ASSESSMENT OF COST AS AN IMPETUS TO SUCCESSFUL PROJECT DELIVERY IN LAGOS NIGERIA

ABSTRACT

The need for continuous building and infrastructural development is key to gradual easing of the deficiency being witnessed in different types of construction projects across the state. New and upgrading of existing buildings and infrastructure such as road, rail and waterways improve the conditions of users of these facilities. All these developmental projects come with a cost which individual, corporate organizations’ and government must be prepared to pay over the lifecycle of these facilities. From project conceptualization to completion, usage and demolition, project team plays critical roles to achieve client objectives. During these stages, the cost consultant is actively involved in the establishment of different cost elements and cost management of the project, advising both the client and design team. Cost being an integral part of the project, it oftentimes controls the necessity of other project requirements. The research was carried out through administration of questionnaires, which contains list of identified cost factors that influence project delivery in Lagos Nigeria. Opinions of different professionals received were analyzed. Cost factors analyzed showed fluctuation, value management and construction designs have highest impact on project delivery. Project implementation activities revealed that materials quantity and quality and workmen availability mostly influenced project delivery. 

Key elements: Project Cost, Cost Control, Bills of Quantities, Project Delivery 

AIMS To assess cost as an impetus to successful project delivery of private development in Lagos Nigeria 

OBJECTIVES To assess the impact of cost throughout project implementation stages toward successful delivery of private development in Lagos Nigeria

INTRODUCTION

Cost in the construction industry, refers to the amount a client is willing to pay to a contractor for the supply of goods or execution of services. (Designing Buildings Wiki, 2018) defined the term 'cost' to refers to the expense incurred in the production of a product or service. This implies that cost must be agreed by parties (usually client and supplier/ contractor) to contract before the execution of the project in order for reimbursement of the expenses incurred. Cost in construction comes to limelight when there is need for development by a client which could be an individual, a corporation or a government. Project cost arises through the desire of the client to manage his expectations toward the realization of a project; client wants the final cost of the project not to exceed the original estimated cost. The project cost can be established prior to project execution, but in rare cases, the project cost is established during the execution stage of the project. In both scenarios, the project cost helps to forecast the probable amount expected of the client to have in the course of development; to avoid project delay, abandonment and defective project quality. There are other types of cost in construction industry aside the project (construction) cost, they include capital cost, lifecycle cost and whole lifecycle cost. Professional Quantity Surveyor (PQS) establishes the initial project cost through the client brief or the schematic design of the designer, with his expertise and experience, combining different cost data to arrive at the project budget. This project budget is developed further till full approval of the scope of works by the client, to arrive at the total cost estimate. It is on this base cost that bidders are invited to tender for the project.

PROJECT INITIATION STAGE

The client requirements spell out performance specifications which the intended project must meet, this brief guide designers toward the concept design. The designer comes up with different concepts according to the client’s performance specifications, however, the need for value for money on each designed concept come to play to ensure return on investment at a specific time. As design develops from concept design to technical design, the project budget is broken down to distinct cost elements to reflect different tasks to be executed. At these stages, the Professional Quantity Surveyor performs cost controlling so that the project budget is not exceeded. (Ashworth & Hogg, 2007) corroborated that the focus of cost control must be balanced with the importance of value in terms of what is being provided for a client.

 

COST PLANNING

Cost planning is a method of project cost controlling within a predetermined sum called “cost limit”. Cost limit is the establishment of a sum to the client project specific requirements setting aside some items from the client’s requirements list. (Hackett, et al., 2007) described cost limits to represent the maximum amount that the client can afford; ‘once in a lifetime’ clients, often adopt this approach. Cost planning develops as more information are provided and its accuracies lie on this.

 

RIBA PLAN OF WORKS AND COST PLANNING ACTIVITIES

CODE	STAGES	COST PLANNING ACTIVITIES
0	Strategic Definition
1	Preparation and Brief	Establishment of Cost Limit	Establishment of Project Budget
2	Concept Design	Establishment of Initial Cost Plan	Cost Controlling
3	Spatial Coordination	Establishment of Cost Target; Cost Check
4	Technical Design	Establishment of Elemental Cost Plan; Cost Check
5	Manufacturing and Construction	Establishment of Estimated Total Cost; Cost Analysis

 

RISK MANAGEMENT/ CONTINGENCY

As design becomes more detailed, the magnitude of cost error reduces and the project cost is more reliable. The margin of error at this stage is called the design development contingency. (Cunningham, 2015) stated that the design process is fluid and the design team leader should retain an adequate and realistic contingency to cover design development. The level of the contingency should reflect the nature of the project; for example, a new build project on a ‘green field site’ is considered much less risky in terms of cost overruns than an infill refurbishment project. (Potts & Ankrah, 2014) opined that the contingency is continuously reduced in line with the design development: order of magnitude costs can be within 25%, cost estimates within 15%, cost plans and bills of quantities to within 5-10% depending on the extent of the design.

PROJECT PROCUREMENT AND CONTRACT EXECUTION

Selecting the best procurement option ensures the cost target is achieved. The risks associated with cost overrun varies with the choice of procurement method adopted and forms of contract. During the stage four of RIBA plan of works on the traditional procurement method; contractors and suppliers were identified for prequalification. After the rigorous process of prequalification, shortlisted tenderers were sent the tender document for pricing. Tender cost analysis is carried out to determine the lowest responsive tender for the project. (Cunningham, 2015) noted that not all clients will regard rigid cost certainty as their main priority, particularly where early project completion or high quality are their primary objectives. (Ashworth & Hogg, 2007) argued that ‘the focus of cost control must be balanced with the importance of value in terms of what is being provided for a client. The tender report is sent to the client placing each tenderer in hierarchy according to the metric of the project. Base on the project report, the client makes his decision on the tenderer and communicate same to the project team. 

RELATIONSHIP IN A TRADITIONAL PROCUREMENT SYSTEM

The selected contractor may be invited for further negotiation, however, should there be priority on project duration, the tenderer will only be informed of the project award. (Designing Buildings 9 Wiki, 2020) defined contract execution as the process of signing an agreed contract, after which its terms become binding on the parties to the contract. Project contract is between the client and the contractor. It went further to described contract engrossment as the process of preparing the final agreed form of contract and its schedules and appendices so that it can be executed. Engrossed contracts are then either executed under seal (signed by the parties, witnessed and most importantly made clear that they are executed as a deed) or under hand (a 'simple contract' that is just signed by the parties).

PROJECT EXECUTION AND CONTROLLING

(Wikibooks, 2018) defined project execution (or implementation) as the phase in which the plan designed in the prior phases of the project life is put into action. The purpose of project execution is to deliver the project expected results (deliverables and other direct outputs). The execution stage is the longest phase of the project management lifecycle, where most resources are applied. According to (ThePD, 2015), project execution is the performance of project scope of works and activities in accordance with the project baselines, plans and procedures with the resource, interface, change, schedule, cost, risk, quality, safety and environment management, and other contractual requirements.

Controlling is a watchful process whereby thing goes along with the understanding of what is to be done, and re-doing it or doing it differently when the action does not fully correspond to what was intended (Wikibooks, 2018). Project controlling is an integral part of project management which ensure better utilization of resources, time, scope, cost and quality toward the realization of expected project deliverables.

Project implementation plan is a list of actions to carry out the expected amount of work. It describes in detail the implementation phase itself as well as the objectives, deliverables, and activities to be executed (McConnell, 2010). It was argued that evidence of corrupt practices in procurement will undermine the entire process and waste precious resources. Transparency must be shown by the team lead to guide against leakages; the plan must described in plain words, meanings can be utilized by the project stakeholders at any time.

BILLS OF QUANTITIES

Bill of Quantities (BoQ) evolves after the production of detailed drawings and specifications by designers during the precontract stage of the construction procurement method. The BoQ forms part of the contract document issued to tenderers for bid along with Agreement, form of tender, drawings and conditions of contract. The BoQ describes and accurately present the quantitative and qualitative aspect of items of works for pricing by the contractor. (Razali, et al., 2014) described Bill of Quantities as a complex document consists of qualitative and quantitative aspects of every constituent part of a proposed construction project such as items of works with complete description of material, workmanship, and the quantities, and compiled together with the form of tender, specification, preliminary bill and list of drawings to form a tender document. In some cases, there are changes between Tender Bills of Quantities and Contract Bills of Quantities, through changes to part or all of client requirements reflected in revised drawings and/ or specification or contractors’ observations during tender negotiation. The total amount in the summary page of the Contract Bills of Quantities forms an agreement between the client and the contractor. (Razali, et al., 2014) noted that it is not known whether BoQs in its current format is suitable to be used with the more modern procurement systems or not. This is because, based on literature, the issue on the declining usage of BoQs due to the non-traditional procurement system adopted in construction industry has been encountered in the UK’s, Australia’s and also Malaysia’s construction industry due to several factors. One of the common factors is due to complexity and time consuming in the preparation of B/Qs document. The recognition of this led the United Nations in 2015 to write various construction cost bodies around the world seeking some form of uniformity in the reporting of construction costs worldwide. The UN concern was the variance of reported statistics globally for similar projects even when local economic factors were taken into account. Meanwhile, in some countries, a standard exists for providing a common framework for documents organization and management among project organizations (e.g. Masterformat (2015) and Uniformat (2015)). Unfortunately, again, the use of these proposals is not widespread among practitioners (Martínez-Rojas, et al., 2016).

COST MANAGEMENT 

According to (Wrike, 2020), cost management is the process of estimating, allocating, and controlling the costs in a project. It allows business owners predict coming expenses in order to reduce the chances of it going over budget. Cost management plan as a document, outlines criteria and activities which must be carried out as part of management of the project. The document provides both input and output cost estimates. Input cost is the expected money from the client, such as advance payment, valuation amount, reimbursement of expenses. The output cost is the amount of money that will be spent on the project such as direct payment to personnel, nominated and domestic supplier’s payment. Proper monitoring of these costs’ items helps the overall cost of the project, keeping them within the estimated budget. The cost management plan in general terms analyzes how the project costs will be planned, funded and controlled (Clarizen, 2018).

The success of a project is a function metrics (cost, time and quality) which were planned during the project conceptualization to contract award. Although some of these metrics can be altered, such alteration should fall within allowable “control” threshold. During contract execution, all cost activities should be properly recorded using electronic document management (EDM) software like Microsoft Excel, Peechtree etc., to track both inflow and outflow of money and to forecast future financial requirement on the project. Efficient financial management of the project rely on vast knowledge of the contract administrator or the project manager on the constituent parts of the Bills of Quantities and the understanding of project conditions of contract. The Bills of Quantities establish cost performance, progress of works and serves as reference to quality expectation. Lack of adequate understanding of both Bills of Quantities and Conditions of Contract could lead to dispute between project stakeholders. Possible outcome of this are cost overrun, time overrun, defective qualities of works, penalty payment, failure to claim for reimbursement, termination of contract.

After project execution, there is need for reconciliation of account between the budgeted amount and the actual money that goes into the project. This will further help the understanding of construction cost processes. The lesson should be documented for future financial cost advice and decisions.

INTERIM PAYMENTS

The traditional payment system, the cost schedule model in which the contractor is paid advance payment and further payments at interims or milestones, is associated with project performance. (Sherif & Kaka, 2003) noted that cash flow has been much studied and much researched in recent years, there has not been enough of a link made between cash flow and payment mechanisms. In fact, although cash flow is seen as being one of the major concerns for contractors, its link with payment mechanisms is almost completely neglected. (Kirby-Turner, 2020) premised that cash flow has long been the greatest pain in the construction industry, to such an extent that the express statutory purpose of the Construction Act was to introduce minimum provisions for interim payments(on all but the smallest, shortest of jobs) during the course of a project. Explaining further on the cost schedule model, (Cunningham, 2015) concluded that interim valuations are carried out at four-week (RIAI) or monthly (PWC) intervals. However, interim payment could be on milestone basic as may be agreed by parties to the contract. (Cunningham, 2015) further noted that the contractor’s QS assesses the quantity or percentage of work that has been carried out on the site for each item in the bill and values these at the corresponding rates. The employer’s QS checks this valuation and prepares a recommendation for payment to the architect who issues an Interim Certificate authorising payment to the contractor. The bills therefore provide an effective and agreed basis for valuing works in progress; it helps to avoid disputes in the area of project performance.

VARIATIONS

In the construction industry, projects are usually procured using standard forms of contract. Although the roots of standard forms in modem commercial practices can be traced back to contract law there are differences between building and engineering contracts and the classical paradigm of a single exchange transaction (Othman, 1997). Standard forms or conditions of contract seek to specify the key variables concerning construction (Clegg, 1992). The variables are legal; guidance on the duties and responsibility of parities; provide approach to problem solving. These changes or variations have been the source of many conflicts and disputes (Othman, 1997). Specific provisions are necessary to confer on the employer the right to vary the work and to avoid fresh negotiations over the terms of the contract every time a change is contemplated. Variations was grouped (Jun & Hong, 2004) as design variation, construction variation, plan variation, condition variation and new added project. (Cunningham, 2015) summarized variations process as where the original design or specification is altered the Contract Sum must be adjusted accordingly. The Irish standard forms of contract provide that additional work which is similar in character and carried out in similar conditions to that described in the bills shall be valued at the relevant bill rates. Where the varied work is not of a similar nature or is carried out under dissimilar conditions, bill rates may form a basis for valuing the work. This process involves adjusting the material or productivity component of the relevant bills rates as appropriate. Where there is no basis in the bill for valuing the varied work, rates taken from bills for other local contracts may be used as a basis for agreeing the value of the work. Bills in these cases provide a clear basis for negotiating the value of the varied work.

FLUCTUATIONS

(Royal Institutuion of Chartered Surveyors, 2016) described fluctuations (or fluctuating price) as a method of dealing with inflation in construction contracts. Fluctuation was defined as the general rate at which prices of materials and goods varies, usually upwards, and the consequent purchasing power of money decreases. Alterations to the price of items can also be caused by variations in taxation, ‘excise’ duties for domestically produced goods, ‘customs’ duties on imported goods, or those resulting from other fiscal policy influences. For contracts of relatively short duration, the risk may not be great, as changes are unlikely to have a major effect on the overall cost of the project. For longer contract durations, or during times of higher inflation rates – or where the contract sum is of a size that makes the impact of inflation more significant – the consequences may be more difficult to anticipate. Therefore, it may be more appropriate to devise a mechanism whereby the actual cost, or a near approximation to it, can be calculated as the job progresses, with the contract sum adjusted accordingly. The principal advantage of this approach is that the employer is not bound by the contractor’s estimate of the change in cost, they only pay what is actually incurred, so if in fact there is no subsequent increase, there is no additional payment. The purpose of the contract’s fluctuations provision is to enable this adjustment to take place by introducing a mechanism to be followed when the circumstances are appropriate.

EXTENSION OF TIME CLAIMS

(Williams, 2001) projects are classically defined by the need to complete a task on time, to budget, and with appropriate technical performance/quality. In recent decades, projects have tended to become more time-constrained (Clarke, 1994) and the ability to deliver a project quickly is becoming an increasingly important element in winning a bid. There is an increasing emphasis on tight contracts, using prime contractor-ship to pass time-risk onto the contractor, frequently with heavy liquidated damages for lateness. Thus, time is more critical to contractor, when faced with delays caused by the client, he claims for suitable extension of time to his contractual finish-date, otherwise he will find himself subject to liquidated damages for reasons within the client's control, not within his own control. (Cushman, et al., 1996) says that (referring to US case law) “it is well established that in a construction contract, time is not generally of the essence unless it is specifically unless it is expressly provided, and a contractor's failure to complete its work in accordance with the time requirements of the contract does not entitle the owner to terminate the contract or excuse nonpayment, but it may expose the contractor to liability for delay damages” (our emphasis).

PRESENTATION OF FINDINGS

CONCLUSION

Respondents feedback revealed that all the identified cost factors were project based because they could strongly affect one project while on others their impacts could be minimal. The project implementation activities that affect cost delivery of projects indicated that these identified factors, affect project completion cost and their impacts were significant.