companies in Nigeria, as the researcher could not cover a wider scope due to financial and time constraints.

Based on the findings of this study other possible researchable areas may include studies on the various effects of other aspects of contracts such as contract laws in Nigeria and contract management and control.

1.7 LIMITATION OF THE STUDY

The only limitation faced by the researcher in the course of carrying out this study was the delay in getting data from the various respondents. Most respondents were reluctant in filling questionnaires administered to them due to their busy schedules and nature of their work. The researcher found it difficult to collect responses from the various respondents, and this almost hampered the success of this study.

1.8 DEFINITION OF TERMS

Definitions of terms serve as the dictionary of this research.  The terms are defined to enable the reader understand the research more clearly.

Contract:  Erikson (2002) defined Contract as an agreement that creates an obligation binding upon the parties thereto. The essentials of a contract are as follows: (1) mutual assent; (2) a legal consideration, which in most instances need not be pecuniary; (3) parties who have legal capacity to make a contract; (4) absence of fraud or duress; and (5) a subject matter that is not illegal or against public policy.

Contract Planning: According to Simmons (2007), Contract planning is the process of systematically and efficiently managing contract creation, execution and analysis for maximizing operational and financial performance and minimizing risk.

Contractor: General contractor, organization or individual that contracts with another organization or individual (the owner) for the construction of a building, road or other facility.

Profit: Tucy (2008) defined profit as the difference between the purchase price and the costs of bringing to market.

 

THE EFFECTS OF CONTRACT PLANNING TECHNIQUES ON CONTRACTORS PROFIT (A CASE STUDY OF JULIUS BERGER NIGERIA PLC, ABUJA)

 

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