International Journal of Civil Engineering and Built Environment Vol.1, No.1, 2014; ISSN 2289-6317 Published by YSI Publisher
Factors affecting construction cost performance in project management projects: Case of MARA large projects Aftab Hameed Memon1, Ismail Abdul Rahman1, Mohd Razaki Abdullah2,Ade Asmi Abdu Azis3 Faculty of Civil and Environmental Engineering, University Tun Hussein Onn Malaysia, Malaysia 2 Majlis Amanah Rakyat (MARA) 3 Universiti Tun Hussein Onn Malaysia, 86400 Parit Raja - Batu Pahat Corresponding Author:
[email protected]
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strengthen the Bumiputera (Malays and other indigenous Malaysians) in the areas of business and industry. MARA currently placed under the Rural and Regional Development Ministry after briefly controlled by the Entrepreneur and Cooperation Development Ministry plays an important role in implementing the government policy. MARA has spent about RM 12 billion in its development since 1st Malaysian plan [5]. A portion of this allocation was spent on construction. The major issue in MARA large construction project is the delay in completing its projects. An interview with Tech Art Executive Director revealed that more that 90% of large MARA construction project experienced delay since 1984. Most frequent effects of delay in MARA projects are time overrun and cost overrun. Studies revealed that time and cost overrun has a linear relationship with each other [6].
Abstract Aim of Study This study has focused on investigating procurement strategies adopted in MARA large construction projects. It also identified various factor affecting construction cost performance of MARA large construction projects. Need of Study Very rarely MARA projects are finished within estimated project cost. For improving cost performance, it is very important to identify the reasons affecting cost performance of MARA projects. Hence, there is a need of study in understanding the reasons and factors affecting project cost performance of construction projects. Research Approach The project was carried out through interviews and survey using the questionnaire among the personnel involved in handling MARA large projects. Gathered data was analyzed statistically using SPSS software package.
Keeping construction projects within estimated costs and schedules requires sound strategies, good practices, and careful judgment. To the dislike of owners, contractors and consultants, however, many projects experience extensive delays and thereby exceed initial time and cost estimates. This problem is more obvious in the traditional or adversarial type of contracts in which the contract is awarded to the lowest bidder, which is the strategy in the majority of public projects in developing countries [7]. In order to manage and control construction projects, there are various procurements strategies being adopted. Most popular strategies include traditional, management, integrated services and in-house teams [8]. These strategies contain various methods of managing projects as shown in Table 1.
Research Findings This study revealed that fluctuation in price of the material, cash flow and financial difficulties faced by contractors, shortage of site workers, lack of communication between parties, incorrect planning and scheduling by contractors are most severe factors while frequent design changes and owner interference are least affecting factors on construction cost performance in MARA large projects. Limitations This study was limited to large construction projects administrated by Majlis Amanah Rakyat (MARA) Malaysia.
TABLE I.
Importance and Contribution This study has highlighted various issues causing poor project performance in MARA large projects. Ranking of the factors will enable the MARA engineers for taking appropriate actions in improving the performance of cost in construction projects.
Methods/Techniques
Procurement Strategy
Traditional Lump Sum System/Traditional System/ Design- Bid- Build/Open Tender Contracts Negotiated Contracts Best Value Procurement Incentives Contracts Construction Project Management/Contract Management Construction Management at Risk/Management Contracting Design and Build Turnkey System
Keywords: Construction Industry, Construction Cost, MARA Projects, Cost performance, Cost Overrun
I.
Management
INTRODUCTION
In recent years, Malaysian construction industry has recorded an average growth rate of 0.7% [1] compared to GDP growth of 5.46%. However, the industry is facing a lot of challenges in achieving satisfactory cost performance [2-4]. Government formed MARA (Majlis Amanah Rakyat) to
Integrated
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TYPES OF PROCUREMENT METHODS &THEIR VARIATIONS
Procurement Strategy
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adopted for f large or com mplex projects. A person or company c is appointedd by client on a fee basis to organize and manage m the whole construction proccess. A constru uction managem ment (CM) is hired earlier or toggether with thhe designer before b any substantiaal design worrk is done and d before any substantial work beggun. The CM M (on client’s behalf) works with the designer during the ddesign phase and representting client t constructiion phase. The T typical contractual c during the relationshhip and sequennce of operation is shown in Figure 3 and Figurre 4.
Self-Perfo ormance In-House Teams Job-Orderr Contract Separate Contracts C
n Malaysian, traditional t lum mp sum system m, design andd In build//turnkey syystem and Construction Project Manaagement/Contraact Managemeent are commoonly adopted inn procu urement strateg gies [1, 9]. Thiss study has beeen conducted too (1) ex xamine variouss procurement strategies adoppted in MARA A Projeects, (ii) identtifying factors affecting connstruction cost perfo ormance in MA ARA projects. However, thee limitations of this study s include, firstly this paaper focus larg ge constructionn projects only. Altthough, it iss difficult to define largee i a study of Vietnam V projeccts with a totaal consttructions, but in budgeet of $1 million were consideered as large projects p [10]. Inn this study, project of budget RM R 5 million and above iss consiidered as largee construction project, seconndly, this studyy focusses on projects with projectts managemennt procuremennt strateegies only. Thiirdly, targeted respondent in ncluded in dataa collecction were perssonnel of contrractor firms andd client. II.
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Figure 1. 1 Typical Contraactual Relationship ps under Traditionnal Method
RELATED WORKS
A. Budget Planning g and Control Prrocurement method m is a strrategy to mannage the entiree consttruction processs. There are a number of proven strategiess that are a used to maanage the proccess where eacch has its ownn distin nct advantagees and disaadvantages. Initially, I fourr procu urement approoaches are widely discusseed; traditionall, manaagement, integrrated services and a in house teaams [9].
Figure 2. Typical T Sequencess of Operations
1) Traditional Procurement: P Basically, B this procurement iss m size annd complexityy. applieed to ordinary projects of moderate A client employs an n architect (forr a building) or o engineer (forr s and contractors forr civil engineering works or other structures) c seeparately. A designer is hired earlier too the construction produuce drawings and a specificatiion while conttractors will bee selectted after a cllient is satisffied with the drawings andd specification. Norm mally, an arcchitect or enggineer will bee appoiinted on fee baasis as a leadeer to coordinatte the activitiess of oth her members and a have directt access to the client. In orderr to geet the best posssible result, itt is normal fo or the client too choosse any suitab ble variationss that suits to t their plann. Variaations such as design-bid-buiild, negotiated contracts, best valuee procurement, incentives contracts are widely w used inn USA, while variattions such as open tender contracts andd o tender andd negottiated contractss in UK. In Maalaysia, both open negottiated contractss are extensiveely adopted andd this is similarr to UK K. Sometimes,, a client incorrporates Projecct Management Consultant (PMC) into this procuurement to assiist the client inn nistering the project [9]. The typicaal contractuaal admin relationship and seequence of opeeration is show wn in Figure 1 F 2. and Figure 2) Managementt Procuremen nt: Basically Compared too ment which iss focusing on moderate sizee tradittional procurem and complexity, c management proocurement is preferred p to bee
Figurre 3. Typical Conntractual Relationsships under Managgement Procurement
Figure 4. Typical Sequences of Operations of Management Procurement
3) Inttegrated Prrocurement: Basically Integrated procurem ment is where design and construction, c a well as as several other o subtasks on the projeect, are perforrmed by a single org ganization, ofteen a large conttracting firm. Sometimes, S professionals such aas constructioon managers, architect, s and engineers com mbined togetheer to form a quantity surveyors consortiuum to provide iintegrated servvices. This proccurement is mainly addopted on techhnically sophissticated projectts of which prospectiive contractorss have special experience, orr time is of
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in privatte residential projects in Kuwait. K The major m time increase for these incluuded frequent change orderss, financial constraintts and ownerss’ lack of expperience in coonstruction. While, thhe issues to reelated contractoor, material annd owner’s financial conditions weere major conttributors to cosst increase. Besides these, desiggn changes, inadequate planning, unpredicttable weather cconditions; andd fluctuations in the cost of buildin ng materials aree frequently occcurring factorss leading to cost overrruns [15, 16]. In Ghana, contractors and consultants c mentioneed that monthlyy payments diffficulties is a major m issue faced in construction pprojects that leaad to delay in works and f overrun in cost. Whhile, client consequeently project faces representatives highliighted that the poor contractor ment is the mostt critical factorrs in causing coost overrun. managem Overall, in groundwatter projects of o Ghana, majjor factors or managemennt, monthly recorded were found ppoor contracto material procuurement, poorr technical payment difficulties, m performannces, and escallation of material prices [17].
the essence. e It provides p a sin ngle point off contact andd respo onsibility throuughout the prroject. Design and build orr desig gn-build variatiion is popularlly used in USA A. Similarly inn UK, design and build variation is also widely usedd. Appaarently, designn and build or turnkey system wass introd duced to Malaaysia 1983 [9] and still widdely adopted inn Malaaysia construcction project.. The typicaal contractuaal relationship and seequence of opeeration is show wn in Figure 5 F 6. and Figure
Figurre 5. Typical Conntractual Relationsships under Integraated Procurement
III. DATA A COLLECT TION AND ANA ALYSIS Data collection wass carried out inn two phases where first s and interrviews. It aimeed to assess phase foccused on field study various procurement p strrategies adopteed in MARA projects p and identify common c causees of cost overrrun. In the seccond phase, survey was w conductedd for identify fying significaant factors affecting construction cost performaance among contractors, c nts and contracctors for assesssing significaance of the consultan factors. A five point likeert-scale of 1 to o 5 was adopteed to assess the degreee of agreemeent of each cau use where 1 represented r ‘strongly disagree’, 2 ‘disagree’, 3 ‘moderately agree’, 4 a 5 ‘stronglly agree’. A total of 36 respondents r ‘agree’ and participatted in intervieews and questtionnaire surveey process. Statistical Package for Social Sciencee (SPSS) versiion 17 was used to an nalyze the dataa. Data was chhecked for reliaability prior to ranking the factors. R Reliability describes the stabbility of the data colleected measuredd using Cronbaach α coefficieent value. It is consideered low and unacceptable u iff Cronbach α value v is less than 0.3. Reliability is considered c satiisfactory if Croonbach α is n 0.7 [18]. more than
Fig gure 6. Typical Sequences S of Operations of Integrateed Procurement
4) In House Proocurement: Baasically In housse procuremennt c such ass is sellf perform connstruction. Norrmally, large clients large public organizzation or largee private compaanies that havee their own continuuous constructtion projects have directlyy oy their ownn people such as engineeers, architectss, emplo work kers, etc. Howeever, the client may choose too subcontract a substtantial portion of the projecct to outside consultants c andd contrractors for botth design and construction, but it retainss centraalized decision n making to inntegrate all effforts in project impleementation. B. C Cost Performannce C Cost Performannce is the fund damental norm m of measuringg project success. Unnfortunately, many m of constrruction projectss dwide are exp periencing pooor cost perform mance. This iss world refleccted in the co ost overrun problem whichh now days iss assocciated with allmost every project p [11]. Cost overrunss dilem mma is very seerious and is faced f in both developing d andd develloped countries. It requires careful attention to improvee this matter m [12]. Th his problem of cost c overrun iss more rigorouss in dev veloping counttries. Overrun in i cost is occurrred because off severral factors as highlighted byy numerous research r workss carrieed out worldw wide. Among these, use of o low qualityy materrials is a coommon factorr which resuults in higherr consttruction cost coompared to the estimated costt because of thee signifficant amount of loss of matterials during construction. c It happeens mostly beccause of lack of o availability of o standards forr materrials and manaagement system ms. Further, a major problem m in thee construction industry is th he project managers have not adequ uate ability of preventing cosst overruns. Th his has resultedd poor cost performannce and led many m Thai consstruction to fail K it was highlighted byy research workk [13]. Similarity, in Kuwait oushki [14] tim me and cost increases were sig gnificant issuess of Ko
Distriibution of respoondents in term ms of experiencce is shown in figure 11. Figure 11 indicates thatt majority of rrespondents ut of 36 (58.33% %) were experienced more thaan 10 years i.e. 21 ou in the construction c inndustry, 7 ou ut of 36 (19..44%) had experiencce between 6-110 years, whilee 4 respondents (11.11%) had 2-5 years y experiencce and only 4 (11.11%) ( respoondents had experiencce less than 2 yyears.
Figure 7. R Respondents workiing experience
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RESULTS AND N DISCUSSION N
Classification off MARA projeccts A. C M MARA construcction projects are a classified innto 2; small andd large projects. Mo ost of the sm mall projects are adoptingg ment while the majority of larrge projects aree tradittional procurem adoptting managem ment procurem ment. In somee cases, small projects which are complex and need special knowledge aree T thee also adopting maanagement prrocurement. Therefore, classiification of thee project is based on its contrract cost but itss deliveery methods are a based on its i size and coomplexity. Thee project worth less than t five milliion ringgit (RM M 5 million) iss mally considereed as a small project. As mention m earlierr, norm norm mally MARA is adopting the trraditional proccurement wheree an architect a is ap ppointed as the t leader to organize thee consttruction at the construction site. The ‘leadder’ has direct contaact with MAR RA. Contrast to t small projeect, the project worth h more than RM R 5 million iss considered ass large projectt. This large project normally higghly complicatted and needss a expertise to t handle it. Mo ost of the timee, special knowledge and RA is adoptingg management procurement for f this kind off MAR project and as a matter m of factt, MARA enggages PMC too superrvise and adminnister the entiree project.
Figure 11. 1 Sequence of Operation of MARA A Management Proocurement
C. Facto ors Affecting Co Construction Coost Performancce Durinng interview pprocess, a totall of 15 comm mon factors affecting project cost performance in MRA large prroject were d. Literature sshowed that th he identified factors are identified common factors affeccting cost perrformance worrldwide as f ranking shown inn figure II. These factors weree investigated for purpose. Data collecteed through qu uestionnaire waas test for Alpha of the gaathered data waas found as reliabilityy. Cronbach's A 0.776 whhich means dataa collected in acceptable a for analysis. a In order to identify i the rannks of factors affecting a constrruction cost performannce, data wass analyzed witth SPSS 17. R Results are presented d in table III. Based B on table III, Fluctuatioon in prices of materials is the most significant facctor affecting coonstruction cost perrformance folllowed by Caash flow andd financial difficultiees faced by contractors c as second rankeed factors. Shortage of site workerss, lack of comm munication am mong parties p & schheduling by were 3rd major factor aand incorrect planning contracto ors were found as 4th ranked faactor.
B. M MARA Construcction Procurem ment Sttudies revealeed that MAR RA is adoptin ng 2 types off procu urement; traditional and management. m For F traditionall, MAR RA is organizinng its own techhnical teams to administer thee wholee the project.. However, iff MARA deccides to adopt manaagement procuurement,approvval from LPM M ‘A’ must bee granted first before a PMC is appointed. Figure 8 and Figure 9 w the contractu ual relationshipp of MARA traditional andd show manaagement procuurement whilee Figure 10 and a Figure 111 show ws their sequencce of operation.
Fluctuation in pricces of materiaals: Table III shows that uation of materiial is the most dominant factoor affecting the fluctu construction cost. Howeever, it is very y interesting too know that accordingg to client flucctuation in pricce was ranked as 6th rank while con ntractor rankedd as 1st. Cash flow and financial difficulties faced by c flow andd financial contractoors: Contractoors rankled cash difficultiees as 2nd facttor while clieent ranked sam me as 5th. Contractoors believe thiis issue is verry critical wheere it may influencee other causes such as site management, m sshortage of site work kers and ineffecctive planning and a schedulingg. This may be faced d due to delaay approval of work com mpleted by consultan nt and late in monthly paym ment from cliennt. Settling this issue may as well seettle other issuees simultaneouusly.
Fig gure 8. Contractu ual Relationship off MARA Traditionnal Procurement
w Thiss factor is siggnificant as Shorttage of site workers: perceivedd by Client. It is 3rd rannked factor by b overall responden nts. However, client rankeed this factorr as most dominantt while contraactors ranked it as 12th raank. Client responden nts claim thatt the problem between conttractor and subcontraactor seems larrgely contributte to this causee. As most of the works w are conttracted to subcontractors, most m of the workers are a hired by thhese sub-contraactor. If there are a disputes between contractor andd subcontractorr, automaticallyy this issue prevails.
Figure 9. Sequencee of Operation of MARA M Traditionaal Procurement
nication betw ween parties: Lack of Lack of commun communiication betweenn parties is alsso ranked as thhird highest affecting factor. Cliennts ranked thhis factor as 3rd while or ranked as 4tth. Lack of co oordination maay result in contracto poor mannagement, seleection of propeer material andd problems between the t contractor aand other partiees.
Figu ure 10. Contractuaal Relationship of MARA M Management Procurement
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1
Incorrect planning and scheduling by contractors
√
√
√
√
√
2
Fluctuation in prices of materials
√
√
√
√
√
√
√
3
Frequent design changes
√
√
√
√
√
√
4
Unforeseen ground conditions Inadequate contractor experience
√
5
Change in the scope of the project
7 8
Low speed of decisions making Cash flow and financial difficulties faced by contractors
9
Contractor's poor site management and supervision
√
10
Practice of assigning contract to lowest bidder
11
Lack of communication among parties
12
Shortage of site workers
13
Delay in Material procurement Underestimate project duration resulting Schedule Delay Incompetent Project team (designers and contractors)
15
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√
√
[30]
[28]
[27]
[26]
[29]
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RANKING OF FACTORS AFFECTING CONSTRUCTION COST PERFORMANCE Overall
S.No.
√ √
√
√ √
√
√
TABLE III.
√
√
√ √
√
√ √
6
14
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[25]
[24]
[23]
[22]
[21]
[20]
[19]
Causes
[17]
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RANKING OF FACTORS AFFECTING CONSTRUCTION COST PERFORMANCE
[`11]
TABLE II.
[10]
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Client Respondents
Contractor Respondents
Factors Mean
S.D
Rank
Mean
S.D
Rank
Mean
S.D
Rank
1
Fluctuation in prices of materials
3.97
0.97
1
3.62
0.87
6
4.47
0.92
1
2
Cash flow and financial difficulties faced by contractors
3.89
1.21
2
3.90
1.18
5
3.87
1.30
2
3
Shortage of site workers
3.78
1.12
3
3.95
1.02
4
3.53
1.25
7
4
Lack of communication among parties
3.78
1.07
3
4.0
0.78
3
3.78
1.07
4
3.67
1.12
4
4.29
0.78
1
2.8
0.94
12
3.67
1.06
4
4.24
0.70
2
2.87
0.99
11
5 6
Incorrect planning and scheduling by contractors Contractor's poor site management and supervision
7
Delay in Material procurement
3.53
0.94
5
3.33
0.91
9
3.8
0.94
3
8
Underestimate project duration resulting Schedule Delay
3.47
0.91
6
3.47
0.75
7
3.47
1.13
8
9
Unforeseen ground conditions
3.39
0.96
7
3.14
0.96
10
3.73
0.88
5
10
Low speed of decisions making
3.36
0.90
8
3.38
0.80
8
3.33
1.04
9
11
Inadequate contractor experience
3.36
1.10
8
3.95
0.80
4
2.53
0.92
13
12
Change in the scope of the project
3.33
0.76
9
3.14
0.65
10
3.60
0.83
6
13
Practice of assigning contract to lowest bidder
3.28
1.28
10
3.09
1.19
11
3.53
1.34
7
14
Frequent design changes
3.19
0.95
11
2.90
0.94
12
3.6
0.83
6
15
Owner interference
2.89
0.95
12
2.8
0.81
13
3.0
1.13
10
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[16] K. D. Chimwaso, “ An Evaluation of Cost Performance of Public Projects; Case of Botswana”, Department of Architecture and Building Services, Gaborone, 2001 [17] Y. Frimpong, J. Oluwoye, and L. Crawford, “Causes of delay and cost overruns in construction of groundwater projects in a developing countries; Ghana as a case study”, International Journal of project management, 21, p. 321-326, 2003 [18] S. Meepol, and S. O. Ogunlana, “Factors affecting cost and time performance on highway construction projects: evidence from Thailand”, Journal of Financial Management of Property and Construction, 11(1), p. 3-20, 2006 [19] O. J. Ameh, A. D. Soyingbe, and K. T. Odusami, "Significant factors causing cost overruns in telecommunication projects in Nigeria", Journal of Construction in Developing Countries, 15, 2010 [20] G. Creedy, "Risk factors leading to cost overrun in highway projects". Sidwell, A. C. (Ed.). Proceeding of Queenland University of Technology Research Week International Conference, Brisbane, Australia, 4-8 July, 2005 [21] S. Jackson, “Project cost overrun and risk management”, Proceedings of Association of Researchers in Construction Management 18th Annual ARCOM Conference, Newcastle, Northumber University, UK, 2-4 September, 2002 [22] A. S. T. Chang, "Reasons for Cost and Schedule Increase for Engineering Design Projects", Journal of Management in Engineering, 18 (1), p. 29– 36, 2002 [23] Y. A. Al-Juwairah, "Factors Affecting Construction Costs in Saudi Arabia", Thesis of MSc in construction Management, Faculty of the college of Graduate Studies, King Fahad University of Petroleum & Minerals Dhahran, Saudi Arabia, 1997 [24] A. Enshassi, J. Al-Najjar, and M. Kumaraswamy, "Delays and cost overruns in the construction projects in the Gaza Strip", Journal of Financial Management of Property and Construction, 14 (2), p. 126-151, 2009 [25] Harisweni, "The Framework for Minimizing Construction time and Cost Overruns in Padding and Pekanbaru, Indonesia", A thesis submitted in fulfilment of the requirements for the award of the degree of Master of Science (Quantity Surveying), Faculty of Built Environment, Universiti Teknologi Malaysia, 2007 [26] A. Omoregie, and D. Radford, “Infrastructure delays and cost escalation: causes and effects in Nigeria”, Proceeding of sixth international postgraduate research conference, Delft University of Technology and TNO, the Netherlands. 3rd-7th April., 2006 [27] N. D. Long, S. Ogunlana, T. Quang, and K. C. Lam, "Large construction projects in developing countries: a case study from Vietnam", International Journal of Project Management, 22, p. 553–561, 2004 [28] M. R. Abdullah, A. A. A. Azis, and I. A. Rahman, “Potential effects on large MARA projects due to construction delay”, International journal of Integrated Engineering (Issue on Civil and Environmental Engineering) 2009, 1(2): 53-62, 2009 [29] M. Sambasivan, Y. W. Soon, "Causes and effects of delays in Malaysian construction industry", International Journal of Project Management, 25, p. 517–526, 2007 [30] I. A. Majid “Causes and Effects of delays in ACEH Construction Industry”, Thesis of MSc in construction management, Faculty of Civil Engineering, University Technology Malaysia, 2006
V. CONCLUSION Study was carried out to investigate various procurement strategies adopted in MARA large construction projects. Results showed that MARA projects are classified as small and large project based on cost of project cost. Project worth contract amount above 5 Million Ringgit were regarded as large construction projects. In order to manage projects, traditional and management procurement strategies are adopted. Also, comprehensive study was conducted to identify the factors affecting construction cost performance. Through a questionnaire survey amongst contractor and client personnel, it was perceived that fluctuation of material prices was the most dominant factor affecting construction cost performance followed by cash flow and financial difficulties faced by contractors. Shortage of site workers and lack of communication between parties were found as third major factors affecting construction cost performance. REFERENCES [1] [2] [3]
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