THE ASSESSMENT OF FACTORS AFFECTING TENDERING IN CONSTRUCTION PROJECTS: CASE STUDY OF LAGOS STATE

CHAPTER ONE

INTRODUCTION

1.1. BACKGROUND OF THE STUDY

Construction industry is very important in the economic development of any nation especially in expanding economy like Nigeria [Ibironke, 2012]. It controls the capital flow, as well as labour resources, which had cost implications. As a result of this, proper management of these resources is considered an important aspect of project works. Likewise if the resources are adequately harnessed, issues that relate to cost overrun would not arise which could result to variations and claims. Some firms rely on claims as a result of variation incurred during the course of the project execution and afterward evaluate their profit after incurring necessary and unnecessary tendering on a project. This however has tendency of positioning such in a disadvantageous profit position. An effective cost management strategy is therefore necessary; this could be achieved through putting in place a proactive cost management strategy [Love et. al, 2010]. They described cost management system as a process that should be carried out throughout the lifecycle of a project, from the inception to the final completion and final payment to the contractor. In the light of this, the timeliness and cost effectiveness of various operation and decision carried out will determine to an extent the magnitude of cost that could be saved on the project [Kerzner, 2010, Ogunsemi et al, 2013]. The total cost of construction in normal circumstances is expected to be the sum of the following cost: Materials, Labours, Site overheads, Equipment/ Plant, Head office cost and profit but in many parts of the world particularly in Nigeria, there are other tendering to be allowed for such as cost as a result of currency exchange, contractor’s cartel, disputes on site, insurance cost, fraudulent and kickback [Neil, 2009]. These tendering according to the author in reference [Mbachu et al, 2013] have obvious negative implications for the key stakeholders in particular, and the industry in general. To the client, high cost implies added tendering over and those initially agreed upon at the onset, resulting in less returns on investment. To the end user, the added tendering are passed on as high rental/ lease tendering or prices. To the consultants, it means inability to deliver value-for-money and could tarnish their reputation and result in loss of confidence reposed in them by clients. To the contractor, it implies loss of profit through penalties for non-completion, and negative word of mouth that could jeopardize his/her chances of winning further jobs, if at fault. Consequently, the study explored the major factors affecting construction project tendering in Nigeria and proffer reasonable steps that can be taken to optimise construction project cost in Nigeria. The paper is expected to extend our understanding on the major factors affecting tendering in construction project.

1.2. STATEMENT OF THE PROBLEM

The overall research problem addressed in this study is that despite an increase in knowledge in the tendering processes in construction projects very little has been done to analyze the factors influencing the tendering process in construction projects in terms of Tribalism, politics, nepotism, delays, inefficient, fairness, competitiveness, accessibility, transparency, openness, integrity and profitability. Usta (2010) as cited in Onukwube (2009) observe that, it is pretty difficult to estimate productivity level and potential delays without a basis for making the estimate. He asserted further that rather than include contingency, contractors adjust their productivity rates or unit tendering to reflect anticipated difficulties. In design and build or construction management it is common to add additional sums for unknowns and difficulties. The submission was supported by Laryea and Hughes (2009) in a research carried out in Ghana where similar trend is being experienced by reporting that risk allowances made by contractors in their estimates seemed to be guided by concerns about competition and winning the job rather than the true cost of risk. Odeyinka (2013) observed that estimating risk in construction as a variable in the construction process whose variation results in uncertainty as to the final cost, duration, and quality of the project. Odeyinka et al (2009) in a research conducted on the budgetary reliability of bills of quantities (BOQ) for procurement of building projects, opined that the difference between the budgeted cost and the final cost incurred differed greatly depending on project type. This is supported by Khumpaisal (2015) who focused on construction industry and opined that maximum possible risk to the contractor occurs in the Lump Sum contract in which the extent of the work is moderately well identified and the cost of the work is tendered as a non-possible change project. Young (2011) viewed a lump sum contract as a contract where an agreed price has been determined for the execution of the work and performance of the obligations by the parties before the execution of the contract. Since the project considered for this research were public project executed using Lump Sum contract and the gap noticed was that contractors do not have a definite way of taking care of inherent risks in their pricing system, they are only concerned about winning contract (Laryea and Hughes, 2009). This hinders the performance of not only the contractor but also the project as it is evident by the spate of abandoned projects and adversarial or acrimonious relationship project stakeholders’ exhibit (Aje, 2008).

1.3 AIMS OF THE STUDY

The major purpose of this study is to examine the assessment of factors affecting tendering in construction projects. Other general objectives of the study are:

1. To examine the factors that influence public clients’ decisions for time allocation.

2. To examine the factors obtained in order of importance or necessity.

3. To examine the factors influencing tendering costs in construction projects.

4. To examine the extent to which duration taken in tendering influence effectiveness of tendering Process in construction projects.

5. To examine the relationship between factors affecting tendering and project delivery.

6. To suggest ways in which public procurement act can help contractors in the tendering process.

1.4 RESEARCH QUESTIONS

1. What are the factors that influence public clients’ decisions for time allocation?

2. What are the factors obtained in order of importance or necessity?

3. What are the factors influencing tendering costs in construction projects?

4. What is the extent to which duration taken in tendering influence effectiveness of tendering Process in construction projects?

5. What is the relationship between factors affecting tendering and project delivery?

6. What are the ways in which public procurement act can help contractors in the tendering process?

1.5 RESEARCH HYPOTHESES

H01: There is no factor influencing tendering costs in construction projects.

H02: There is no significant relationship between factors affecting tendering and project delivery.

1.6 SIGNIFICANCE OF THE STUDY

This research will help contractors become aware of what the factors which need to be considered when they intend to submit tenders for different projects. This research will also provide the information that would be used by any contractor to create a competitive bidding strategy.

This study will also give a clear insight into the various ways in which profit and efficiency from contracts and contracting can be increased and how the challenges facing contract tendering can be properly tackled. The study also gives a clear insight into the various factors affecting tenders and their effects on contractor’s efficiency and chances of winning a contract in Nigeria. The findings and recommendations of the researcher will help in building a strong and better contract policy and tendering guideline for contractors, especially small scale contractors in Lagos state and other construction companies in Nigeria.

1.7    SCOPE OF THE STUDY 

The study is based on the assessment of factors affecting tendering in construction projects, case study of Lagos state.

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8 DEFINITION OF TERMS

Tendering: Is the process by which bids are invited from interested contractors to carry out specific packages of construction work. It should adopt and observe the key values of fairness, clarity, simplicity and accountability, as well as reinforce the idea that the apportionment of risk to the party best placed to assess and manage it is fundamental to the success of a project.

Construction/projects: Construction is the process of constructing a building or infrastructure. Far from being a single activity, large scale construction is a feat of human multitasking. Normally, the job is managed by a project manager, and supervised by a construction manager, design engineer, construction engineer or project architect.   For the successful execution of a project, effective planning is essential. Involved with the design and execution of the infrastructure in question must consider the environmental impact of the job, the successful scheduling, budgeting, construction site safety, availability of building materials, logistics, inconvenience to the public caused by construction delays and bidding, etc. Marshall (2001)

EFFECTIVENESS OF TENDERING: This is the process of ensuring that the best applicant of the tender is selected at minimum cost and time in an Objective manner.