How Construction Companies in Nigeria can overcome their Challenges (1)

A Construction company is a type of business, enterprise or similar organization created and operating to construct a wide variety of buildings, developments, housing, roads, motorway and other types of construction projects.

The Nigerian construction industry comprises of multitude of construction companies, both private and public who must deliver a minimum of four criteria – Cost Effectiveness, Quality, Safety and Timeliness in order to achieve Sustainability. Despite their best efforts they fall short ever so often and it is for reasons entirely out of their control and this is the reason for the poor progress and development of the construction Industry and the very high attrition rate.

The purpose of this post is to evaluate the key issues OUTSIDE THE CONTROL of Construction Companies that limit the progress of the construction industry in Nigeria and to recommend measures that can be applied to correct these issues in order to make our construction industry function favourably for everyone involved.

Constraints in the Nigerian Construction industry

  1. Low Quality manpower– Lack of skilled labour cannot be underestimated when talking about the problems facing the Nigerian construction industry. Our contractors are steadily on the lookout for foreign labourers who end up demanding ridiculously high salary wages. Currently the country is unable to produce enough skilled labour professionals who have the ability and knowledge to handle major projects. A study carried out by Olateju in 1991 showed that the indigenous contractors had created virtually no impact in the areas of heavy infrastructural development such as civil works in refineries, hydroelectric dams, airports etc. In fact, the foreign contractors averaged N40.75million per contract, as against an average of N890, 000 per contract by indigenous contractors. The study attributed this low level of participation to perceived inability of local contractors to effectively manage large projects.

Solutions

  • At the 10th Distinguished Lecture Series of the Nigerian Institute of Quantity Surveyors, Lagos Chapter, Mr. Olukayode Pitan, Managing Director, Bank of Industry spoke, according to him, a key strategy to address the challenge and thereby reposition the construction sector for growth is the enhancement of domestic construction skills through educational institutions placing emphasis on providing students with practical training to supplement their theoretical knowledge, additionally, he stated that the Federal Government should increase its budgetary allocation to Science, Technology, Engineering and Mathematics (STEM) courses that would drive the provision of qualitative knowledge to students in the country. To address this, Construction Companies must come together and through their associations press for the implementation of practical and vocational courses and even go as far as setting the syllabus they require. The need for synergy between the construction company associations, the training institutions and the authorities is imperative.
  • Foreign Competition– The existence of foreign construction companies with more experience and skill required to contend with the complexities that infrastructure projects pose is a given in the light of inadequate indigenous manpower.

However over reliance on foreign contractors does not help the development of indigenous contractors over time if there is no deliberate attempt to encourage the indigenous contractors to plan and structure for their growth.

In an attempt to examine how much of the construction projects executed in Nigeria are given to indigenous contractors, their management strategies and the adequacy of these strategies in preparing them for the future challenges of the industry, Olateju (1991) embarked on a study of 1133 projects costing N11.25 billion awarded by the Federal government between 1974 – 1978, a period when construction activities were highest in the country.

The results showed that while the indigenous contractors got awarded 77.2 % of the number of contracts, they only had 6.95% of the value of the contracts. While Local contractors are generally seen as holding the greatest potential for increasing construction industry capacity and for general economic development this cannot happen without deliberate planning. Though the above research may be a little dated, it is debatable if there has been any significant change over time.  

Solutions

  • Indigenous contracting firms should be encouraged to build a credible corporate image, instead of the ‘one-man business’ or sole proprietorship ideology. Indigenous contractors must eschew the “know all’, “have all” sole proprietorship mentality, which is restrictive, and embrace the corporate status in order to have access to more working capital unlike a one-man business which faces enormous challenges in an environment where competition is stiff.
  • There is need for stakeholders in the construction industry such as clients and professional institutions to create more awareness among indigenous contractors on the need for working capital management as a tool for efficient project delivery through education in form of organizing seminars, workshops and training programs.
  • The National Construction Policy should be strengthened by government to enhance the technological development of indigenous contractors’ capacity and by way of legislation say in the area of local content so that indigenous construction companies can position themselves and even think of specialization.
  • There is also no reason why construction companies cannot even merge and present and enjoy advantages of scale
  • All the above can only be done if and when the companies pull together and present a common front through their associations
  • Finance- Construction is largely capital intensive. Just the equipment alone costs millions of naira and contractors are continually faced with issues of finance and even managing the equipment. The contractor must invest on plant which is expensive in the case of civil engineering jobs, and requires cash for payment of workers’ salaries, purchase of materials, etc. Coupled with these, majority of clients also don’t mobilize budding contractors for fear of losing their money or becoming victims of abandoned projects. This creates a lot of pressure for contractors to source for funds to execute projects. Nigerian banks on the other hand are not so helpful to finance construction projects especially if the contractor is not yet a big player in the industry. The consequence of this slow funding is project delay.

Solutions-

  • Clients should pay contractors certificates and claims as and when due to avoid their being forced to borrow huge amounts with the attendant high cost of capital which increase his working capital requirement on a project. Delayed payments should attract a penalty equal to interest on loan.
  • Establishing a “National Construction Bank” where indigenous contractors can get loans at subsidized interest rates to meet their working capital requirement that will enable them complete projects on time and so be able to compete with their foreign counterparts.
  • Financing of projects must be the first priority and government should seriously consider Public Private Partnership (PPP) with indigenous contractors who have created structure and is what has helped Europe and Asian counties to effectively develop their own infrastructures. This helps to assuage the funding challenges otherwise as well as establish standards.
  • Again pursuing these can only be done when the construction companies pull together.
  • Statutory Requirements- The construction sector continues to be the go-to sector for solutions when it comes to certain infrastructure projects and the biggest player or stakeholder in this industry remains the Government, whether at Federal, State or Local Government level. However, the high operating costs obtainable in the construction industry which result in low profit margins has created tax challenges for the companies as they have been unable to fully utilize opportunities for relief available under the provisions of the tax Laws.  

Solutions-

  • Working with industry associations to negotiate lower tax rates from financial institutions
  • Push for periodical rebates in tax rates from statutory authorities
  • Push for reduction in permits
  • Reduce time required to get permits
  • Push for clear and objective permit approval criteria
  • Pressing for tax holidays and become familiar with the existing tax regimes
  • Pull together and push the agenda collectively
  • Corruption Issues– In most developing countries corruption is a term that has to appear as a factor that is causing development to lag behind. The construction industry is one of the industries in Africa where corruption plays a role unlike the rest of the world. Development projects of various kind and sizes have suffered a lot of setbacks at the hands of corrupt individuals and agencies. Some companies for instance are allegedly paying bribes to receive tenders which have brought the construction industry in to disrepute.

Solutions

  • Prequalification standards should be clear and objective.
  • Public projects must be awarded on merit after prequalification.
  • Ethical Standards should be introduced
  • Procurement framework should also be implemented and publicized
  • Pulling together
  • Scope Creep– According to Wikipedia, scope creep (also known as requirement creep, function creep, feature creep, or kitchen sink syndrome) in project management refers to changes, continuous or uncontrolled growth in a project’s scope, at any point after the project begins. PMBOK forth edition stated that scope is the sum of the products, services, and results produced in a project. It is often documented using a scope statement and a Work Breakdown Structure (WBS), which are approved by the project sponsor. Scope creep features or functions of a new product, requirements, or work that is not earlier authorized (i.e., beyond the agreed-upon scope). PMBOK® Guide describes scope creep as “adding IJARSEDS – Page 47 features and functionality (project scope) without addressing the effects on time, costs, and resources, or without customer approval” (PMI, 2008). In Nigeria’s construction industry it is not uncommon to see projects dragging beyond their estimated duration because of scope creep on the client’s side. When construction projects are too vague and too generic, there is bound to be scope creep on the long run.

Solutions

  • Understand your client’s vision.
  • Know the exact answers to, what are the deliverables and their functionality are
  • Don’t underestimate the project’s complexity, which must be balanced against the timeline and resources for the work.
  • Define how the changes will be done, and who will do them.
  • Changes to critical path elements (pieces that hold up other work unless completed on time) must be made sparingly and scrutinized carefully.
  • Scope Creep usually leads to loss of profit as contractors are more often than not able to factor in loss time adequately

In closing and as can be seen in every one of the above headings the solution lies in pulling together in associations and pushing the desired agenda.

In a second part of this post we will attempt to draw attention to the challenges WITHIN THE CONTROL OF THE CONSTRUCTION COMPANIES.

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