An In-Depth Risk Management Assessment In Procurement In The Nigerian Construction Industry

The construction industry the world over is prone to risk and uncertainty which most often than not requires a sound knowledge of project risk management to contain with.

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The construction industry the world over is prone to risk and uncertainty which most often than not requires a sound knowledge of project risk management to contain with. Risk in construction industry is described as that which bring about failure to keep within the cost estimate; failure to achieve the required completion date and failure to achieve the required quality and operational requirements in construction projects. It is based on this assertion that this study aims at identifying the current risk management issues and uncertainties in the Nigerian construction industry with a specific objective of determining the level of awareness and implementation of risk management processes, and ascertain the impact of identified risks on predefined project objectives of cost, schedule, quality and scope through extensive literature and questionnaire surveys of selected construction industry. This paper discusses the identification of risk, the level of its awareness and the management probability in Nigerian construction industry. Practical observation to construction sites and interview of the stakeholders were carried out. It was discovered that many in the industry are not aware of the potent threat risk poses in the industry; this made it difficult for the strategy for its identification not to be considered. This has resulted into poor economic growth or poor contribution of the sector to the nation’s gross domestic product. The technical reasoning above is currently the object of this research, thus its awareness, identification and management is an essential to national growth.























1.0                                                        INTRODUCTION

1.1                                           BACKGROUND OF THE STUDY

Nigeria as one of the fast developing country is undoubtedly one of the mоѕt influential аnd mоѕt ѕtrаtеgic countries in Africa tоdаy in viеw оf itѕ pоpulаtiоn, itѕ vаѕt hydrоcаrbоn rеѕоurcеѕ аnd thе cоmmitmеnt оf thе gоvеrnmеnt tо dеmоcrаcy, аnti-cоrruptiоn аnd Аfricаn Unity. Thе еcоnоmy which hеаvily dеpеnds оn itѕ оil ѕеctоr (which also depends on its construction sector) аccоuntѕ fоr ѕоmе  90 percent оf еxpоrt rеvеnuеѕ аnd 41 pеrcеnt оf itѕ Grоѕѕ Dоmеѕtic Prоduct (Wоrld Bаnk, 2006).

In Nigeria, the construction industry was the dominant contributor to the nation’s Grоѕѕ Dоmеѕtic Prоduct (GDP) in the 1980s, accounting for about 70% of the GDP (Planning Committee on the National Construction Policy, 1989). This made the industry very strategic to Nigeria’s development efforts. Unfortunately, however, the industry has been bedevilled by a combination of low demand and consistent low productivity and poor performance over the years (Olomolaiye, 1987; Aniekwu, 1995; Okuwoga, 1998; Adeyemi et al.; 2005). This has reduced its contribution to the national economy to a mere 7% of the GDP in 2012 (Federal Statistics, 2013). Constraints in the construction sector include a shortage of skilled manual labour, the relatively high cost of hiring staff at managerial level, the shortage and cost of building materials like cement and the unstable political situation in the Niger Delta region and security threat in the North and South East.

The Nigerian construction market is dominated by foreign companies, which is similar to most African Countries. A large proportion of these major constructing firms in Nigeria are subsidiaries/affiliates of European, North American and Asian construction firms like Julius Berger PLC, Arab Contractors Nig. Ltd., RCC, and CCECC among others. The chunk of the projects is awarded to the foreign companies, while the indigenous companies struggle for the remnants. These too contribute poorly to the contribution of the sector to GDP.

No matter the size and type of a project, from building a shop to constructing a chemical plant, all stakeholders in the construction industry have a legal, moral and economic reason to reduce the occurrence of injury to personnel, poor construction, cost overrun and delay in delivery period.

Risk management is one of the most critical project management practices to ensure a project is successfully completed. Royer (2000) stated that experience has shown that risk management must be of critical concern to stakeholders and not just project managers, as unmanaged or unmitigated risks are one of the primary causes of project failure. Risk management is thus in direct relation to the successful project completion.

Hence, evaluating and managing risks associated with variable construction activities has never been more important for the successful delivery of a project. Davies (2006) asserts that “construction projects are subject to risks at all stages of their development”. Planning permission can be hard to obtain and designs may not be complete even before the commencement of a project. These risks can be managed, minimized, shared, transferred or accepted but it cannot be ignored (Latham, 1994). Traditionally, the focus has been on quantitative risk analysis based on estimating probabilities and probability distributions for time and cost analysis. However, dissatisfaction arising from the inability of this type of approach to handle subjectivity in risk assessments has led to research into the use of other approaches. An approach that is preferred is for organizations to use risk quantification and modeling as tools to promote communication, teamwork and risk response planning amongst multidisciplinary project team members (Tar and Carr, 1999).

However, communication of construction project risks tends to be poor, incomplete and inconsistent, both throughout the construction supply chain and the full project lifecycle. Even when risk management is carried out, there is a tendency for it to be performed on an un-formalised ad hoc basis, which is dependent on the skills, experience and risk-orientation of individual key project stakeholders. This lack of formality and the use of risk management by individuals mean that the adoption of different methods and terminologies is not unusual.

This leads to the use of different methods and techniques for dealing with risk identification, analysis and management, thereby producing different and conflicting results.

Risks identified are not rigorously examined and, even when they have been assessed and remedial measures agreed upon, they are not communicated effectively throughout the supply chain. As a result, project stakeholders lack a shared understanding of the risks that threatens a project and, consequently, unable to implement effective early warning measures and mitigating strategies to adequately deal with problems resulting from decisions that were taken without their knowledge. Part of the problem is the lack of a common language and process model in which remedial measures to risks may be identified, assessed, analysed and dealt with in a defined way (Tar and Carr, 1999). It is clear that the success of a project is dependent on the extent to which the risks affecting it can be measured, understood, reported, communicated and allocated accordingly.

1.2                                              STATEMENT OF PROBLEM

Risks are always together part of every phase of the construction process (Makui, et al 2009). Risk in construction has been described as exposure of construction activities to economic loss, due to unforeseen events or foreseeing events for which uncertainty was not properly accommodated (Joshua and Jagboro, 2007). Whenever a construction project is embarked upon, there are some risk elements inherent in it, such as physical risk, environmental risk, logistics risk, financial risk, legal risk and political risk among others. With construction projects becoming increasingly complex and dynamic in their nature as well as the introduction of new procurement methods, many contractors have been forced to have a rethink about their approach to the way that risks are treated within their projects and organisations. This is because the current economic crises currently witnessed in the country due to falling oil prices and influx of new construction companies into the country due to global economic melt-down and the drive of foreign contractors to enter into new markets have increased the competition in the sector.

The common risks challenges contractors battle with include changes in work, delayed payment on contract, financial failure of owner (client), and labour disputes, equipment and material availability, productivity of labour, defective materials, productivity of equipment, safety, poor quality of work, unforeseen site conditions, financial failure of contractor, political uncertainty, changes in legislation and policies, permits and ordinances, delays in resolving litigation/arbitration disputes, inflation, cost of legal process and force majeure (Zou et al 2007). In sum, there are problems of recurring conflict, client and stakeholder dissatisfaction from abandoned projects, and high accident rates. More so, when Nigeria needs to promptly address the infrastructural deficit currently affecting its economic development strategy. In other words, risk management therefore forms a basis for important decision making in procurement of construction projects; and the need to understand how construction contractors deliver projects within its planned objectives of time, cost, quality and safety in a peculiar environment cannot be overemphasized.

1.3                                                     AIM OF THE STUDY

This study aims at identifying the current risk management issues and uncertainties in the Nigerian construction industry with a specific objective of determining the level of awareness and implementation of risk management processes.

1.4                                                                              OBJECTIVES OF STUDY

The objective of this work are:

  • To review existing risk management models with the aim of identifying a framework for mitigating peculiar risk management practices in
  • To identify all challenges stakeholders contend with in the Nigerian construction industry.
  • To conduct a quantitative assessment of contractors risk management practices in Nigeria.
  • To conduct a case study of an ongoing project in the Nigerian construction industry to better understand the dynamics of

1.5                                                                              RESEARCH QUESTIONS

Based on the purpose of this study, the following research questions have been formulated in the following pattern:

  1. What are the risk management practices of contractors in a peculiar environment like the Nigerian construction industry?
  2. To what extent will known risk management practices influence competitive risk management practices in the construction industry?
  3. What factors influence the attitudes of stakeholders in these dynamic environments?
  4. What is the role of power relations in the construction supply chain? Is power an opportunity cost to competitive advantage in the Nigerian construction industry?

1.6                                           SIGNIFICANCE OF THE STUDY

Construction projects are usually a one-off endeavour with many unique features such as multiple project participants, long gestation periods (between conception-design-construction), complex procurement methods, large financial requirements and dynamic organization structures. All these have made the risk and uncertainties related to construction project more in peculiar environments like Nigeria when compared with other countries Although it has been recognized that construction risk cannot be eliminated, it can be mitigated and managed effectively, if project risks and uncommon characteristics are identified and assessed at the early stages of the project. Risk management is of great importance to project contractor, client and consultant because it will minimize the possibility of conflicts, disputes, cost and time overruns, abandonment, disputes, and quality related issues associated with construction project. The implementation of effective risk management practice up and down the supply chain will improve bid success rate, profits, project cash flow, safety record, business continuity and reduce contingencies. Risk management is all about being able to deliver results with a certain degree of certainty and competitive advantage. Risk management will help project stakeholders achieve projects objectives of cost, time, quality and safety. It will help the society and economies achieve cost effective and efficient projects which will create new business opportunities and generate more for people, investors and government. It will undoubtedly contribute to the development of the Nigerian construction industry as risk management variables like power and competitive advantage are aspects of the Nigerian construction process that needs understanding.

Lastly, findings from the study will enable policy makers and construction industry stakeholders improve project delivery in Nigeria and by extension help improve economic growth through multiplier effect.

1.7                                             RESEARCH METHODOLOGY

In the course of carrying this study, numerous sources were used which most of them are by visiting libraries, consulting journal and news papers and online research which Google was the major source that was used.

1.8                                                  DEFINITION OF TERMS

Indigenous Contractors: indigenous company or contractor is an organisation or firm which is wholly owned by Nigerians, has recognisable establishment and its resources in Nigeria appropriate to the type and level of work which it claims to be able to perform.

Power: The potential ability to influence behaviour, to change the course of events, to overcome resistance, and to get people to do things that they would not otherwise do” (Pfeffer 1992, p30).

Multinational Contractors: Multinational Contractors are usually multinational enterprises (MNEs) or their affiliate private firms jointly owned by Nigerians and foreigners, but are mostly or fully managed by foreigners.

Risk Management: Risk Management refers to the culture, processes, and structures that are directed toward effective management of risks including potential opportunities and threats to project objectives.

Client: A person or organization that commissions buildings or constructions for itself or for someone else.

Construction sector: The construction sector is made up of consultants for design, clients as owners or commissioners and contractors for managing the construction and installation, plus the suppliers of material.

Consultant: A person or organization engaged by the client, for the design phase of a construction project. The consultant could be a structural engineer, service engineer, quantity surveyor or project manager.

Risk: Risk is the degree of uncertainty that a planned event will occur.

Uncertainty: The possibility of two outcomes which could either be a risk or an opportunity.

1.9                                     PROJECT ORGANISATION

The work is organized as follows: chapter one discuses the introductory part of the work,   chapter two presents the literature review of the study,  chapter three describes the methods applied, chapter four discusses the results of the work, chapter five summarizes the research outcomes and the recommendations.



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