THE IMPACT OF PROCUREMENT SYSTEMS ON CONSTRUCTION COST AND DELIVERY

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

 The construction industry is an importan t part of the economical backbone in many countries (Ngai et al., 2002), often accounting for between 7-10 percent of the Gross Domestic Product (Winch, 1996, Voordijk et al., 2000). Furthermore, construction products and processes have a large impact on safety, health and environmental aspects (Bayliss et al., 2004). Since all human beings in modern societies are directly affected by its processes and/or products, the importance of a well-functioning construction industry is beyond doubt (Cheung et al., 2001, Ngai et al., 2002,Eriksson, 2007).

In many countries the construction industry has, however, attracted criticism for  inefficiencies in outcomes such as time and cost overruns, low productivity, poor quality and inadequate customer satisfaction (Latham, 1994, Egan, 1998, Ericsson,2002, Chan et al., 2003). Practitioners, researchers and society at large have, therefore, called for a change in attitudes, behaviour and procedures in order to increase the chances for construction projects to be successful and result in improved end products (Love et al., 2000, Dubois and Gadde, 2002).

Increased complexity, uncertainty, and time pressure in construction projects have increased the need for cooperation among different project actors (Anvuur andKumaraswamy, 2007). Traditionally, relationships are, however, very competitive andadversarial in the construction industry (Cheung et al., 2003), which to a large extent is due to the customary procurement procedures potentially causing many problems in all stages of the buying process (Eriksson and Laan, 2007). Therefore, in order to take advantage of collaboration, procurement procedures is one key improvement area and can contribute substantially to project success (Cheung et al., 2003, Eriksson, 2007).

 A change of procurement procedures is, however, impeded by clients’ habitual behaviour (Laedre et al., 2006). Although procurement procedures need to be tailored to enhance the fulfilment of different project objectives (Cox and Thompson, 1997,

 Love et al., 1998, Wardaniet al., 2006), clients tend to choose those procurement procedures they have a habit of using, regardless of any differences between projects(Laedre et al., 2006). In order to enhance change, an increased understanding of how different procurement procedures affect different aspects of project performance is vital. Earlier research efforts in this area have been limited to the investigation of how a single or a few specific procurement alternatives affect one or two project objectives. In order to achieve successful governance of construction projects a holistic and systemic approach to procurement procedures is crucial (Cox and Thompson, 1997, Eriksson and Pesämaa, 2007, Eriksson, 2008b). Since a systemic perspective on the effect of procurement procedures on different aspects of project performance is lacking in the construction management literature, this research effort aims to fill this theoretical gap that has potential to bring important practical implications.

Different studies have confirmed the use of various types of procurement methods for project delivery in Nigeria. Studies of Ogunsanmi, Iyagbaand Omirin (2003), Ojo, Adeyemi and Fagbenle

 (2006), and Dada (2012) all confirm the use of Traditional, Design and Build, Project Management, Construction Management, Labour only ,Direct Labour and other types such as Alliancing, Partnering and Joint Ventures procurements in the Nigerian construction industry. The use of these procurement method scan significantly affect the performance of most projects.

1.2 STATEMENTOF THE PROBLEM

 The Nigeria construction industry is modeled after the British system being our colonial master, although, since independence in 1960, it has incorporated the styles of other Europeancountries, such as Italy, Germany and France (Mansfield, 1994). This industry is of paramount importance for employment and economic growth (Ogunsemi, 2004). The Nigerian construction industry forms nearly 70% of the nation’s fixed capital formation Federal Office of Statistics (FOS)(2004), yet its performance within the economy has been, and continues to be, very poor due to cost overruns resulting to abandonment of projects. For example, the Nigerian construction industry’s contribution to employment has remained consistently at 1.0% over the last decade against the World Bank’s average observation of about 3.2% in developing countries (Idrus, 2008). The traditional design-bid-build system of procurement is still dominant in the Nigerian construction sector and this may likely continue to be the trend. In addition, the Nigerian construction sector comprises the clients ,contractors, subcontractors, suppliers, and key professional actors responsible for design and supervision of projects. The professionals includes architects, engineers (structural and services),and Quantity Surveyors. There are professional bodies that regulate the activities of these professionals.

 Delay in project execution is a major problem in the Nigerian construction industry. This occurs both in small and large projects. Virtually, all the projects executed over the years in Nigeria were faced with problem of delay in delivery. Odeyinka and Yusuf (1997) observed that seven out of every ten projects suffer delay in Nigeria. Nigerian construction industry is faced with problem of cost overrun. Ogunsemi and Jagboro(2004) noted that one of the most serious problems the Nigerian construction industry is faced with is the project cost overrun, with attendant consequence of completing projects at sums higher than the initial sum. Therefore, working with realistic project estimate is necessary at the outset of a project work, which would eliminate uncertainty and as well provide a platform for project success. Idrus and Sodangi (2008) also observed that the last decade has however exposed the declining level of clients’ satisfaction from the built facilities as a result of poor quality performance in addition to the perennial problems of time and cost overruns in the Nigerian construction industry.

 The Nigerian construction industry continues to occupy an important position in the nation’s economy even though it contributes less than the manufacturing or other service industries,. This industry plays an important role in the economy, and the products of its activities are so vital to the achievement of national socio-economic development goals of creating job opportunities and social amenities and infrastructures (Anaman, 2007).

 1.3 OBJECTIVES OF THE STUDY

 The main aim of this study is to examine procurement systems and it impact on cost management and delivery. Specific objectives of the study are:

To identify various procurement systems commonly used by quantity surveyors in Owerri.

To examine challenges encountered when employing various procurement systems for construction projects.

To examine the impact of procurement systems on construction cost.

1.4 RESEARCH QUESTIONS

 To guide the study and achieve the objectives of the study, the following research questions were formulated:

What various procurement systems commonly used by quantity surveyors in Owerri?

What are the challenges encountered when employing various procurement systems for construction projects?

How do procurement systems affect construction cost?