Construction Projects Cost Overrun: What Does The Literature Tell Us?
Construction Projects Cost Overrun: What Does The Literature Tell Us?
Construction Projects Cost Overrun: What Does The Literature Tell Us?
2, April 2017
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C. Project’s Contractor
The project’s contractor causes are shown in Table V:
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Factor Frequency The procurement delivery causes are shown in Table IX:
Imported materials and plant items. 2
Late delivery/supply of materials and equipment by 5 TABLE IX: PROCUREMENT DELIVERY CAUSES
contractors. Factor Frequency
Materials supplier’s manipulation. 2 Unbalanced distribution of risk between projects’ 2
Market conditions (materials and labour). 1 party.
Increment of equipment’s/ equipment’s 5 Mistakes, ambiguity and discrepancies in contract 3
maintenance prices. document.
Inadequate or inefficient equipment, tools and 5 Nonadherence to contract conditions. 1
plants. Inappropriate contractual procedure. 2
Inappropriate contractor policies: such as: work 4
D. Project’s Designer and Consultants suspensions owing, Long period of the project
The project’s designer and consultant causes are shown in maintenance.
Table VI: F. Country Related
TABLE VI: PROJECT’S DESIGNER AND CONSULTANT CAUSES The country related causes are shown in Table X:
Factor Frequency
Designer lack of experience. 5 TABLE X: COUNTRY RELATED CAUSES
lack of experience of technical consultants. 6 Factor Frequency
Obstacles from government. 1
Lack of design team understanding of cost and 1
value. Change in Government policies. 1
Deficient tender documentation (design, bills of 13 Delays in decisions making by Government, failure 1
quantities and specification). of specific coordinating.
Inaccurate cost and time estimates. 8 Political complexities, insecurity and instability. 1
Difference between selected bid and the 1 Social and cultural impacts. 2
consultants’ estimate.
1) Economic Related
Improvements to standard drawings during 1
construction stage. The economic related causes are shown in Table XI:
Inadequate monitoring and control procedures. 2
Delay Preparation and approval of drawings. 2 TABLE XI: ECONOMIC RELATED CAUSES
Delay in issuing information to the contractor, 5 Factor Frequency
project's inspection and handing over.
High Inflationary pressure. 6
E. External Factors Changes in pricing conditions. 1
Unsettlement of the monetary exchange rate. 4
External factors are divided into the following sub-factors Local economic stability. 1
which are: Effects of global economy. 1
Change of insurance cost. 2
1) System
Standards, guidance and requirements 2) Weather
The standards, guidance and requirements causes are The weather causes are shown in Table XII:
shown in Table VII: TABLE XII: WEATHER CAUSES
Factor Frequency
Effect of weather conditions. 10
TABLE VII: STANDARDS GUIDANCE AND REQUIREMENTS CAUSES
Factor Frequency 3) Unclassified
Unclear division of responsibilities and lack of clear 1
requirements for professional management. There are some causes which cannot be classified under
Lack of standard requirements from designers and 1 any of the previous classification which are shown in Table
poorly enforced professional liability of designers. XIII:
Disputes among the parties involved in the project 1
(clients, contractors, consultants).
Absence of construction cost, specifications, and 4 TABLE XIII: UNCLASSIFIED CAUSES
productivity standard data. Factor Frequency
Insufficient, unstandardized owner’s brief. 1 High transportation cost due to Fuel shortages 3
Culture of conflicts and lack of trust. 1 Fraudulent practices, kickbacks, corruption. 4
Inappropriate Government Policies. 4
Inadequate mode of financing projects. 5
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reviewed and approved by clients. However, this factor was It has been cited that lack of experience is one of the critical
found to cause cost overrun in different developing countries causes affecting the construction projects performance by
such as Vietnam, Indonesia, and Nigeria as well as developed different authors [34], [35].
countries such as Korea. The factor scored highly among A lack of contractor experience was one of the main causes
other factors of cost overrun in developing countries. For of cost overrun in different developed countries such as
example, in Zambia it scored second highest. Lack of clearly Indonesia and Ghana.
defined project objectives and scope was mainly the cause of
E. Poor Cost Estimation
frequent change orders in construction projects in these
countries. Cost estimating could be defined as the process where an
estimator arrives at an expenditure of resources necessary to
B. Contractors’ Financing complete a project in accordance with plans and
It is usual that contractors face financing issue during the specifications. The preparation of a detailed cost estimate for
construction phase as they normally pay for works and receive a particular construction project requires collecting,
payment after completing part of projects or the whole retrieving, and manipulating large amounts of independent,
projects. Thus, contractors should make sure that they have but related, cost and non-cost data and information in a
sufficient funds available to enable them to undertake projects. time-effective manner. Cost estimation for projects is a
Moreover, they should put all financing processes under characteristically complex exercise. Although estimation
control by adopting an effective project financing method. techniques have improved over the years, they are still
All the above points emphasise that a reliable contractor’s regarded as imperfect. Because of the high uncertainty of
financial status plays a primary role in delivering projects on construction projects, clients along with the contractor
time. Moreover, poor controlling of cost and cash flow during become better informed about the specific technological and
the construction phase would directly increase the cost of material requirements of the project works after a project
implementing a project, or it might lead to project delay that moves from the design phase to the implementation phase. Eg.
leads to financial penalties. In other words, if contractors meet poor ground conditions.
financial difficulties, project progression will be affected. There are several causes for an inaccurate cost estimate,
However, it is not unusual that contractors’ face financial and some of these causes may be similar to other causes of
difficulties during the construction phase. For instance, a cost overrun. One of them is the psychology cause.
delay or inability to cover their direct and indirect costs. Psychologists believe that most people tend to be more
The contractor experiencing financial problems was found optimistic than realistic which is called optimism bias [36],
as a cause of projects’ underachievement in different contexts [37]. In this situation, estimators and contractors make their
and it was ranked in the top five important causes for project decision based on delusional optimism (higher than actual
underachievement in the following location contexts: Nigeria, rewards and lower than actual risks) rather than rational
Ghana, and Vietnam. measuring of profits and losses. Other causes are:
1) The data used to estimate the bid may be unreliable.
C. Payment Delay
2) The absence of national database for prices to rely on.
Slow or delayed payment to contractors for completed 3) Lack of estimators’ experience.
works is a very common complaint of contractors about 4) Honest mistakes.
project’s client. It was identified in five different contexts and
appears to occur more often in government funded projects F. Poor Tendering Documents
because of a typically slow payment procedure (the public Immature tendering documents were identified as causes of
sector around the world is more bureaucratic because the level cost overrun in thirteen out of seventeen studies. Several
of power and decision-making is centralised). factors have caused this issue including: the involvement of
Failure to provide payment on time to contractors for the the designer as a consultant; communication gaps occurring
completed work will make it difficult for the contractors to between the contractor and designer; insufficient details in the
meet (typically due to relatively small cash reserves) project working drawings and a lack of coordination between the
objectives. parties. Also included is a lack of human resources in the
It is worth noting that late payment does not only consume design firm, the designers’ lack of knowledge of available
contractor’s time and money but more importantly it can materials and equipment and the use of incomplete shop
affect the trust relationship between contractors and the owner. drawings and specifications.
Moreover, payment delay by the owner might lead to an
G. Poor Material Management
increase in the cost of projects as contractors increase their
overhead cost to cover that risks [33]. Construction material is one of the most important
elements in the execution of any construction projects. The
D. Lack of Contractors’ Experience importance of material management can be seen clearly from
Construction projects are tending to become more its definition. Patel and Vyas [38] define materials
complicated and therefore place pressure on time (project management as “the system for planning and controlling all of
duration) and expertise. A lack of contractor experience (and the efforts necessary to ensure that the correct quality and
expertise) of the projects’ type and location might lead to a quantity of materials are properly specified in a timely manner,
rework component for the project or delay which increases are obtained at a reasonable cost and most importantly are
the cost of implementing a project. available at the point of use when required”. The
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consequences of poor material management might result in authorities are involved. To help contractors’ financially and
late delivery of materials or risk of purchasing at higher prices, reduce the effect of payment delay for the completed projects,
thus resulting in delay and cost overrun. With an increase in government should be involved to help contractors find a
the number of construction projects in a single location, the middle way with banks and other surety groups [33].
local market cannot meet the high level of demand for
building materials. Thus, a project’s contractor might face a ACKNOWLEDGMENT
shortage of construction materials on the market or an Authors would like to thank Albaha university and Robert
increase of the material prices, which results in cost overrun. Gordon University for all the financial and academic support.
For large and complex construction projects where special
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Gujarat, India. member of the Chartered Institute of Building.
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