International Journal of Civil Engineering and Built Environment Vol.1, No.1, 2014; ISSN 2289-6317 Published by YSI Publisher

30

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 1Faculty of Civil and Environmental Engineering, University Tun Hussein Onn Malaysia, Malaysia

2Majlis Amanah Rakyat (MARA) 3Universiti Tun Hussein Onn Malaysia, 86400 Parit Raja - Batu Pahat

Corresponding Author:aftabm78@hotmail.com

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.

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.

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.

Keywords: Construction Industry, Construction Cost, MARA Projects, Cost performance, Cost Overrun

I. 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

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].

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.

TABLE I. TYPES OF PROCUREMENT METHODS &THEIR VARIATIONS

Procurement Strategy Methods/Techniques

Procurement Strategy

Traditional Lump Sum System/Traditional System/ Design- Bid- Build/Open Tender Contracts Negotiated Contracts Best Value Procurement Incentives Contracts

Management Construction Project Management/Contract Management Construction Management at Risk/Management Contracting

Integrated Design and Build Turnkey System

ww

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Inbuild/Manaprocu(1) exProjeperfothis sprojeconstbudgethis consifocusstratecollec

II. A. B

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2) traditand c

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n Malaysian, t/turnkey syagement/Contraurement strategxamine variousects, (ii) identormance in MAstudy include, cts only. Alttructions, but iet of $1 milliostudy, project idered as largeses on projectegies only. Thiction were pers

RELATED W

udget Planningrocurement mtruction procesare used to manct advantageurement approagement, integr

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Figure 2. Management

tional procuremcomplexity, m

I

Self-PerfoIn-House Job-OrderSeparate C

traditional lumystem and act Manageme

gies [1, 9]. Thiss procurement tifying factors ARA projects.

firstly this pathough, it isin a study of Vn were conside

of budget Re construction s with projectirdly, targeted sonnel of contr

WORKS

g and Control method is a strss. There are a anage the proces and disaoaches are wrated services a

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and have directssible result, itble variationsdesign-bid-bui, incentives ctions such as s in UK. In Mas are extensive, a client incorinto this procu

project [9]equence of ope

t Procuremenment which isanagement pro

International Jo

ormance Teams r Contract Contracts

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ractor firms and

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cess where eacadvantages. Iidely discusse

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r a building) ostructures) and designer is hion while contfied with the chitect or enger to coordinatt access to the t is normal fo

s that suits tild, negotiated ontracts are wopen tender

alaysia, both oely adopted andrporates Projecurement to assi. The typicaeration is show

nt: Basically s focusing on ocurement is p

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define largects with a tota

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nage the entireoven strategiesch has its ownInitially, foured; traditionalams [9].

procurement isnd complexity

or engineer (forcontractors forired earlier totractors will be

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ct success. Undwide are expcted in the cociated with almma is very seloped countriematter [12]. Thveloping countral factors as ed out worldwrials is a cotruction cost coficant amount ens mostly becrials and manae construction uate ability of cost performanSimilarity, in K

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ated Procurement

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32

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n 0.7 [18].

ibution of respo11. Figure 11

ut of 36 (58.33%construction ince between 6-1years experiencce less than 2 y

Figure 7. R

ronment V

projects in Kuded frequent s lack of expelated contractoere major contgn changes, conditions; ande frequently ocIn Ghana, co

y payments difprojects that leafaces overrun ighted that t critical factorter projects opoor contractomaterial proculation of mater

TION AND ANAs carried out instudy and interrategies adoptees of cost overrd for identifycost performa

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ondents in term indicates that

%) were experindustry, 7 ou10 years, whilece and only 4 (years.

Respondents worki

Vol. 1 No. 1, 20

Kuwait. The mchange orders

perience in coor, material antributors to cos

inadequate d fluctuations ccurring factorsntractors and cfficulties is a mad to delay in in cost. Wh

the poor rs in causing coof Ghana, major managemenurement, poorial prices [17].

ALYSIS n two phases rviews. It aimeed in MARA prun. In the sec

fying significaance among cssing significao 5 was adopteuse where 1 r

3 moderately total of 36 r

tionnaire survee (SPSS) versi

hecked for reliacribes the stabach coefficief Cronbach visfactory if Cro

ms of experienct majority of renced more tha

ut of 36 (19.e 4 respondent(11.11%) respo

ing experience

014

major time s, financial onstruction. nd owners st increase.

planning, in the cost s leading to consultants major issue works and

hile, client contractor

ost overrun. jor factors

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where first ed to assess projects and cond phase, ant factors contractors, ance of the ed to assess represented

agree, 4 respondents ey process. ion 17 was ability prior bility of the ent value. It value is less onbach is

ce is shown respondents an 10 years .44%) had s (11.11%)

ondents had

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RESULTS AN

Classification ofMARA construc

projects. Motional procuremting managemcts which are adopting ma

ification of theery methods act worth less t

mally consideremally MARA is architect is aptruction at the act with MARh more than R

large project al knowledge a

RA is adoptingct and as a mrvise and admin

MARA Constructudies revealeurement; tradiRA is organizine the project.

agement procued first before

w the contractuagement procu

ws their sequenc

gure 8. Contractu

gure 9. Sequence

ure 10. Contractua

I

ND DISCUSSION

f MARA projecction projects aost of the sm

ment while the ment procurem

complex and anagement pre project is basare based on ithan five milli

ed as a small adopting the tr

ppointed as tconstruction

RA. Contrast tRM 5 million is

normally higand expertise t

g management matter of factnister the entire

ction Procuremed that MARtional and m

ng its own tech. However, if

urement,approva PMC is app

ual relationshipurement whilece of operation

ual Relationship of

e of Operation of M

al Relationship of M

International Jo

N

cts are classified inmall projects majority of lar

ment. In someneed special

rocurement. Ted on its contrits size and coion ringgit (RMproject. As mraditional procthe leader to site. The lead

to small projes considered asghly complicatto handle it. Moprocurement ft, MARA enge project.

ment RA is adoptinmanagement. Fhnical teams tof MARA dec

val from LPMointed. Figure p of MARA

e Figure 10 a.

f MARA Tradition

MARA Traditiona

MARA Managem

ournal of Civil

nto 2; small andare adopting

rge projects aree cases, smalknowledge are

Therefore, theract cost but itsomplexity. TheM 5 million) ismention earliercurement where

organize theder has direc

ect, the projecs large projectted and needsost of the timefor this kind ofgages PMC to

ng 2 types ofFor traditional administer the

cides to adopM A must be

8 and Figure 9traditional and

and Figure 11

nal Procurement

al Procurement

ent Procurement

l Engineering a

33

d g e l e e s e s r, e e t t

t. s

e, f o

f l, e t e 9 d 1

Figure 1

C. FactoDurin

affecting identifiedcommon shown inpurpose. reliability0.776 whorder to iperformanpresentedof matericost perdifficultieShortage were 3rdcontracto

Fluctthe fluctuconstructaccordingwhile con

Cash contractodifficultieContractoinfluencesite workbe facedconsultanthis issue

Shortperceivedrespondendominantrespondensubcontraof the wworkers abetween prevails.

Lack communiaffecting contractopoor manbetween t

and Built Envir

11. Sequence of O

ors Affecting Cong interview p

project cost pd. Literature s

factors affecn figure II. The

Data collectey. Cronbach's Ahich means dataidentify the rannce, data was

d in table III. Bals is the most

rformance folles faced by cof site workersmajor factor a

ors were found

uation in pricuation of materiion cost. Howeg to client flucntractor ranked

flow and ors: Contractoes as 2nd factors believe thie other causes kers and ineffecd due to delant and late in may as well se

tage of site wd by Client. nts. Howevert while contrants claim thatactor seems lar

works are contare hired by thcontractor and

of communication between

factor. Clienor ranked as 4tnagement, selethe contractor a

ronment V

peration of MARA

Construction Coprocess, a totalerformance in

showed that thcting cost perse factors were

ed through quAlpha of the gaa collected in anks of factors as analyzed witBased on table

significant faclowed by Cacontractors as s, lack of comm

and incorrect pas 4th ranked fa

ces of materiaial is the most ever, it is very

ctuation in pricd as 1st.

financial ors rankled ctor while clieis issue is versuch as site m

ctive planning aay approval monthly paymettle other issue

workers: ThisIt is 3rd ran

, client rankeactors ranked t the problem rgely contributtracted to sub

hese sub-contrad subcontractor

nication betwn parties is alsnts ranked thth. Lack of co

ection of propeand other partie

Vol. 1 No. 1, 20

A Management Pro

ost Performancl of 15 commMRA large pr

he identified rformance wore investigated f

uestionnaire waathered data waacceptable for aaffecting constrth SPSS 17. RIII, Fluctuatio

ctor affecting coash flow and

second rankemunication am

planning & schactor.

als: Table III dominant facto

y interesting toce was ranked

difficulties cash flow andent ranked samry critical whemanagement, sand schedulingof work com

ment from clienes simultaneou

s factor is signked factor bed this factor

it as 12th rabetween cont

te to this causecontractors, m

actor. If there ar, automatically

ween parties:so ranked as thhis factor as oordination maer material andes.

014

ocurement

ce mon factors roject were factors are rldwide as for ranking as test for as found as analysis. In ruction cost Results are on in prices onstruction

d financial ed factors.

mong parties heduling by

shows that or affecting

o know that as 6th rank

faced by d financial me as 5th. ere it may shortage of g. This may mpleted by nt. Settling

usly.

gnificant as by overall r as most ank. Client tractor and e. As most

most of the are disputes y this issue

Lack of hird highest

3rd while ay result in d problems

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TABLE II. RANKING OF FACTORS AFFECTING CONSTRUCTION COST PERFORMANCE

S.No Causes [10]

[`11

]

[17]

[19]

[20]

[21]

[22]

[23]

[24]

[25]

[26]

[27]

[28]

[29]

[30]

1 Incorrect planning and scheduling by contractors 2 Fluctuation in prices of materials 3 Frequent design changes 4 Unforeseen ground conditions 5 Inadequate contractor experience 6 Change in the scope of the project 7 Low speed of decisions making 8 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 14 Underestimate project duration resulting Schedule

Delay 15 Incompetent Project team (designers and

contractors)

TABLE III. RANKING OF FACTORS AFFECTING CONSTRUCTION COST PERFORMANCE

S.No. Factors Overall Client Respondents Contractor Respondents

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

5 Incorrect planning and scheduling by contractors 3.67 1.12 4 4.29 0.78 1 2.8 0.94 12

6 Contractor's poor site management and supervision 3.67 1.06 4 4.24 0.70 2 2.87 0.99 11

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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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.

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