Identification of cost risk factors in building contracts in Kenya
Abwunza, Allan Agesa
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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.