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Cost Overrun Factors

FEATURED PAPER

An Investigation of the Effects of Cost Overrun Factors on Project Delivery Methods in Nigeria

1OKORE, O.L., 2AKPAN, E.O.P. and *3AMADE, B.

1Physical Planning Department
Auchi Polytechnic, Auchi, Edo State, Nigeria

2 Department of Mechanical Engineering
Akwa Ibom State University Ikot Akpaden, Mkpat Enin, Nigeria

*3 Department of Project Management Technology
Federal University of Technology, Owerri, Nigeria


ABSTRACT

The construction industry is an important sector of every economy the world over and as such it has its own peculiar problems, one of which is cost overrun. This study aims at investigating the effects of cost overrun factors on the various types of project delivery methods in Nigeria. Data for the study was elicited through questionnaires administered to experts and stakeholders in Edo and Delta States respectively. The questionnaire contained 32 cost overrun factors which were sub-divided into various groups according to their sources. Ninety six (96) of the questionnaires were sent to the respondents comprising 24 each from four groups that were randomly selected using the stratified random sampling technique. Descriptive and inferential statistics were both deployed in analyzing the data viz; fuzzy set analysis, analysis of variance (ANOVA) and earned value management (EVM) methodology. The study shows that a substantial relationship exists between project cost overrun and the delivery methods used in project execution in the study area. The results revealed that inaccurate cost estimates by cost estimators, changes in work scope by client and low price bidding by contractors top the list of major causes of cost overruns in Nigeria. The findings further revealed that the rate of project cost overruns was 45.56%, while the rate of project cost overruns lies between 30% and 58% of the total project cost. The results further revealed that the client is more prone to risk (65%) in Design Bid-Build (DBB) delivery method, while contractors are more prone to risk (54%) in Construction Manager at Risk (CMR) delivery methods; both clients and contractors bear 20% and 33% risks respectively in Design and Build (DB) delivery methods. The study concludes by recommending that government should discourage the use of Design-Bid-Build as the main official procurement method, and the need to adopt other viable alternative procurement methods that will protect the client from cost overrun tendencies.

Keywords: Cost overrun, contract types, construction project, delivery methods

  1. INTRODUCTION

In recent times, there have been efforts geared towards delivering projects on schedule and within the budget. However projects are accomplished with delays and cost that are far above the budgeted cost. Unlike other industries, the uncertainties which are inherent in construction projects are enormous. In contemporary times the nature, incidence and impact of risk in the construction industry has become a topic of discourse in recent times [1]. Therefore, the successful execution of construction projects and keeping them within the estimated cost depends on the procurement approach used in bidding, managing, and specifying a project [2].

In Nigeria, the conditions of contract as prescribed by the Federal Ministry of Works, states that no change to a contract sum can be made except it is provided for in the conditions of contract. Hence, for an increase in contract sum to be legal, it has to trace its roots to one or more of the contractual clauses. Risk allocation by contract clauses solely depend on the type of project delivery method adopted in project procurement [3],[4]

The initial stage of construction contract is usually characterized by high degree of imagination and abstraction; hence the client does not have the holistic view of the bottlenecks, before committing himself. Thus risks are important to the contractor as well as client and consultants in the industry. However the problems of risk assessment are complex and poorly understood in practice [5]. Hence, good risk assessment procedures are very necessary in order to measure the confidence level on an ongoing project and allowing the introduction of corrective measures and monetary contingencies so as to minimize the incidence of cost-overrun. This will increase the likelihood of the project being completed on schedule and within the budgeted cost estimate. Thus, the assessment process is very critical in order to make the best guess, which mostly is based on assumptions and expectations derived from the present knowledge for the future.

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About the Authors


Ogaga Linus Okore

Auchi Polytenic
Auchi, Edo State, Nigeria

 


Okore, Ogaga Linus 
obtained a B.Sc – Building from Ambrose Alli University, Ekpoma. Thereafter, he acquired an M.Sc – Project Management Technology from the Federal University of Technology, Owerri, Nigeria. Presently, he is undergoing a doctorate degree program in Construction Management at the Ahmadu Bello University, Zaira. He works with the Auchi Polytechnic Auchi as a Building Officer in the Physical Planning Department. He can be reached on adaitire@yahoo.com

 


Prof Edem O. P. Akpan, PhD

Akwa Ibom State University
Ikot Akpaden, Nigeria

 

 

Edem Okon Peter Akpan is a distinguished figure in the field of Project Management, Industrial Engineering and Information Technology. He is currently a Professor in the Department of Mechanical Engineering, Akwa Ibom State University Ikot Akpaden, Nigeria. He read and obtained a B.Sc in Management and Engineering Production from the University of Wales, Institute of Science and Technology, Cardiff and an M.Sc and a Ph.D in Aston, Birmingham and Bradford respectively. He has published widely both in the local and international journals and in recognition of this feat has since been honoured to join the editorial boards of International Journal of Production Planning and Control of Taylor and Francis London and the Journal of Construction Engineering and Management of the American Society of Civil Engineers (ASCE). He is a registered Engineer (COREN), Member Nigerian Institute of Production Engineers, Member Nigerian Institute of Industrial Engineers as well as a consultant to many organizations. Professor Akpan can be reached on eopakpan@yahoo.com

 


Benedict Amade, PhD

Federal University of Technology
Owerri, Nigeria

 

 

Benedict Amade is a Project Manager by Profession. He read and obtained a PhD (Doctor of Philosophy) Degree in Project Management Technology from the Federal University of Technology, Owerri, Nigeria. He is a member of the Project Management Institute (PMI) U.S.A. and presently lectures in the Department of Project Management Technology of the Federal University of Technology, Owerri, Nigeria for the past 8 years. His areas of research interest include construction project management, computer based project management and construction supply chain management. He has authored over 20 scientific publications in international refereed journals and is actively involved in other consultancy works. He can be reached on benedictamade@yahoo.com or benedictamade@futo.edu.ng