ASSESSING THE CAPABILITIES OF CONTRACTORS IN MONITORING AND CONTROLLING CONSTRUCTION CASH FLOW IN NIGERIA.

ASSESSING THE CAPABILITIES OF CONTRACTORS IN MONITORING AND CONTROLLING CONSTRUCTION CASH FLOW IN NIGERIA.

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ABSTRACT

The construction sector experiences the highest number of bankruptcies compared to

any sector of the economy, with many companies failing because of poor cash flow

management. This study assessed the capabilities of Nigeria contracting firms in

monitoring and controlling of construction cash flow. Quantitative approach was used to

administered questionnaire survey to 246 contracting firms involved in building and

civil engineering works in Nigeria. A total number of 112 questionnaires were filled and

returned and the results were analysed using the arithmetic mean values and ranking of

variables in Statistical Package for Social Sciences (SPSS). Essentially, the survey

evaluates the extent of usage of some identified construction cash flow monitoring and

controlling key practices. The findings show that; the Nigerian construction sector is

currently at a low capability level and usage of the key practices in construction cash

flow monitoring and controlling, the large size firms have high capability level and

usage of the key practices in construction cash flow monitoring and controlling.

Medium and small size firms which are the predominant category of firms in the

construction sector in Nigeria have low capability level and usage of the key practices in

construction cash flow monitoring and controlling and in dire need for improvement.

The research work recommends that; for an effective cash flow monitoring and

controlling practice, an assessment frame work should be developed by the contractors

for use in contract administration, continuous education and training of the entire staff

responsible for cash flow management through workshops and seminars in order to

improve their skills in cash flow management and Contractors should involve the

Quantity Surveyors, who are disciplined as cost managers to be responsible and

accountable for cash flow management.

CHAPTER ONE

1.0                                                 INTRODUCTION

1.1       Background to the Study

Cash flow is a series of income and expenditure over the life of an investment or

project. The difference between the income (revenue) and expenditure (disbursement) at

any point of time is term as net cash flow which could be either positive or negative

(Hoseini, Andalib and Gatmiri, 2015). A negative net cash flow means disbursements

are exceeding income which is a usual situation on even a highly profitable project

during the greater part of its duration (Al-Mohsin, Alnuaimi and Al-Tobi, 2014). A

positive cash flow is ultimately needed to generate profits, to pay employees’ salaries

and wages, taxes and servicing interest on borrow funds, materials, plant,

subcontractors’ accounts rendered and overheads expended during the progress of the

contract (Odeyinka, Kaka and Morledge, 2003). The main factors affecting cash flow in

a construction project is the widespread practice of delay and underpayment by the

clients, inaccurate Cash Flow Forecasts (CFF) and lack of efficiencies in monitoring

and controlling of construction cash flow (Hoseini, Andalib and Gatmiri, 2015).

Cash flow management is a general process of planning, forecasting, manipulating and

controlling of cash flows either at the project or corporate level (Ross and Williams,

2013). Cash flow monitoring and controlling entails adequate planning of fund

utilisations, efficient monitoring of budget implementation and effective evaluation of

results (Richter and Cantoria, 2011).

1


Construction sector recorded high rate of business failure globally with 20.1% and more

than 80% of these failure were attributed to lack of financial control (Emidafe, 2015).

The Nigerian construction sector which contributes about 70% of the country’s gross

domestic product (GDP) is one of the highest employer of labour, labour cost are indeed

a huge outlay for the contractors due to volume of manpower required to execute and

delivered construction projects. Poor cash flow management can result in; financial

improprieties, failure of the projects and business bankruptcy (Chukwudi and

Tobechukwu, 2014). Contractors operating in developing countries including Nigeria

were hugely affected by unprecedented financial difficulties in the wake of dwindling

economy. These difficulties are compounded by the time lag between contractor’s

expenses and payment collection, which impact negatively on the contractor’s cash flow

and in many cases result in failure of a project and business insolvency (Emidafe,

2015).

In an attempt to mitigate or alleviate the excessive rate of business failure within the

construction sector, several researches were carried out to improve cash flow

management of construction projects. And some of these researchers are; Mutti and

Hughes (2002) explored the cash flow issues associated with company failures. The

study revealed how cash flows are managed by various construction firms at the project

level in United Kingdom (UK).

Odeyinka, Kaka and Morledge (2003) identified and examined the various approaches


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