Identification of cost risk factors in building contracts in Kenya
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Date
2006-07Author
Abwunza, Allan Agesa
Type
ThesisLanguage
enMetadata
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This study sought to evaluate building cost performance and to establish the
risk factors within building contracts contributing to variations in such
performance. The study relied on responses from a questionnaire survey of 34
quantity surveyors in the private sector.
31 risk factors were identified and subjected to various tests aimed at
establishing their perceived significance and their relative importance
measured from their frequency of occurrence and impact on the-contract sum.
Findings indicate that only twelve factors perceived as significant causes of cost
changes actually influence cost performance. These include extra work, design
and specification changes, extended or reduced contract period, delays in
prepanng detailed drawings, delayed payment, late instructions, financial
failure of contracting party, defective materials or work, delayed dispute
resolution, differing underground conditions, delays arising from clientsupplied
items and inaccurate quantities.
Other factors not perceived to be significant but were important in influencing
cost performance include price fluctuations, nominated subcontractors and
suppliers, shortage of main contractor's materials, third party delays, permits
and approvals, inclement/ unpredictable weather conditions, labour and
equipment availability and productivity of labour and equipment. There was a
dramatic change in the level of risk between contract commencement and
completion for all these eight additional factors except third party delays. This
implies that the quantity surveyors perception of the significance of these
factors could be an underestimation of the real importance of the factors on cost
performance.
These findings demonstrate a clear d~tins:tion between factors forming the
basis upon which quantity surveyors develop their cost management strategy
and actual factors as they materialise during project execution. That additional
factors not initially perceived to be significant materialise as important in their
effect on cost performance is an indicator of the uncertainty within which
Kenya's building projects are executed, pointing out the difficulties experienced
in forecasting the potential impact of risk factors on cost performance.
The study recommends that quantity surveyors pay closer attention to all the
twenty important factors influencing cost performance and put in place
adequate measures aimed at mitigating potential effects of these factors on the
contract sum. Such measures include making sufficient allowances for the
factors before the contract is signed and rigorously vetting contractors before
contract award to ascertain their previous track record. Further, the study notes
that allowances made for contingency sums are too inadequate to cater for all
unforeseen risk events and recommends that such contingency sums for large
projects be increased from the current 2.5-5% to 14% while those for smaller
r projects be increased from 10%to 20-21%.
The respondents also demonstrated satisfaction with current contract
conditions as the study finds no clear distinction between the respondents'
perception of current allocation and preferred reallocation of the risk factors.
The study therefore recommends that the JBC conditions be retained and used
in their current form.
Citation
MAPublisher
Real Estate And Construction Management, University of Nairobi
Description
Master of Arts in Construction Management