THE IMPACT OF PROCUREMENT SYSTEMS ON CONSTRUCTION COST AND DELIVERY

THE IMPACT OF PROCUREMENT SYSTEMS ON CONSTRUCTION COST AND DELIVERY

CHAPTER ONE INTRODUCTION 1.1 STUDY BACKGROUND

The construction industry is an essential part of many countries’ economic backbones (Ngai et al., 2002), accounting for 7-10% of the Gross Domestic Product (Winch, 1996, Voordijk et al., 2000). Furthermore, building products and methods have a significant impact on safety, health, and the environment (Bayliss et al., 2004). Because all humans in modern societies are immediately influenced by its operations and/or products, the significance of a well-functioning construction industry cannot be overstated (Cheung et al., 2001; Ngai et al., 2002; Eriksson, 2007). However, the construction industry has received criticism in many nations for inefficiencies in results such as time and cost overruns, low productivity, poor quality, and inadequate customer satisfaction (Latham, 1994, Egan, 1998, Ericsson, 2002, Chan et al., 2003). As a result, practitioners, researchers, and society at large have advocated for a shift in attitudes, behavior, and processes to boost the likelihood of successful construction projects and improved end products (Love et al., 2000; Dubois and Gadde, 2002). Construction projects’ increased complexity, uncertainty, and time constraints have raised the requirement for collaboration among project participants (Anvuur and Kumaraswamy, 2007). Relationships in the construction business have traditionally been particularly competitive and combative (Cheung et al., 2003), which is mostly owing to customary procurement methods possibly producing many issues at all levels of the purchase process (Eriksson and Laan, 2007). To take advantage of teamwork, procurement practices are one critical improvement area that can significantly contribute to project success (Cheung et al., 2003; Eriksson, 2007). However, changing procurement procedures is hampered by clients’ habitual behavior (Laedre et al., 2006). Although procurement procedures must be tailored to improve the achievement of various project objectives (Cox and Thompson, 1997, Love et al., 1998, Wardani et al., 2006), clients tend to select procurement procedures that they are accustomed to using, regardless of project differences (Laedre et al., 2006). It is critical to have a better understanding of how different procurement practices affect different areas of project performance in order to improve change. Previously conducted research in this area was limited to investigating how a single or a few unique procurement alternatives affect one or two project objectives. A holistic and systematic approach to procurement procedures is critical for successful construction project governance (Cox and Thompson, 1997, Eriksson and Pesämaa, 2007, Eriksson, 2008b). Because the construction management literature lacks a holistic view on the effect of procurement procedures on various aspects of project performance, this research endeavor intends to fill this theoretical vacuum, which has the potential to have significant practical repercussions. Various studies have confirmed the utilization of various types of procurement strategies in Nigeria for project delivery. Ogunsanmi, Iyagba, and Omirin (2003), Ojo, Adeyemi, and Fagbenle (2006), and Dada (2012) all confirm the use of traditional, design and build, project management, construction management, labor only, direct labor, and other types of procurements in the Nigerian construction industry. The employment of these procurement strategies can have a considerable impact on the performance of the majority of projects.

1.2 THE PROBLEM’S STATEMENT

The Nigerian building industry is built after the British system, which served as our colonial master, yet since independence in 1960, it has absorbed patterns from other European countries such as Italy, Germany, and France (Mansfield, 1994). This industry is critical for both employment and economic growth (Ogunsemi, 2004). The Nigerian construction industry accounts for about 70% of the nation’s fixed capital creation, according to the Federal Office of Statistics (FOS) (2004), but its performance within the economy has been and continues to be poor due to cost overruns that result in project abandonment. For example, the Nigerian construction industry has regularly contributed 1.0% to employment over the last decade, compared to the World Bank’s average observation of around 3.2% in poor nations (Idrus, 2008). The traditional design-bid-build procurement system is prevalent in the Nigerian construction sector, and this is likely to continue. Furthermore, the Nigerian construction sector includes clients, contractors, subcontractors, suppliers, and important professional players responsible for project design and monitoring. Architects, engineers (structural and services), and Quantity Surveyors are among the professionals. These professionals’ actions are governed by professional organisations. Project execution delays are a serious issue in the Nigerian construction industry. This happens in both small and large initiatives. Almost all projects completed in Nigeria over the years have had delivery delays; Odeyinka and Yusuf (1997) discovered that seven out of every 10 projects in Nigeria experience delivery delays. The Nigerian building industry is experiencing cost overruns. According to Ogunsemi and Jagboro (2004), one of the most important difficulties confronting the Nigerian construction sector is project cost overrun, with the attendant result of finishing projects at amounts more than the initial total. As a result, working with realistic project estimates is required at the commencement of project work to minimize ambiguity and build a foundation for project success. According to Idrus and Sodangi (2008), the recent decade has revealed a falling level of client satisfaction with built facilities as a result of poor quality performance, in addition to the persistent challenges of time and cost overruns in the Nigerian construction industry. Even though it contributes less than manufacturing or other service industries, Nigeria’s construction industry remains essential to the country’s economy. This industry is significant to the economy, and the products of its activities are critical to achieving national socioeconomic development goals such as job creation, social amenities, and infrastructure (Anaman, 2007).

1.3 THE STUDY’S OBJECTIVES

The primary goal of this research is to investigate procurement processes and their impact on cost control and delivery. The study’s specific aims are as follows: 1. To identify various procurement procedures typically utilized by quantity surveyors in Owerri.

2. To investigate the difficulties faced while using various procurement techniques for construction projects.

3. To investigate the effect of procurement systems on building costs.

1.4 QUESTIONS FOR RESEARCH

The following research questions were developed to guide the study and meet the study’s objectives:

1. What are the most frequent procurement systems used by quantity surveyors in Owerri?

2. What are the difficulties experienced while using different procurement processes for construction projects?

3. What effect do procurement processes have on building costs?

1.5 THEORIES OF RESEARCH

1. Ho: Procurement system variations have little effect on construction costs.

Hello, variations in procurement systems have an impact on construction costs.

2. Ho: The difficulties faced when using procurement procedures do not lead to construction cost overruns.

Hello, the difficulties encountered while using procurement systems add to construction cost overruns.

3. Ho: There is no statistically significant relationship between procurement systems and construction cost management and delivery.

Hello: Procurement methods have a substantial impact on construction cost control and delivery.

1.6 THE STUDY’S SIGNIFICANCE

This study will be useful to construction industry personnel and the general public since it will not only clarify but also raise awareness of the extent to which deficiencies in cost management and procurement systems can negatively impact project performance. The study will also advise contractors, clients, consultants, and all other parties involved in construction projects on how to improve their current cost management and control methods. The study will also be extremely useful for other student researchers who wish to pursue the same topic. The study’s findings, both empirical and theoretical, will serve as a platform for future research projects.

1.7 THE STUDY’S OBJECTIVE

The investigation will focus on a few Owerri contractors. Because of funding and time constraints, the researcher was unable to cover a larger area, so the study’s findings and suggestions may not accurately reflect the traditional and changing roles of quantity surveyors. Procurement is the acquisition of products, services, or works from a third-party source. Procurement System: A procurement system is a modern word that is known by many practitioners and researchers in the construction industry by several terms, such as project approach, procurement techniques, procurement delivery methods, or project delivery. Project procurement has been defined as an organized way or process and procedure for clients to get or buy building materials. Open tendering is a technique that permits virtually any contractor to submit a bid for the work. This technique entails either the client or a consultant (on their behalf) posting a public advertisement with a brief description of the service. Selective tendering: The customer creates a limited list of contractors who are recognized to have the necessary qualifications to complete the assignment satisfactorily. Negotiated tendering: This method is used in a variety of circumstances, but the basic idea is that tenders are obtained by the client inviting a single contractor of his/her choosing to submit an offer for a specific project. Non-traditional procurement systems: This is a diverse modern procurement system that incorporates not only design and construction, but also finance, operating, and facility management.

Construction: In architecture and civil engineering, construction is the process of constructing or assembling infrastructure. Large-scale construction is a triumph of human multitasking, not a single activity. Typically, a project manager oversees the job, which is managed by a construction manager, design engineer, construction engineer, or project architect.

Deliverable: In project management, a deliverable is a tangible or intangible thing produced as a result of the project and meant to be given to a client (either internal or external). A deliverable can be a report, a paper, a server upgrade, or any other component of a larger project. Project management is the planning, organizing, motivating, and regulating of resources in order to achieve certain goals. A project is a short-term endeavor having a specified beginning and end (generally time-limited and frequently constrained by money or deliverables), undertaken to fulfill specific aims and objectives, typically to bring about good change or additional value. Time is a dimension in which events can be arranged from the past through the present and into the future, as well as a measure of event durations and intervals between them. A cost is the worth of money that has been utilized to produce something and is thus no longer accessible for use. In business, the cost could be one of acquisition, in which case the money spent to obtain it is recognized as cost.

When the total cost of a project exceeds the initial contract value at the time of completion, this is referred to as a cost overrun. A good cost performance project is one in which the cost overrun does not exceed 10% of the initial budget.