The tendering process and performance analysis of a public building project in Ghana

A case study on the tendering process and cost/time performance of a public building project in Ghana is conducted. Competitive bids submitted by five contractors for the project, in which contractors were required to prepare their own quantities, were analyzed to compare differences in their pricing levels and risk/requirement perceptions. Queries sent to the consultants at the tender stage were also analyzed to identify the significant areas of concern to contractors in relation to the tender documentation. The five bidding prices were significantly different. The queries submitted for clarifications were significantly different, although a few were similar. Using a before-and-after experiment, the expected cost/time estimate at the start of the project was compared to the actual cost/time values, i.e. what happened in the actual construction phase. The analysis showed that the project exceeded its expected cost by 18% and its planned time by 210%. Variations and inadequate design were the major reasons. Following an exploration of these issues, an alternative tendering mechanism is recommended to clients. A shift away from the conventional approach of awarding work based on price, and serious consideration of alternative procurement routes can help clients in Ghana obtain better value for money on their projects

Risk pricing practices in finance, insurance and construction

A review of current risk pricing practices in the financial, insurance and construction sectors is conducted through a comprehensive literature review. The purpose was to inform a study on risk and price in the tendering processes of contractors: specifically, how contractors take account of risk when they are calculating their bids for construction work. The reference to mainstream literature was in view of construction management research as a field of application rather than a fundamental academic discipline. Analytical models are used for risk pricing in the financial sector. Certain mathematical laws and principles of insurance are used to price risk in the insurance sector. construction contractors and practitioners are described to traditionally price allowances for project risk using mechanisms such as intuition and experience. Project risk analysis models have proliferated in recent years. However, they are rarely used because of problems practitioners face when confronted with them. A discussion of practices across the three sectors shows that the construction industry does not approach risk according to the sophisticated mechanisms of the two other sectors. This is not a poor situation in itself. However, knowledge transfer from finance and insurance can help construction practitioners. But also, formal risk models for contractors should be informed by the commercial exigencies and unique characteristics of the construction sector

Contractor project estimates vs. consultant project estimates in Ghana

Ten projects constructed in Ghana between 2003 and 2010 are examined and analysed to ascertain the reliability of estimated costs provided for the projects. Cost estimates for five of the projects were calculated by consultants and cost estimates for the five remaining projects were calculated by contractors. Cost estimates prepared by contractors seemed to be closer to actual costs than estimates calculated by consultants. Projects estimated by consultants experienced an average cost overrun of 40% and time overrun of 62% whereas projects priced by contractors experienced an average cost overrun of 6% and time overrun of 41%. It seemed that contractors had a better understanding of the actual construction processes and a clearer expectation of the needs of the client hence an ability to calculate estimates that were closer to reality. Construction clients in Ghana should rely on contractors for more realistic cost estimates as estimates by consultants may be inaccurate. Where consultants are employed, an allowance of up 40% should be added to the estimated costs as a margin for inaccuracy

Quality of tender documents: case studies from the UK

Tendering is one of the stages in construction procurement that requires extensive information and documents exchange. However, tender documents are not always clear in practice. The aim of this study was to ascertain the clarity and adequacy of tender documents used in practice. Access was negotiated into two UK construction firms and the whole tender process for two projects was shadowed for 6-7 weeks in each firm using an ethnographic approach. A significant amount of tender queries, amendments and addenda were recorded. This showed that quality of tender documentation is still a problem in construction despite the existence of standards like Co-ordinated Project Information (1987) and British Standard 1192 (1984 and 1990) that are meant to help in producing clear and consistent project information. Poor quality tender documents are a source of inaccurate estimates, claims and disputes on contracts. Six recommendations are presented to help in improving the quality of tender documentation. Further research is needed into the recommendations to help improve the quality of tender documents, perhaps in conjunction with an industry-wide investigation into the level of incorporation of CPI principles in practice

The price of risk in construction projects: contingency approximation model (CAM)

Little attention has been focussed on a precise definition and evaluation mechanism for project management risk specifically related to contractors. When bidding, contractors traditionally price risks using unsystematic approaches. The high business failure rate our industry records may indicate that the current unsystematic mechanisms contractors use for building up contingencies may be inadequate. The reluctance of some contractors to include a price for risk in their tenders when bidding for work competitively may also not be a useful approach. Here, instead, we first define the meaning of contractor contingency, and then we develop a facile quantitative technique that contractors can use to estimate a price for project risk. This model will help contractors analyse their exposure to project risks; and help them express the risk in monetary terms for management action. When bidding for work, they can decide how to allocate contingencies strategically in a way that balances risk and reward

Health and safety on construction sites in Ghana

The state of health and safety on construction sites in Ghana was investigated using first hand observation of fourteen (14) construction project sites in 2009 and 2010. At each site, the construction project, workers and the physical environment of the site were inspected and evaluated against health and safety indicators taken from the literature. The results reveal a poor state of health and safety on Ghanaian construction sites. The primary reasons are a lack of strong institutional framework for governing construction activities and poor enforcement of health and safety policies and procedures. Also, Ghanaian society does not place a high premium on health and safety of construction workers on site. Interviews with workers indicated that injuries and accidents are common on sites. However, compensation for injury is often at the discretion of the contractor although collective bargaining agreements between Labour unions and employers prescribe obligations for the contractor in the event of injury to a worker

Challenges and opportunities facing contractors in Ghana

The main aim of this study was to ascertain and discuss the current challenges and opportunities facing construction contractors in Ghana. This involved a review of the economic, legal and political environments in which contractors in Ghana operate; a review of published studies on construction in developing countries generally and Ghana specifically; and in-depth interviews and discussions with seven building and civil engineering contractors in Ghana in 2009 and 2010. Six road contractors were also interviewed. The findings indicate significant challenges relating mainly to financing for projects and a harsh business environment. However, most contractors interviewed admitted to significant problems in their own organisations. It is clear that the contracting environment in Ghana is harsh particularly for local contractors who are often not paid on time and without compensation for late payment. However, local construction firms in Ghana who want to breakthrough ought to formulate the right strategic plans, develop innovative business strategies, develop professionalism, and merge with local firms with similar organisational values and characteristics. In short, local or indigenous Ghanaian contractors ought to face up to the reality of competition and the dynamics of modern business in order to survive, grow and become major players in the construction industry in Ghana

An experimental approach to project risk identification and prioritization

One of the aims of a broad ethnographic study into how the apportionment of risk influences pricing levels of contactors was to ascertain the significant risks affecting contractors in Ghana, and their impact on prices. To do this, in the context of contractors, the difference between expected and realized return on a project is the key dependent variable examined using documentary analyses and semi-structured interviews. Most work in this has focused on identifying and prioritising risks using relative importance indices generated from the analysis of questionnaire survey responses. However, this approach may be argued to constitute perceptions rather than direct measures of the project risk. Here, instead, project risk is investigated by examining two measures of the same quantity; one ‘before’ and one ‘after’ construction of a project has taken place. Risks events are identified by ascertaining the independent variables causing deviations between expected and actual rates of return. Risk impact is then measured by ascertaining additions or reductions to expected costs due to the occurrence of risk events. So far, data from eight substantially complete building projects indicates that consultants’ inefficiency, payment delays, subcontractor-related problems and changes in macroeconomic factors are significant risks affecting contractors in Ghana

The evolution of indigenous contractors in Ghana

This paper provides some preliminary insights into the emergence and development of indigenous general contractors in Ghana. General contracting is the means by which an individual or organisation takes responsibility for supplying all of the materials, labour, equipment and services necessary for the construction of a project. Whereas the development of general contracting in places like the UK is well documented, the evolution of contractors in Ghana is not clearly articulated in the literature. Therefore, the main question in this paper is: How did indigenous contractors evolve in Ghana? To examine and analyze the research question, a literature review on similar developments elsewhere was first carried out. This was followed by discussions and unstructured interviews with experienced construction practitioners in Ghana most of whom were Quantity Surveyors. Most interviewees narrated their knowledge of contractor development in Ghana dating back to around 1945. From the explanations given, it was possible to develop a general understanding of the research question and to make a qualitative interpretation of the respondents’ comments and to draw some conclusions. General contractors emerged rapidly in the Gold Coast (now Ghana) shortly after World War II. Most were Italian master craftsmen in Ghana who were capitalized by the British colonial government to develop infrastructure in the Gold Coast following devastating effects of the war. Some of the indigenous people learned from the Italians and also established construction firms. Thus, general contracting in Ghana has a relatively short history in comparison to countries like Britain where the profession developed rapidly in the early part of the 19th century in response to the industrial revolution. Although they may possess sufficient technical expertise, many indigenous contractors in Ghana today lack the capacity to carry out major projects because of low capitalization and poor organisational structures. The current construction market in Ghana is dominated by foreign contractors. To become major players in the market, indigenous Ghanaian contractors should build strong organisational structures and pursue mergers and joint venturing to boost their financial, technical and managerial capacity

Risk and price in the bidding process of contractors

Formal and analytical risk models prescribe how risk should be incorporated in construction bids. However, the actual process of how contractors and their clients negotiate and agree on price is complex, and not clearly articulated in the literature. Using participant observation, the entire tender process was shadowed in two leading UK construction firms. This was compared to propositions in analytical models and significant differences were found. 670 hours of work observed in both firms revealed three stages of the bidding process. Bidding activities were categorized and their extent estimated as deskwork (32%), calculations (19%), meetings (14%), documents (13%), off-days (11%), conversations (7%), correspondence (3%) and travel (1%). Risk allowances of 1-2% were priced in some bids and three tiers of risk apportionment in bids were identified. However, priced risks may sometimes be excluded from the final bidding price to enhance competitiveness. Thus, although risk apportionment affects a contractor’s pricing strategy, other complex, microeconomic factors also affect price. Instead of pricing in contingencies, risk was priced mostly through contractual rather than price mechanisms, to reflect commercial imperatives. The findings explain why some assumptions underpinning analytical models may not be sustainable in practice and why what actually happens in practice is important for those who seek to model the pricing of construction bids