AN INVESTIGATION OF FACTORS AFFECTING CONSTRUCTION COST IN THE FEDERAL CAPITAL TERRITORY – ABUJA, NIGERIA

CHAPTER ONE

INTRODUCTION

1.1             Background of the Study

The construction industry contributes to the socio-economic growth of any nation by improving the quality of life and providing infrastructures such as roads, hospitals, schools, and other basic facilities. Hence, it is imperative that construction projects be completed within the scheduled time, within the budgeted cost, and meet the anticipated quality. However, being a complex industry, it is faced with severe problems of cost (Abdul-Rahman, Memon & Abd Karim, 2013).

Cost is a common problem in both the developed and the developing nations, making it difficult to complete many projects within budget. Being a common problem, Allahaim & Liu (2012) reported that costs affect 90% of construction projects. However, the majority of developing countries experience cost overruns exceeding 100% of the initial budget. The argument in the construction industry on how to reduce or totally remove cost overruns from projects has been ongoing among built-environment professionals, project owners, and users for the past 70 years. There is, however, no substantial improvement or significant solution in mitigating its detrimental effects (Allahaim & Liu, 2012).

The growing need for construction of all types coupled with a tight monetary supply has provided the construction industry with a big challenge to cut cost. 

According to Mendelson & Greenfield (2006), the dwindling fortune of nations economies around the world have geared up the participants in these sectors (the clients in particular) to take up the challenge of ensuring efficient use of their resources to obtain value for money in terms of performance.

The total cost of construction in normal circumstances is expected to be the sum of the following costs: Materials, Labour, Site Overheads, Equipment/Plant, Head office Cost and Profit but in many parts of the world particularly in Nigeria, there are other costs.   These costs according to Mbachu and Nkado (2004) have obvious negative implications for the key stakeholders in particular, and the construction industry in general.

To the clients, high cost implies added costs over and above those initially agreed upon at the onset, resulting in less returns on investment. To the end users, the added costs are passed on as higher rental / lease costs 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 on them by clients.

To the contractors, it implies loss of profit through penalties for non-completion, and negative word of mouth that could jeopardize their chances of winning further contracts, if at fault.

Over the years, research interests in addressing construction cost across the world have resulted in a large number of publications. However, research evidence has shown that previous studies from different parts of Nigeria have centred on the investigation into the total amount of cost overruns for construction projects; identification of factors affecting  costs, as well as the control measures for mitigating cost overruns in the construction industry (Ogunsemi & Jagboro, 2006).

1.2             Statement of the Problem

The recent economy crisis witnessed in Nigeria and the world at large has had a negative effects on prices of construction and also, the demand for more construction projects of all types, coupled with a tight monetary supply has left the construction industry with a big challenge of costs. The problem of high contract costs of all aspects of construction is becoming obvious. Consequently, substantial increases are being observed in construction projects (Makoju,   2000). 

This substantial increase has brought about loss of clients’ confidence in consultants, contractors, added investment risks, inability to deliver value to clients, and disinvestment in the construction industry and it is against this background that this study seeks to investigate the factors affecting construction cost in the Federal Capital Territory, Abuja, Nigeria.  

1.3              Research Questions

                                   

The following research questions were formulated to guide the study;

1.                 What are the main factors affecting construction cost in the Federal Capital Territory, Abuja, Nigeria?

2.                 Are there severity of factors amongst clients, consultants and contractors?

3.                 What are the measures put in place to checkmate these factors affecting costs?

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