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International Journal of Civil Engineering and Built Environment

Vol.1, No.1, 2014; ISSN 2289-6317


Published by YSI Publisher

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
Faculty of Civil and Environmental Engineering, University Tun Hussein Onn Malaysia, Malaysia
2
Majlis Amanah Rakyat (MARA)
3
Universiti Tun Hussein Onn Malaysia, 86400 Parit Raja - Batu Pahat
Corresponding Author:aftabm78@hotmail.com

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].

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.

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.

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.

TABLE I.

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.

Methods/Techniques

Procurement
Strategy

Traditional Lump Sum


System/Traditional System/
Design- Bid- Build/Open
Tender Contracts
Negotiated Contracts
Best Value Procurement
Incentives Contracts
Construction Project
Management/Contract
Management
Construction Management
at Risk/Management
Contracting
Design and Build
Turnkey System

Keywords: Construction Industry, Construction Cost, MARA


Projects, Cost performance, Cost Overrun

I.

Management

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

Integrated

30

TYPES OF PROCUREMENT METHODS &THEIR VARIATIONS

Procurement Strategy

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adopted for
f large or com
mplex projects. A person or company
c
is
appointedd by client on a fee basis to organize and manage
m
the
whole construction proccess. A constru
uction managem
ment (CM)
is hired earlier or toggether with thhe designer before
b
any
substantiaal design worrk is done and
d before any substantial
work beggun. The CM
M (on clients behalf) works with the
designer during the ddesign phase and representting client
t
constructiion phase. The
T
typical contractual
c
during the
relationshhip and sequennce of operation is shown in Figure 3
and Figurre 4.

Self-Perfo
ormance
In-House Teams
Job-Orderr Contract
Separate Contracts
C

n Malaysian, traditional
t
lum
mp sum system
m, design andd
In
build//turnkey
syystem
and
Construction
Project
Manaagement/Contraact Managemeent are commoonly adopted inn
procu
urement strateg
gies [1, 9]. Thiss study has beeen conducted too
(1) ex
xamine variouss procurement strategies adoppted in MARA
A
Projeects, (ii) identtifying factors affecting connstruction cost
perfo
ormance in MA
ARA projects. However, thee limitations of
this study
s
include, firstly this paaper focus larg
ge constructionn
projects only. Altthough, it iss difficult to define largee
i a study of Vietnam
V
projeccts with a totaal
consttructions, but in
budgeet of $1 million were consideered as large projects
p
[10]. Inn
this study, project of budget RM
R 5 million and above iss
consiidered as largee construction project, seconndly, this studyy
focusses on projects with projectts managemennt procuremennt
strateegies only. Thiirdly, targeted respondent in
ncluded in dataa
collecction were perssonnel of contrractor firms andd client.
II.

Vol.
V 1 No. 1, 20014

Figure 1.
1 Typical Contraactual Relationship
ps under Traditionnal Method

RELATED WORKS

A. Budget Planning
g and Control
Prrocurement method
m
is a strrategy to mannage the entiree
consttruction processs. There are a number of proven strategiess
that are
a used to maanage the proccess where eacch has its ownn
distin
nct advantagees and disaadvantages. Initially,
I
fourr
procu
urement approoaches are widely discusseed; traditionall,
manaagement, integrrated services and
a in house teaams [9].

Figure 2. Typical
T
Sequencess of Operations

1) Traditional Procurement:
P
Basically,
B
this procurement iss
m
size annd complexityy.
applieed to ordinary projects of moderate
A client employs an
n architect (forr a building) or
o engineer (forr
s
and contractors forr
civil engineering works or other structures)
c
seeparately. A designer is hired earlier too
the construction
produuce drawings and
a specificatiion while conttractors will bee
selectted after a cllient is satisffied with the drawings andd
specification. Norm
mally, an arcchitect or enggineer will bee
appoiinted on fee baasis as a leadeer to coordinatte the activitiess
of oth
her members and
a have directt access to the client. In orderr
to geet the best posssible result, itt is normal fo
or the client too
choosse any suitab
ble variationss that suits to
t their plann.
Variaations such as design-bid-buiild, negotiated contracts, best
valuee procurement, incentives contracts are widely
w
used inn
USA, while variattions such as open tender contracts andd
o
tender andd
negottiated contractss in UK. In Maalaysia, both open
negottiated contractss are extensiveely adopted andd this is similarr
to UK
K. Sometimes,, a client incorrporates Projecct Management
Consultant (PMC) into this procuurement to assiist the client inn
nistering the project [9]. The typicaal contractuaal
admin
relationship and seequence of opeeration is show
wn in Figure 1
F
2.
and Figure
2) Managementt Procuremen
nt: Basically Compared too
ment which iss focusing on moderate sizee
tradittional procurem
and complexity,
c
management proocurement is preferred
p
to bee

Figurre 3. Typical Conntractual Relationsships under Managgement


Procurement

Figure 4. Typical Sequences of Operations of Management Procurement

3) Inttegrated
Prrocurement:
Basically
Integrated
procurem
ment is where design and construction,
c
a well as
as
several other
o
subtasks on the projeect, are perforrmed by a
single org
ganization, ofteen a large conttracting firm. Sometimes,
S
professionals such aas constructioon managers, architect,
s
and engineers com
mbined togetheer to form a
quantity surveyors
consortiuum to provide iintegrated servvices. This proccurement is
mainly addopted on techhnically sophissticated projectts of which
prospectiive contractorss have special experience, orr time is of

31

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in privatte residential projects in Kuwait.


K
The major
m
time
increase for these incluuded frequent change orderss, financial
constraintts and ownerss lack of expperience in coonstruction.
While, thhe issues to reelated contractoor, material annd owners
financial conditions weere major conttributors to cosst increase.
Besides these, desiggn changes, inadequate planning,
unpredicttable weather cconditions; andd fluctuations in the cost
of buildin
ng materials aree frequently occcurring factorss leading to
cost overrruns [15, 16]. In Ghana, contractors and consultants
c
mentioneed that monthlyy payments diffficulties is a major
m
issue
faced in construction pprojects that leaad to delay in works and
f
overrun in cost. Whhile, client
consequeently project faces
representatives highliighted that the poor contractor
ment is the mostt critical factorrs in causing coost overrun.
managem
Overall, in groundwatter projects of
o Ghana, majjor factors
or managemennt, monthly
recorded were found ppoor contracto
material procuurement, poorr technical
payment difficulties, m
performannces, and escallation of material prices [17].

the essence.
e
It provides
p
a sin
ngle point off contact andd
respo
onsibility throuughout the prroject. Design and build orr
desig
gn-build variatiion is popularlly used in USA
A. Similarly inn
UK, design and build variation is also widely usedd.
Appaarently, designn and build or turnkey system wass
introd
duced to Malaaysia 1983 [9] and still widdely adopted inn
Malaaysia construcction project.. The typicaal contractuaal
relationship and seequence of opeeration is show
wn in Figure 5
F
6.
and Figure

Figurre 5. Typical Conntractual Relationsships under Integraated Procurement

III. DATA
A
COLLECT
TION AND ANA
ALYSIS
Data collection wass carried out inn two phases where first
s
and interrviews. It aimeed to assess
phase foccused on field study
various procurement
p
strrategies adopteed in MARA projects
p
and
identify common
c
causees of cost overrrun. In the seccond phase,
survey was
w
conductedd for identify
fying significaant factors
affecting construction cost performaance among contractors,
c
nts and contracctors for assesssing significaance of the
consultan
factors. A five point likeert-scale of 1 to
o 5 was adopteed to assess
the degreee of agreemeent of each cau
use where 1 represented
r
strongly disagree, 2 disagree, 3 moderately agree, 4
a
5 stronglly agree. A total of 36 respondents
r
agree and
participatted in intervieews and questtionnaire surveey process.
Statistical Package for Social Sciencee (SPSS) versiion 17 was
used to an
nalyze the dataa. Data was chhecked for reliaability prior
to ranking the factors. R
Reliability describes the stabbility of the
data colleected measuredd using Cronbaach coefficieent value. It
is consideered low and unacceptable
u
iff Cronbach value
v
is less
than 0.3. Reliability is considered
c
satiisfactory if Croonbach is
n 0.7 [18].
more than

Fig
gure 6. Typical Sequences
S
of Operations of Integrateed Procurement

4) In House Proocurement: Baasically In housse procuremennt


c
such ass
is sellf perform connstruction. Norrmally, large clients
large public organizzation or largee private compaanies that havee
their own continuuous constructtion projects have directlyy
oy their ownn people such as engineeers, architectss,
emplo
work
kers, etc. Howeever, the client may choose too subcontract a
substtantial portion of the projecct to outside consultants
c
andd
contrractors for botth design and construction, but it retainss
centraalized decision
n making to inntegrate all effforts in project
impleementation.
B. C
Cost Performannce
C
Cost
Performannce is the fund
damental norm
m of measuringg
project success. Unnfortunately, many
m
of constrruction projectss
dwide are exp
periencing pooor cost perform
mance. This iss
world
refleccted in the co
ost overrun problem whichh now days iss
assocciated with allmost every project
p
[11]. Cost overrunss
dilem
mma is very seerious and is faced
f
in both developing
d
andd
develloped countries. It requires careful attention to improvee
this matter
m
[12]. Th
his problem of cost
c overrun iss more rigorouss
in dev
veloping counttries. Overrun in
i cost is occurrred because off
severral factors as highlighted byy numerous research
r
workss
carrieed out worldw
wide. Among these, use of
o low qualityy
materrials is a coommon factorr which resuults in higherr
consttruction cost coompared to the estimated costt because of thee
signifficant amount of loss of matterials during construction.
c
It
happeens mostly beccause of lack of
o availability of
o standards forr
materrials and manaagement system
ms. Further, a major problem
m
in thee construction industry is th
he project managers have not
adequ
uate ability of preventing cosst overruns. Th
his has resultedd
poor cost performannce and led many
m
Thai consstruction to fail
K
it was highlighted byy research workk
[13]. Similarity, in Kuwait
oushki [14] tim
me and cost increases were sig
gnificant issuess
of Ko

Distriibution of respoondents in term


ms of experiencce is shown
in figure 11. Figure 11 indicates thatt majority of rrespondents
ut of 36 (58.33%
%) were experienced more thaan 10 years
i.e. 21 ou
in the construction
c
inndustry, 7 ou
ut of 36 (19..44%) had
experiencce between 6-110 years, whilee 4 respondents (11.11%)
had 2-5 years
y
experiencce and only 4 (11.11%)
(
respoondents had
experiencce less than 2 yyears.

Figure 7. R
Respondents workiing experience

32

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IV.

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V 1 No. 1, 20014

RESULTS AND
N DISCUSSION
N

Classification off MARA projeccts


A. C
M
MARA
construcction projects are
a classified innto 2; small andd
large projects. Mo
ost of the sm
mall projects are adoptingg
ment while the majority of larrge projects aree
tradittional procurem
adoptting managem
ment procurem
ment. In somee cases, small
projects which are complex and need special knowledge aree
T
thee
also adopting maanagement prrocurement. Therefore,
classiification of thee project is based on its contrract cost but itss
deliveery methods are
a based on its
i size and coomplexity. Thee
project worth less than
t
five milliion ringgit (RM
M 5 million) iss
mally considereed as a small project. As mention
m
earlierr,
norm
norm
mally MARA is adopting the trraditional proccurement wheree
an architect
a
is ap
ppointed as the
t
leader to organize thee
consttruction at the construction site. The leadder has direct
contaact with MAR
RA. Contrast to
t small projeect, the project
worth
h more than RM
R 5 million iss considered ass large projectt.
This large project normally higghly complicatted and needss
a expertise to
t handle it. Mo
ost of the timee,
special knowledge and
RA is adoptingg management procurement for
f this kind off
MAR
project and as a matter
m
of factt, MARA enggages PMC too
superrvise and adminnister the entiree project.

Figure 11.
1 Sequence of Operation of MARA
A Management Proocurement

C. Facto
ors Affecting Co
Construction Coost Performancce
Durinng interview pprocess, a totall of 15 comm
mon factors
affecting project cost performance in MRA large prroject were
d. Literature sshowed that th
he identified factors are
identified
common factors affeccting cost perrformance worrldwide as
f ranking
shown inn figure II. These factors weree investigated for
purpose. Data collecteed through qu
uestionnaire waas test for
Alpha of the gaathered data waas found as
reliabilityy. Cronbach's A
0.776 whhich means dataa collected in acceptable
a
for analysis.
a
In
order to identify
i
the rannks of factors affecting
a
constrruction cost
performannce, data wass analyzed witth SPSS 17. R
Results are
presented
d in table III. Based
B
on table III, Fluctuatioon in prices
of materials is the most significant facctor affecting coonstruction
cost perrformance folllowed by Caash flow andd financial
difficultiees faced by contractors
c
as second rankeed factors.
Shortage of site workerss, lack of comm
munication am
mong parties
p
& schheduling by
were 3rd major factor aand incorrect planning
contracto
ors were found as 4th ranked faactor.

B. M
MARA Construcction Procurem
ment
Sttudies revealeed that MAR
RA is adoptin
ng 2 types off
procu
urement; traditional and management.
m
For
F traditionall,
MAR
RA is organizinng its own techhnical teams to administer thee
wholee the project.. However, iff MARA deccides to adopt
manaagement procuurement,approvval from LPM
M A must bee
granted first before a PMC is appointed. Figure 8 and Figure 9
w the contractu
ual relationshipp of MARA traditional andd
show
manaagement procuurement whilee Figure 10 and
a
Figure 111
show
ws their sequencce of operation.

Fluctuation in pricces of materiaals: Table III shows that


uation of materiial is the most dominant factoor affecting
the fluctu
construction cost. Howeever, it is very
y interesting too know that
accordingg to client flucctuation in pricce was ranked as 6th rank
while con
ntractor rankedd as 1st.
Cash flow and financial difficulties faced by
c
flow andd financial
contractoors: Contractoors rankled cash
difficultiees as 2nd facttor while clieent ranked sam
me as 5th.
Contractoors believe thiis issue is verry critical wheere it may
influencee other causes such as site management,
m
sshortage of
site work
kers and ineffecctive planning and
a schedulingg. This may
be faced
d due to delaay approval of work com
mpleted by
consultan
nt and late in monthly paym
ment from cliennt. Settling
this issue may as well seettle other issuees simultaneouusly.

Fig
gure 8. Contractu
ual Relationship off MARA Traditionnal Procurement

w
Thiss factor is siggnificant as
Shorttage of site workers:
perceivedd by Client. It is 3rd rannked factor by
b overall
responden
nts. However, client rankeed this factorr as most
dominantt while contraactors ranked it as 12th raank. Client
responden
nts claim thatt the problem between conttractor and
subcontraactor seems larrgely contributte to this causee. As most
of the works
w
are conttracted to subcontractors, most
m
of the
workers are
a hired by thhese sub-contraactor. If there are
a disputes
between contractor andd subcontractorr, automaticallyy this issue
prevails.

Figure 9. Sequencee of Operation of MARA


M
Traditionaal Procurement

nication betw
ween parties: Lack of
Lack of commun
communiication betweenn parties is alsso ranked as thhird highest
affecting factor. Cliennts ranked thhis factor as 3rd while
or ranked as 4tth. Lack of co
oordination maay result in
contracto
poor mannagement, seleection of propeer material andd problems
between the
t contractor aand other partiees.

Figu
ure 10. Contractuaal Relationship of MARA
M
Management Procurement

33

International Journal of Civil Engineering and Built Environment

Incorrect planning and scheduling by contractors

Fluctuation in prices of materials

Frequent design changes

Unforeseen ground conditions


Inadequate contractor experience

Change in the scope of the project

7
8

Low speed of decisions making


Cash flow and financial difficulties faced by
contractors

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


Underestimate project duration resulting Schedule
Delay
Incompetent Project team (designers and
contractors)

15

[30]

[28]

[27]

[26]

[29]

RANKING OF FACTORS AFFECTING CONSTRUCTION COST PERFORMANCE


Overall

S.No.

TABLE III.

14

[25]

[24]

[23]

[22]

[21]

[20]

[19]

Causes

[17]

S.No

Vol. 1 No. 1, 2014

RANKING OF FACTORS AFFECTING CONSTRUCTION COST PERFORMANCE

[`11]

TABLE II.

[10]

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Client Respondents

Contractor Respondents

Factors
Mean

S.D

Rank

Mean

S.D

Rank

Mean

S.D

Rank

Fluctuation in prices of materials

3.97

0.97

3.62

0.87

4.47

0.92

Cash flow and financial difficulties faced


by contractors

3.89

1.21

3.90

1.18

3.87

1.30

Shortage of site workers

3.78

1.12

3.95

1.02

3.53

1.25

Lack of communication among parties

3.78

1.07

4.0

0.78

3.78

1.07

3.67

1.12

4.29

0.78

2.8

0.94

12

3.67

1.06

4.24

0.70

2.87

0.99

11

5
6

Incorrect planning and scheduling by


contractors
Contractor's poor site management and
supervision

Delay in Material procurement

3.53

0.94

3.33

0.91

3.8

0.94

Underestimate project duration resulting


Schedule Delay

3.47

0.91

3.47

0.75

3.47

1.13

Unforeseen ground conditions

3.39

0.96

3.14

0.96

10

3.73

0.88

10

Low speed of decisions making

3.36

0.90

3.38

0.80

3.33

1.04

11

Inadequate contractor experience

3.36

1.10

3.95

0.80

2.53

0.92

13

12

Change in the scope of the project

3.33

0.76

3.14

0.65

10

3.60

0.83

13

Practice of assigning contract to lowest


bidder

3.28

1.28

10

3.09

1.19

11

3.53

1.34

14

Frequent design changes

3.19

0.95

11

2.90

0.94

12

3.6

0.83

15

Owner interference

2.89

0.95

12

2.8

0.81

13

3.0

1.13

10

34

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International Journal of Civil Engineering and Built Environment

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Engineering, University Technology Malaysia, 2006

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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