THE EFFECT OF CASHFLOW ON CONTRACT DELIVERY IN NIGERIA COST CONTROL TECHNIQUES AND THEIR IMPACT ON CONSTRUCTION PROJECT DELIVERY IN NIGERIA

THE EFFECT OF CASHFLOW ON CONTRACT DELIVERY IN NIGERIA COST CONTROL TECHNIQUES AND THEIR IMPACT ON CONSTRUCTION PROJECT DELIVERY IN NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1             BACKGROUND OF THE STUDY

The construction projects are complex and risky, and it is a great employer of labour. Contractors cannot survive in the competitive construction industry without effective cash flow management, studies and investigations have shown that lack of liquidity is a major problem causing construction project failure (Al-Issa and Zayed, 2007). A model for accurately predicting trends in a project's cash flow prior to the construction phase has been so elusive. Therefore, advance knowledge of the factors affecting cash flow and understanding their impact is essential to the contractor. Cash flow is the actual movement of money in and out of any project. Therefore, money flow in may be termed positive cash flow while the one flowing out may termed negative cash flow. Recent studies by Yaqiong, Tarek, and Shujing, (2009) indicate that, cash flow varied approximately from 129% to 20.4% with a mean value of 16.7% considering the effects of all factors on the basis of 30% total cost variation. In addition, financial management has long been recognized as an important management tool, throughout the construction process, the contractor needs to be comparing the actual income and expenses against the forecasted values. If there are discrepancies between these values, the contractor needs to adjust the schedule and update the project plan to match the estimated situation as early on as possible. With real knowledge of cash flow, forecasting the contractor could more efficiently and accurately manage cash flow during the construction process to prevent extra expenses and avoid project collapse Yaqiong Liu, TarekZayed and Shujiung Li (2009). In spite of the high number of studies on cash flow there is no consensus for the reliability and applicability of the existing techniques for obtaining efficient cash flow Serhat (2010). The aim of this study is to investigate the factors that affect contractor’s cash flow on project delivery in Nigeria with a view to enhancing construction productivity and timely project completion.

In general most (if not all), construction projects experience time delays and cost overruns during their implementation phase (Koushki and Kartam,2004). Numerous researchers, both in the developed and developing nations have also examined and identified the causes of time and cost overrun in the construction industry. Mansfield, Ugwu and Doran (1994), for example performed a comprehensive analysis of most important factors responsible for project delays and cost overrun in Nigerian construction projects. This analysis indicated poor contract management, financing and payment of completed works, change in site conditions, shortages of materials, design changes, subcontractors and nominated suppliers, other factors were price fluctuation inaccurate estimates, delays and additional works as factors responsible for project delays and cost overrun.

A comprehensive classification of causes of construction delays has also been determined by Henesy (1993). The classification system included materials, labour, equipment and financial constraints, as the main contributory variable to causes of construction time overrun. The list of major factors causing construction delay in Thailand by Ogunlana and Proumkunting (1996) included the inadequacy of resources supplies, client and consultant shortcomings and incompetence. Koushki and Kartan (2004) studied the impact of construction materials on project time and cost in Kuwait and identified the project related variable affecting the on time delivery of materials as material selection, time, type of materials and their availability in the local market.

Time impacts are inevitable on construction projects, primarily because of the uniqueness of each project and the limited resources of time and money that can be spent on planning, executing and delivering the project.

Time factors are inherent in all of project construction’s undertakings. Construction projects have long been recognized as particularly cost, time and risk-laden. Some of the time and cost factors associated with the construction process are fairly predictable or identifiable; others may be totally unforeseen. The constructed project may not perform as anticipated because the owner may have unrealistic expectations regarding the delivery time of construction forcing contractors into unrealistic gambles, corner-cutting or commitments that may not be realistic (Frimpong 2003).

Project success can be defined as meeting goals and objectives as prescribed in the project plan. A successful project means that the project has accomplished its technical performance, maintained its schedule, and remained within budgetary costs. Project management tools and techniques play an important role in the effective management of a project. Therefore, a good project management lies in the management tools and techniques used to manage the project. Project management involves managing the resources—workers, machines, money, materials and methods used. Some projects are effectively and efficiently managed while others are mismanaged, incurring much delay and cost overruns and negatively affecting the economy (Frimpong 2003).

Assessing construction projects’ delivery time is critical in today’s market-driven economy.

The study become a necessity in order to identify the effect of contractors cash flow on construction project in order to increase the awareness to both employers and contractors in relation to their obligation of prompt payment and also to increase the output on timely project delivery. For the contractors, it will serve as an effective guide to site management of cash-in-flow and cash outflow and efficient management of resources to avoid project delay and abandonment. The finding of the study may also assist the stakeholders in the building industry to address the problems and effects of cash flow in a holistic manner for the benefit of all.

1.2 PROBLEM STATEMENT

Construction can be considered as a dynamic industry which is constantly facing uncertainties. These uncertainties and the many stakeholders in these kinds of projects, make the management of costs difficult which consequently causes cost overruns. Therefore, cost overruns are considered one of the most critical issues during the execution of construction projects (Chan, et al., 2004; Doloi, 2011).

As mentioned by Van Der Westhuizen andFitzgerald (2005), the presence of cost overruns can be a reason for project delays or possible project failures. Howeverthis idea has been refuted by many authors who considered that project success depends on many other factors that should be assessed to conclude the success or failure of a project (Chan, et al., 2004). Moreover, there have been many studies that suggest that the success of a project depends on the presence of certain critical factors which can also change depending on the objective to be met (Iyer and Jha, 2005). In other words, some authors ascertained that there are some critical success factors that help to improve cost performance and prevent cost overruns.

1.3 OBJECTIVES OF THE STUDY

The main aim of the study is to examine cash flow and various cost control techniques used in contract delivery and the impact they have on project delivery. Specific objectives of the study are:

·        To identify cash flow on contract delivery and cost control technique frequently used by contractors in construction projects.

·        To examine problems encountered by contractors in managing construction project cost.

·        To determine the effect of cash flow on the duration of construction projects.

1.4 RESEARCH QUESTIONS

In-order to guide the study and achieve the above stated research objectives; the following research questions were formulated:

·        How does cash flow on contract and cost control techniques are frequently used by contractors in construction projects?

·        What are the problems faced by contractors in controlling cash flow and cost in the construction project process?

·        What impact does cost controlling cash flow techniques have on the duration of construction projects?

1.5             RESEARCH HYPOTHESES

1.     Ho: cash flow problems do not lead to project delivery failures.

Hi: cash flow problems lead to project delivery failures.

2.     Ho: cash flow affect construction delivery timing and cost

Hi: Cash flow do not affect to construction delivery timing and cost

1.6 SIGNIFICANCE OF THE STUDY

This study will be of importance to building professionals and the general public because it would not only clarify but also create awareness of the extent to which inadequacies in cash flow can adversely affect project performance. The study will also help contractors, clients, consultants and all parties involved in construction projects about ways of improving their current method of cost management and control.

The study will also be of great benefit for other student researchers’ who may want to venture into the same subject matter. Having gotten results-both empirically and theoretically, the study will serve as a foundation for future research studies.

1.7 SCOPE OF THE STUDY

The study will cover some selected quantity surveyors from Owerri. All findings and recommendations from the study may not reflect the true view of the traditional roles and changing roles of quantity surveyors as the researcher could not cover a wider area due to financial and time constraints.

1.8    DEFINITION OF TERMS

2.     Cash flow: Incomings and outgoings of cash, representing theoperating activities of an organization.

3.     Construction: In the fields of architecture and civil engineering, construction is a process that consists of the building or assembling of





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