AN ASSESSMENT OF CONTRACTOR’S RISK RESPONSE MEASURE ON CONSTRUCTION PROJECT IN NIGERIA

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AN ASSESSMENT OF CONTRACTOR’S RISK RESPONSE MEASURE ON CONSTRUCTION PROJECT IN NIGERIA

 

CHAPTER ONE:

 INTRODUCTION

THE RESEARCH STUDY

1.0    Chapter Introduction

This chapter presents an outline of the research with discussions centred on the background of the study, the Nigerian construction industry, the research problem, the purpose of the study as well as the research questions to be answered. The discussion of the research objectives, the methodology and the research scope and motivation are also presented. The chapter concludes with a summary of how the thesis was structured.

 

1.1  Background of the Study

Buildings have been considered as one of the most valuable assets of a nation to provide people with shelter and facilities for work and leisure (Lam, Chan and Chan, 2010). Building construction projects are some of the most dynamic, risky and complex endeavours (Kangari, 1995; Mills, 2001). Building construction projects which are associated with housing, offices, hospitals, factories, churches etc. are unique and built only once. Consequently, the construction industry plays a key role in the economy of any nation, more so in a developing country like Nigeria. It is a vital contributor to the gross domestic product (GDP) growth and produces the built environment that supports other sectors of the economy in most part of the world (Oladapo, 2015; NELF, 2013). According to the Frontier Market Intelligence report (2012), the Nigerian construction industry experienced a growth rate of 20% between 2006 and 2007 and 13.1% between 2008 and 2012. The report however, highlighted that building construction in Nigeria accounted for 1.33% GDP in 2012 which is below the world average benchmark for 9% of GDP. This result leaves a huge room for growth in the construction of buildings across all sectors of the economy in Nigeria.

 

An overview of the traditional building construction process can be explained in four simple stages: conceptual design, construction, operation and maintenance. John et al (2005), explain these stages accordingly: conceptual stage comprises the client brief, the initial model of building and designs of services. They have to be agreed, before proceeding to the design stage proper where details of concepts are expanded and solutions derived. Each of the involved party (e.g. clients, architects, engineers and quantity surveyors, etc.) will produce the required information about the designs that can be passed onto the next stage. In the construction stage, contractors will make use of this information and, on completion of the building the operation and maintenance requirements of the building will come into action. This is when the building will be managed and maintained, by either the estate department or facilities management team.

 

However, the passage from one stage to another is not all “smooth-sailing”, but is fragmented, complicated, risky and uncertain (Arayici, Egbu and Coates, 2012; John et al, 2005). The cost of risk is a concept many construction companies have never thought about despite the fact that it is one of the largest expense items (Cavignac, 2009). Risk management helps the key project participants – client, contractor or developer, consultant, and supplier – to meet their commitments and minimize negative impacts on construction project performance in relation to cost, time and quality objectives (Banaitiene, Banaitis and Norkus, 2011). The presence of an effective and efficient construction risk management function will enhance the successful completion of building construction projects and thereby make the project more profitable. On the contrary, the absence of an effective risk management process has several negative consequences for participants in a building project due to lack of preventive action against the risks and uncertainty that any project presents (Serpella, Ferrada, Howard and Rubio,2014).

1.2  Nigerian Construction Industry

Nigeria, officially referred to as the Federal Republic of Nigeria, is a country in West Africa that shares land borders with the Republic of Benin in the West, Chad and Cameroon in the East, Niger in the North and borders of Gulf of Guinea in the South and the Atlantic Ocean (Internet World Stats, 2009). Nigeria consists of 36 States plus a Federal Capital Territory, while since 1991 the country’s capital has been centrally located in the city of Abuja.

 

The construction industry in developing countries like Nigeria can be categorised into two main groups as reported by Dantata (2008). This includes the organised and unorganised sector of the construction industry. The organised or sometimes called the formal sector of the construction industry constitute of all legally registered companies in the country that carry out organised construction projects with a combination of highly skilled expatriates and labourers. It is however evidenced that foreign construction companies dominate this construction market sector in developing countries most especially in Nigeria and most often, import equipment, materials and evenlabour(NELF,2013).Thisconstructionsectoroperatesundersetsofrulesand

 

 

regulations, including adherence to national laws on employment, procurement, and tendering (Dantata, 2008). On the other hand, the unorganised or informal sector of the construction industry for which no accurate or reliable data is available on, comprised of simple residential building and similar structures built by private citizens and constructed through the effort of gangs of artisans and labour, hired mainly using multiple prime method of construction like the owner supervised construction (Dantata, 2008).

 

However, construction works in developing countries suffer from administrative and allocative inefficiencies because of the lack of a sound management framework especially among those affecting public procurement (The World Bank, 1984). The construction industry is not shaped to respond quickly to the needs of the clients which in most cases take far longer than expected and frequently fail to meet the technical performance of construction project. At the same time, distortions in prices and the rationing of materials and other inputs tend to cause allocation inefficiencies which make the works in hand economically more costly than they should be (The World Bank, 1984). The inadequate growth of construction capacity most especially the capacity to manage construction risks in developing countries is a problem the public and private sectors need toface.

 

1.3  Statement of Research Problem

Economic growth and socio-economic development are particularly important for developing countries; and the construction industry plays a central role in driving both of these. However, building construction projects have been identified as one of the most dynamic, risky and complex endeavors (Kangari, 1995; Mills,2001).

 

A large number of building construction projects in developing countries suffer from many setbacks in terms of completion of the project at stipulated time, cost overruns  and quality problems. These setbacks are often responsible for turning profitable projects into loosing ventures (Sweis, Sweis, Abu Hammad and Shboul, 2008). An example of the poor performance of building construction projects can be found in the Nigerian construction industry. According to Olusegun and Michael (2011), about 4000 uncompleted projects belonging to the Federal Republic of Nigeria with an estimated cost of over 300 Billion Naira (almost £1bn), will take 30 years to complete at the present execution capacity of the government. The failure to achieve targeted time, budgetedcostandspecifiedqualityresultinvariousunexpectednegativeeffectson

 

 

building construction projects and thereby, has an appalling effect on the construction sector in particular to the national economy as a whole (Olusegun and Micheal, 2011).

 

An investigation carried out by Odeyinka and Yusuf (1997) shows that seven out of ten projects suffered delays and continuously failed to achieve the project goal of time, cost and quality, etc. Table 1.1 shows an inventory of failed projects in Nigeria.

 

Table 1.1: Inventory of abandoned projects in Ondo State of Nigeria

Source: Adesina, (2010)

 

 

Project titleLocation of siteContract sum

(Naira)

Year of commencem

ent

Year of completionExpected duration of

contract

AOndo-Akure500m1985Not completed12 months
BOba Ile10m2001Not completedUnknown
CAlagbaka

Akure

15m2003Not completedUnknown
DAkungba

Akoko

11.52008Not completedUnknown
EAlagbaka

Akure

738m2008Not completed10months
FKe         Aro

Akure

11.5m2008Not completed6months
GKungba

Akoko

14m1999Not completed24months
HIju-

Itaogbolu

3m2004Not completedUnknown
IIyere Owo11.5m2008Not completed6 months
JOwo17m2007Not completed18months
KOkitipupa800m2007Not completedUnknown
LOde-Ekitan

Ilaje

10m2008Not completedUnknown
MOde-Ekitan

Ilaje

8m2008Not completedUnknown
NOde Aye11.5m2008Not completed6months

 

Okuwoga (1998) in his report showed that the performance of the building construction industry in Nigeria has consistently been a source of concern to both public and private sector clients. The results of the study carried out on 42 building projects executed by the Federal Government of Nigeria through the Federal Housing Authority, Ogun State Housing Corporation, Oyo State Ministry of Works and Housing, and Lagos State Property Development Corporation (LSDPC) shows that at the pre-contract stage of these projects, budgeted sums showed systematic under estimation of project costs, this was about 17% lower than realistic estimate. In addition, the time lag between the realistic estimate and actual commencement of contract accounted for some 12% underestimation.Accordingly,atthepost-contract stage,the analysis showed that cost performance of sample projects, indicated overruns, of 15% for the first quarter of the sample, 20% for the first half and 30% for the first three-quarters. A further analysis of some of the projects based on cost components showed that works clearly defined in nature and scope before contract (measured work) accounted for about 50% of the total cost overruns, and works for which nature and extent could not be clearly defined, but fairly estimated (provisional sums), accounted for about 15% cost overrun.

 

Consequently, Oyewobi, Ibironke, Ganiyu and Ola-Awo (2011), pointed out that cost and time overruns have become a cankerworm within the Nigeria construction industry today as well as lack of good quality work of its end product, which do not provide many of the clients’ value for money. Construction projects in Nigeria are known for overshooting their initial cost budget, which invariably means it is out of initial time schedule (Ogunsemi and Aje,2005).

 

To address this challenge, risk management has become an important part of the decision-making process in construction industry – as it determines the success  or failure of construction projects (Abujnah and Eaton, 2010). Good decisions are made against a predetermined set of objectives based on knowledge, data, and information; whereas decisions that are made without a logical assessment of project-specific criteria may lead to difficulties in project delivery (Abujnah and Eaton, 2010). As a result, risk and uncertainty can potentially have damaging consequences for all building projects. The ineffective handling of risks can be damaging not only to the contractor, but also to the project as a whole. Risk can affect productivity, performance, quality, and the budget of a project. Risk sometimes cannot be eliminated, but it can be minimized, transferred or retained (Smith, Merna, and Jobling,2006).

However, failure in managing risk may not be peculiar to Nigeria alone, but may be reasonably justified for most developing countries.

1.4  Research Questions

As a result of these issues identified in section 1.3, the following research questions have been formulated. These are;

  1. What is the level of understanding and the degree of implementation of risk management by the construction sector in developing countries?

 

  1. What are the key critical risk factors associated with building construction projects in developing countries and what level of awareness do project manager shave?
  • Are there any existing risk management measures that are being utilized to manage risk factors in building projects and how successful have these been applied?
  1. Is there a cost effective risk management model that guides companies in the construction sector in developing countries to identify, analyse and manage risk in their business environment?

1.5  Purpose of the Study

Based on the research questions and the aforementioned issues, the primary aim of this research therefore, is to establish a system which will help improve the performance of building construction projects in developing countries, without cost and time overruns while achieving optimal quality, through a comprehensive risk management model that ensures the expectations of clients are met.

1.6  Research Objectives

To successfully answer the research aim as stated in section 1.5, measurable research objectives have been developed. They are;

 

  1. To recognise the relevant literature on the current level of building construction project performance in terms of cost, time and quality.
  2. To identify through data collection the major risk factors that have significant effect on building construction project performance in developing countries.
  • To develop a robust user friendly risk management model that achieves a systematic and structured assessment and management of risk within building construction projects in developing countries with a view to enhancing client satisfaction and project completion without cost and time overruns.
  1. To validate the model using data from live building construction projects.

 

1.7  Research Methodology

The research methodology is the systematic and orderly steps taken towards the collection and analysis of data (Collis and Hussey, 2003). The research follows a mixed methods approach and involves four main stages as follows:

 

 

  1. A review of the literature to establish the knowledge gap in construction risk management.
  2. Development of a questionnaire targeting the building construction sector in a developing country to acquire data on critical risk factors affecting their business operations.
  3. Apply modelling and simulation techniques to understand how the risk factors affect performance. The Bayesian belief network is adapted to model risk assessment/management in building construction environments.
  4. The exploration of two case studies involving interviews with project managers within construction organisations used to validate the survey and Bayesian belief network model outcomes.

1.8  Research Scope and Motivation

The research scope and motivation for undertaking the research are summarized in the following section

 

1.8.1              Research Scope

The scope of this research focuses on building construction in Nigeria. The research investigates the degree of implementation of risk management in building construction projects and further identifies key risk indicators that have significant effects on building construction projects. The research also evaluates the measurement of the likelihood of the risk event and the impact caused on building project performance. The research concentrates on building projects since they are considered as one of the most valuable assets of a nation, which provide people with shelter and facilities for work and leisure. The term “risk” in this research is referred to the negative consequences of the unforeseen event which is usually called threat.

 

1.8.2              Research Motivation

  • There is, currently, a huge shortage of housing units in Nigeria. As a result, the Federal Government of Nigeria in 2013 launched the Nigeria Mortgage Refinance Company (NMRC), signalling the beginning of a process that would finally increase opportunities for building construction projects to realise its great potential for the good of the country. However, the Nigerian construction industry is concerned to recognise the main causes of poor project performance of their previous projects.

 

  • The output of building construction enterprise in Nigeria is usually characterised by poor quality work, cost and time overruns. These characteristics originate because a number of risk factors have not been taken into consideration in the project planning and implementation stage. Hence, to address this challenge, a risk management system based on a systematic and structured assessment to support building construction projects is essential.
  • The recent development of the Nigeria Mortgage Refinance Company (NMRC) creates an opportunity for international companies to invest in building projects in Nigeria. However, these foreign enterprises have no previous knowledge of the Nigerian construction environment. Therefore, this research is intended to provide a comprehensive model to help participants understand the main threats they might face.

 

1.9  Significance of Study

The construction industry in Nigeria provides infrastructural, economical and affordable housing for the Nigeria economy. Oladapo (2015) reports the industry has had a rapid and steady growth rate in the past two decades and also has one of the highest rates of expansion more than any sector of the Nigerian economy. As a result, there is urgent need for development of risk management systems for building construction projects. This political and economic instability bring opportunities for the researcher to develop an effective risk management technique to cope with risk associated with building construction activities and to implement building projects in line with defined project objectives of time, cost and quality. This risk management system will motivate stakeholders’ in terms of effective risk management and risk response development strategy. The findings will guide construction organisations in Nigeria and developing countries, particularly construction practitioners to abandon inappropriate risk control processes and implement better practice. It will further improve and open a new area of risk management research.

 

1.10      Structure of the Thesis

The thesis consists of eight chapters, each having an introduction and summary. The design of the chapters is intended to capture the flow of information about the key issues. Hence, each chapter leads into the development of an important part of this work. The structure of the thesis is illustrated in figure1.0.

 

Chapter One: “Introduction” presents the background to the research problem, research aim and objective. In addition to the research scope and motivation, this chapter highlights the significance of the study. Finally, the research methodology provides the necessary steps for conducting this research. The thesis structure is also provided.

 

Chapter Two: “Construction Risk Management” presents an extensive literature review covering issues such as delay risks, causes and effects, and control measures. In addition, this chapter will examine the construction-related professional institutions frameworks to gain an understanding of the essential steps required for successful risk management.

 

Chapter Three: “Construction project performance, Risk Breakdown Structure and Risk Acceptability Matrix” presents a critical reflective evaluation on literature review on the causes of cost overruns, time overruns and quality problems in construction projects. Therefore, a list of risk factors that contribute to construction delay in developing countries will be assembled. Consequently, a risk breakdown structure (RBS) will be derived. Examining the construction-related professional institutions frameworks identifies the existing tools and techniques utilized for qualitative risk analysis. Thus, a risk acceptability matrix (RAM) will be developed.

 

Chapter four: “Research Methodology” adopted to execute the study is detailed. This involves a discussion of the research process and design, the sampling associated with the empirical work, and the way in which data was collected. Issues concerning the validity and reliability of the study and the code of ethics adhered to in carrying it out are also discussed.

 

Chapter Five: “Questionnaire Analysis” this chapter presents the first part of data analysis that deals with the quantitative data analysis. It illustrates the results of different sections of the questionnaire in tables and diagrams and provides explanations for each.

 

Chapter Six: “Application of The Bayesian Belief Network in Building Construction Projects” this chapter presents a BBN model to support risk management for building construction projects. The Bayesian belief network is used for knowledge representation and reasoning under conditions of uncertainty.

Chapter Seven: “Case Study: Validation” this chapter describes the validation process  of the BBN model and the methodology adopted for validation procedure. As a result of the findings, a best practice risk management system was developed for building construction projects in Nigeria.

 

Chapter Eight: “Conclusion and Recommendation for Future Research” this final chapter, presents the conclusions of the research. It closes the thesis by providing answers to the research questions, including the achievement of the research aim and objectives as they were initially formulated. Subsequently, the chapter highlights the contributions made to existing knowledge and practice in construction risk project management. It further outlines the limitations of the research and also suggests  possible recommendations for construction industry practitioners, and some recommendations for future research.

AN ASSESSMENT OF CONTRACTOR’S RISK RESPONSE MEASURE ON CONSTRUCTION PROJECT IN NIGERIA

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