Indigenous Construction Companies
Indigenous Construction Companies
The construction sector is among the oldest global economic sector and construction multinational companies (MNCs) from developed countries form a sophisticated and well developed presence in many countries. The MNC’s especially develop quality infrastructural facilities in developing countries such as Nigeria. Nigeria’s construction industry is supposed to be of tremendous significance especially on the industry’s impact on employment provision, opportunities and economic growth (Cypher & Dietz, 2008).
The construction industry can contribute a significant percentage to Nigeria’s annual gross domestic product and also to the total fixed capital investment. Moreover, the construction expenditure account contributes over 50 percent of the government’s expenditure (Ogunsemi & Jagboro, 2006). Therefore, there is need to ensure the success of the construction companies in Nigeria. Nevertheless, the state tries to make sure that the success is achieved, but recently, Nigeria has been recording low performance of the indigenous construction firms.
On the other hand, the multinational construction companies are performing better and patronized more as compared to the indigenous companies. The indigenous construction companies on their part are growing at level rates that are too low to compete with the multinational companies. Indigenous firms should set a lead example in contribution to their country’s economy because the duration of MNCs is unpredictable. Moreover, it is sensible when the indigenous firms are more patronized than the MNCs because these firms have been with the Nigerian people for a long time.
There are various significant reasons behind the poor performance of the indigenous construction firms in Abuja as compared to the multinational ones. First, most indigenous constructing companies delay the completion of constructing projects and this leads to other various drawbacks. Second, most of the indigenous developers lack financial capabilities to undertake major and quality projects because of restrictions to financial lending. Third, government regulations and politically motivated influences result to problems of resources and management and skill exploitation.
Most indigenous firms are seen to charge exorbitant costs high construction, land and documentation costs. Additionally, indigenous firms are limited on skills and resource allocation. Fourth, the indigenous firms are seen as incapable to handle large scale projects and multinational construction firms are perceived to produce more quality work as compared to the indigenous firms. As a management consultant undertaking the construction of Nigeria’s New Capital City-Abuja, solutions to assist constructing firms in Nigeria to revive their businesses are recommended.
Time concept and Delays Indigenous companies delay the completion of construction projects and this later leads to withdrawal by clients (Aibinu & Odeyinka, 2006). According to Aibinu and Oyedinka (2006) construction delays are very disruptive and in the process lead to increased costs. Ogunsemi and Jagboro (2003) assert that the project duration concept is important in assessing the viability or success of a construction project. These delays are contributed by both actions and lack of action by the project participants and other external factors.
To prove that there is a delay in the construction works of the Nigeria firms, Aibinu and Oyedinka (2006) conducted a quantitative study in which building projects were surveyed in order to determine the extent of delays and the causative factors. The methodology involved posting questionnaires to various construction managers-architects, quantity surveyors, and contracting organizations-and analyzing the responses from which 44 factors that contribute to the delay of the construction projects were identified. Pareto analysis was used to identify particular causative factors for delay.
These factors were grouped into those caused by the project participants and those not caused by the construction participants and the design. A combination of the highest priority causative factors was shown to contribute to 90 percent of the construction delays although no single factor was identified as the main cause of the delay problem. Aibinu and Oyedinka (2006) identified contractor-related delays as being financial difficulties, problems of equipment breakdown and maintenance, and challenges in planning and scheduling the projects.
Subcontractor-related delays resulted from slow mobilization, and also financial difficulties. Supplier-related delays included ordered materials delivered late while delays caused by factors that are not related to the project participants include inclement weather and escalated prices. Time has been identified as an important factor contributing to delay or abandonment of the project and this leads to contract failure (Aibinu and Oyedinka, 2006).
Consequently, time delays also lead to cost overruns and sometimes processing time and cost-related issues leads to further disputes as causative factors of delays are questioned by the client. Aibinu and Oyedinka (2006) assert that the problem of delay is so severe in Nigeria especially when the current economic condition of the country is considered. One causative factor leading to delays is when the parties involved have other priorities other than the construction project at hand, and are maybe participating in other projects as well as undertaking the current one.
Despite the stipulated time for project completion, this may not be achieved because of the distributed priorities (Wayne, 2006). Another causative factor for delay is lack of a national control body that can monitor the activities that are undertaken by the construction parties (Langford & Retik, 1996). The current Nigerian construction sector comprises of the contractors, subcontractors, the clients, suppliers, designers and supervisors of the projects. The professional body is made up of the architects, structural and service engineers, and the quantity surveyors.
As much as the activities of these professionals are regulated by professional regulatory bodies, there lacks a national agency that can coordinate the activities of the various groups and this lack of synergy may cause deviations from the unique goal of completing quality construction projects in time. In soma parts of the country, it is common to notice that there is no clear distinguishing of the contribution of suppliers, contractors, and consultants. Delays are also caused by financing of and payment for completed works.
In most cases, contractors’ payments are delayed and this delays the project process. Financing is also limited because of the fact that most pf the indigenous firms are small or medium sized and therefore unable to come up with the total project funding. Additionally, such small-sized firms fin d challenges when trying to source for loans from financing institutions. Another cause for delay is poor management of contract especially when considering that there lacks a coordination body and that management can be allowed from a political affiliation basis rather than from knowledge and skills basis.
Unforeseen site conditions are another reason for delay in which the project may begin but then it is later realized the chosen site is not appropriate for site construction. Relocation and other procedures resulting from the situation delay the construction project and mainly it is as a result of poor risk assessment and evaluation techniques. Delays factors can also come from the clients’ side and these include a slow decision-making process, order variations, and cash flow problems.
In alignment to these, there are delays caused by the consultants and these include incomplete drawings and so contractors are forced to delay the project and wait for the drawings to be completed. Consultants can also respond slowly to queries directed at them and this halts the construction process. Poor communication from the consultants to other parties also delays the project in addition to contributing to poor performance. For instance, giving late instructions after the construction process is on way. Consultants also give variation orders leading to further delays.
Extraneous factors that delay the construction projects include inclement weather, strikes and labour disputes. Ogunsemi and Jagboro (2003) argue that almost all projects in Nigeria are completed after a much longer duration than the one that was initially planned. Consequently this leads to a hiked cost of project execution as compared to countries with similar construction type like Britain, Brazil, and Kenya. The study shows that the cost of construction in Nigeria is 30 percent higher than in the United States.
To show how duration relates with cost, Ogunsemi and Jagboro (2003) developed a time-cost relationship based on Bromilow’s time-cost model for the Nigeria construction projects. The study obtained cost data on 87 projects that had been executed between the year of 1991 and 2000. Regression analysis and piecewise model were used to identify factors of delay and effect on the time-cost model. It was found out that delays were mostly experienced with the public sector companies as compared to the private sector.
Moreover, it was realized that the longer the duration for the construction project, the higher the costs that accompanied the process. Ogunsemi and Jagboro (2003) summarize the major aspects that can be used to measure the overall success of the construction projects and these are time, target of quality, cost and satisfaction from the participants. Indigenous firms in Nigeria have been shown to perform poorly on these aspects as compared to the MNC’s and therefore this jeopardizes the success of their construction project.
On the other hand, the construction duration is a benchmark feature for assessing the project’s performance and the efficiency of the contracting organization. Construction projects that are completed within time assist both the client and the contractor to avoid incurring extra costs and thus the contractor earns better revenue while the client gets a better bargain. Most MNC are client-focused and try to complete projects in time so that they get more business from the customer in future.
MNCs try to eliminate causes of delay by integrating the roles of all the participants and because of their large size, financial restrictions are rarely heard of. These companies also carry out effective risk assessment to avoid starting projects that may not be completed. Indigenous companies also need to apply strategies that can eliminate delays in the construction project execution (Pheng & Hongbin, 2004). Financial restrictions and resource scarcity Indigenous developers lack financial capabilities to undertake major and quality projects because of restrictions to financial lending (Nubi, 2010).
As already described, lack of sufficient funding stem from contractors, subcontractors and clients and these are major causes of delays in the project execution process. According to Nubi (2010), most contractors in the construction industry depend on personal and family savings, incremental constructional remittances which can hardly meet the financial requirements required to provide quality housing. Bank loans that the small and medium sized companies may access are almost uncertain because banks try to avoid the risk factor of lending to businesses with less valued collateral.
On the other hand, most MNCs from countries of high income economies usually do well financially especially because of higher innovative aspects. These firms are likely to receive tremendous financial assistance because of their valuable collaterals. Shareholders in larger firms are almost certain of returns from any investment because there are many prospects with the diversified MNCs. MNCs that are large in size also have better techniques to assess and diversify risks which further increase their chance at financial reach.
The indigenous constructional firms are mostly small- sized and this hinders the acquisition of financial assistance from financial institutions. Government and political interferences Government regulations and other politically motivated influences result to problems of resources, management and skill exploitation (NJISS, 2002; Nubi, 2010). The cost of land is very high in Nigeria and documentation process worsens the matter. Most indigenous firms are therefore forced to charge exorbitant costs on constructional projects and this turns off the clients especially when the quality of the construction outcome is low.
Nepotism and corruption is rampant in Nigeria especially in the selection of companies that will contract particular jobs (Aibinu & Odeyinka, 2006). Contract awarding is therefore done without considering the skills and knowledge capability of the contractors. This contributes to low quality of most works and hence the MNCs which show knowledge-based competency and provide quality work are more likely to be given more business by the clients. Nubi (2010) addresses the government’s direct home construction policy in which the Nigerian government pledged to give support to the construction industry.
However, there has been ineffective and inefficient contribution from the government’s side. Government policies have hindered the privatization of the indigenous construction industry. Nubi (2010) shows that in the early 1990s, the private developers’ individuals and private corporate contributed an estimate of 90 percent to the national stock. However, through the National Housing Policy of 1992, the government banned the direct construction policy as it took a new role as a facilitator of the housing industry.
Abdul-Rasheed and Tajudeen (2006) assert that public-listed construction and real estate companies form a minute portion of the total commercial real estate market, and that Nigeria experiences the lowest speed of secularization of these markets. Abdul-Rasheed and Tajudeen, (2006) further assert that the public sector construction and real estate do not out-perform the stock market but they do offer possibilities of diversification because of their low correlation with the stock market.
The government can help improve the construction sector through acting as an investor or client of the industry rather than a facilitator (Abdul-Rasheed, & Tajudeen, 2006). On the other hand, the MNCs are not part of the host’s national policy and so experience less government control as far as what is expected of their work. MNCs also introduce better technical capacity and an array of skills as these companies leave nothing to chance as they seek to establish a competitive advantage in the constructional market. Quality and Quantity Issues
Indigenous firms are seen as incapable to handle large scale projects and multinational construction firms are perceived to produce more quality work as compared to the indigenous firms (Nubi, 2010). The country’s indigenous construction firm comprises of several small to large medium sizes as opposed to large firms. There is thus a low entry barrier into the industry and a huge number of ad hoc firms involved in the public sector’s project execution simply because of political contact (Aibinu and Oyedinka, 2006).
Additionally, Nigeria’s construction industry is still fragmented as compared to the MNC constructors who integrate their services. Fragmentation in the industry is a major factor that leads to poor performance of the indigenous construction industry. Fragmentation is observed right from the registration process in which a lack of a common national registry of contractors leads to repetitive registers that are inconsistent in both standard and content. Worth noting is that contractors from the public sector and the private sector maintain separate registers and this divide interferes with coordination (Newswatch. (2005).
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 25 September 2016
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