Factors Influencing Cost Management of Public Sector ...

PM World Journal Role of the Local Community in Implementation of Government Vol III, Issue V Funded Projects in Public Secondary Schools in Baringo County May 2014 by Viola Kiprotich www.pmworldjournal.net Student Paper

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Editor’s note: This paper was a research project report submitted to the School of Human Resource Development in partial fulfillment of the requirements for a Masters of Science in Project Management degree at Jomo Kenyatta University of Agriculture and Technology.

Factors Influencing Cost Management of Public Sector

Construction Projects: A Case of Government

Departmental Offices in Naivasha Sub-County

By Cleopas Gathara Wahome

School of Human Resource Development Jomo Kenyatta University of Agriculture and Technology

Nakuru, Kenya

DEDICATION To my wife, Nduta and my lovely children Wahome, Waruguru, Waruiru, and Pendo, for their great encouragement and to all my friends and colleagues who have always been there for me when I needed them.

ACKNOWLEDGEMENTS

I do acknowledge the support that I have been accorded in the due course of my project. First, I do express my heartfelt gratitude to the Almighty God for seeing me through the entire course. A great debt is owed to my supervisor, Dr Cecilia Ritho, who carefully read, guided, advised and gave me support throughout in course of writing this project. I do also specially thank my colleagues from the MSC (Project Management, 2011) class, friends and lectures who have a share of contribution during development of my research project.

ABSTRACT There have been widespread incidences of cost escalation in departmental office construction projects. Lack of proven construction project management system and ability to prevent construction project cost escalations or to control these costs is alleged to occasion construction contractors to fail, change in project design and specifications, incomplete or abandoned projects and loss of taxpayers’ money. The primary objective of the study was to establish the key factors responsible for effective cost management in public sector construction projects. The study also sought to analyze the influence of budgeting process, procurement and tendering process, contractor performance, and public funds disbursement on effective cost management of public sector’s construction projects. The study was carried out at in Naivasha sub-County. The researcher employed descriptive research design and survey research method. The target population of the study comprised the heads of departments, project contractors, project consultants and Sub-County supply chain managers involved in undertaking of the 16 office block construction projects in

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Naivasha Sub-County, totaling to 39 prospective respondents. Structured questionnaires were used to collect data. Data was processed and analyzed using the Statistical Package for Social Sciences (SPSS – Version 21.0). Data was analyzed both descriptively (frequencies, percentages, mean, and standard deviation) and inferentially (Pearson’s correlation). The research findings were presented in form of tables for descriptive statistics and inferential statistics. The response rate was 84.6%. Under-budgeting of construction projects was found to greatly affect cost management. It was established that procurement and tendering process largely affect the cost management of public construction projects. Inexperience of the contractor was likely to expose the project to mismanagement of the allocated funds. It was established and concluded that the budgeting process, tendering and procurement process, and contractor’s performance strongly affect cost management of public sector’s construction projects. However, public funds disbursement was inferred to be inconsequential to cost management. It was recommended that the relevant project financiers should allocate adequate funds to public construction projects. There also should be a systematic procurement and tendering procedures touching on public construction projects. The contractor and his or her personnel should possess the requisite technical skills. It is highly recommended that the government should minimize or totally remove bottlenecks that would otherwise increase the cost of the construction projects. It is suggested that it would be essential to undertake studies on the role of government in public construction projects in Kenya; assessment of challenges facing public construction projects; and an analysis of factors determining the success of public construction projects in Kenya.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Management of construction projects is a challenge due to risks and uncertainties associated with them. Even with good planning and careful assembly of project teams, construction projects always encounter risks that disrupt their pre-determined schedule of activities. A key feature about construction projects is that each is unique and client specific, thus it is difficult to deliver them enmass. A construction project is termed as successful if it is completed within a stipulated budget, a specified time period, conforms to user expectations, meets client specifications, and attains expected quality of workmanship at minimal construction hassles. A major component in construction projects is cost and managing it requires detailed planning, effective scheduling and judicious project implementation, in order to control cost escalations. Construction projects primarily involve delivery of product within a stipulated time period through a variety of functional teams and by systematically assembling various limited materials and inputs. The materials and inputs used in building construction projects are varied and have cost implication associated with them. The construction projects costs are methodically estimated and determined by quantity surveyors from the plans and design specifications for tendering purpose, before the project is initiated (Koushki et al., 2005). Once a contract is awarded, it is the responsibility of the project contractor, sponsor, manager and consultant to work as a team and communicate effectively for the construction project to succeed.





In this study, the research will undertake to identify factors that influence successful management of cost element in government department office construction projects in Naivasha Sub-County with an aim to avoiding cost and time overrun, poor workmanship and unsatisfied clients. In pursuit of this study, various stakeholders and their contribution to construction project management and delivery will be scrutinized. The findings of this study will be useful to policy makers, departmental planners, project contactors, managers and consultants in their individual decision making. The motivation to this the study in this research is largely due to personal observation of poor performance of government departmental office building construction projects in Naivasha Sub-County in terms of quality of the building, duration to completion and final cost. This information was gathered during quarterly District Development Committee (DDC) meetings where each departmental head presents annual work plans, progress and performance reports for, monitoring, evaluation and reporting. Immediately NARC (National Rainbow Coalition) come to power in 2003, the government of Kenya undertook the responsibility of developing infrastructure for its departments and agencies inform of modern offices, facilities, tools and equipment at district level with an aim of improving service delivery to its citizens through provision of an environment conducive for its workforce and clients. In order for the NARC government to revive the then ailing economy and put the country on the path to recovery, it developed a strategy called ERS (Economic Recovery Strategy) for Employment and Wealth Creation in 2003. This is the strategy that paved way for public sector reforms under PSRP (Public Sector Reform Programme) in which the government committed to create a leaner, efficient, motivated and more productive Public Service that concentrates public finance and human resources on the delivery of core government services. Key elements of the civil service reform strategy and activities that were envisaged for implementation by June 2004 included among others: (i) Developing, introducing and institutionalizing performance based management practices in the public service; (ii) Undertaking service delivery surveys in all ministries/departments and developing and installing service charters with clear service bench marks and standards in order to enhance efficiency, transparency and accountability in service delivery; (iii) Putting all Permanent Secretaries and Chief Executives of Parastatals on performance contracts (ERP, 2003). With these reforms came the performance appraisal that culminated in inter ministerial and inter departmental annual performance rankings whereby the best performing ministry or department was rewarded and the poorly performing ones reprimanded. There was also an annual public service week where each department show cased their services and activities to the public. As a result of these reforms, ministries and department initiated construction of departmental offices at district level countrywide with the ultimate aim of meeting their service delivery charters. It has been observed that poor cost management in offices construction projects at Naivasha District headquarters is a critical problem. In public sector construction project management, various actors are involved. It was also observed that the parties to these public sector construction projects (owner, consultant, and contractor) do not highlight cost management issues during evaluation phase of these public projects. Project cost escalation is a fundamental component of any construction project and one of the most frequently





occurring issues in construction projects in Kenya and need to be studied more to reduce its occurrence. This trend is more severe at the district level where time and cost overruns sometimes can double the anticipated cost of the construction project (Mwandali 1996; Talukhaba 1988; Karimi 1998 & Musa 1999).

1.2 Statement of the Problem

The incidences of departmental office construction projects in Naivasha Sub-County experiencing cost escalation have been widespread. Situations where departmental office construction projects’ final payment exceeded estimated project budget is a common phenomenon in Naivasha Sub-County. Lack of proven construction project management system and ability to prevent construction project cost escalations or to control construction costs causes construction contractors to fail in their mandates, change in project design and specifications, incomplete or abandoned projects and loss of tax payers’ money. In Naivasha Sub-County, continuous recurrence of cost escalations in government departments’ office blocks construction projects due to ineffective management of costs, have had severe consequences in form of substandard workmanship, delayed project completion, and investment pressure. This has affected investment decision-making and has resulted in wastage, stalled projects, contractual claims and dissatisfied government field officers and the public. Since the inception of public sector reform programme in 2003 to 2012, 16 government agencies and departments have undertaken office block construction projects, which have all reported varying degree of cost management difficulties.

1.3 Objectives of the Study

The main objective of this study is to establish key factors responsible for effective cost management in public sector construction projects in Naivasha Sub-County.

1.3.1 General Objective

The general objective of this study is to investigate and examine the major factors influencing effective cost management in departmental office block construction projects in Naivasha Sub-County.

1.3.2 Specific Objectives

i. To determine how budgeting process affects cost management of departmental office construction projects in Naivasha Sub-County.

ii. To investigate the effect of procurement and tendering process on cost management of departmental office construction projects in Naivasha Sub-County.

iii. To establish whether or not contactor performance affects cost management of departmental office construction projects in Naivasha Sub-County.

iv. To examine if disbursement of public funds affects cost management of departmental office construction projects in Naivasha Sub-County.

1.4 Research Questions

i. How does the public sector budgetary cycle affect funding of office construction projects in Naivasha Sub-County?

ii. What is the effect of public sector construction project tendering process on cost management of office construction projects in Naivasha Sub-County?

iii. Does the contractor’s performance affect cost management of office construction project in Naivasha Sub-County?





iv. Does the disbursement of public construction project funds affect cost management of office construction project in Naivasha Sub-County?

1.5 Justification of the Study

Challenges facing head of departments, contactors, consultants and managers in effectively managing cost in departmental office blocks construction projects in Naivasha Sub-County have resulted in missed project objectives. The aim of this study is to isolate factors that hinder effective cost management and sensitize the key players in these projects on the critical measures that need to be taken in the subsequent projects in order to accomplish them within acceptable budget estimates. The findings of this study will inform the concerned stakeholders on the need to come up with appropriate cost management strategies through the entire construction project cycle. The result of this work will alert the contractors to design work schedules methodologies that deal with uncertainties in construction work. The findings will enable project sponsors and contractors adopt an effective cash flow system that will ensure adequate funds are available. It is a hope that the findings from this research will be put to use by project managers, head of departments, consultants, contractors and policy makers to enrich their decision making process. The finding will provide for argument for change of approach such that, instead of each department undertaking its own office construction project, resources are pooled and one office block accommodating all departments is done in order for the government to safe on costs. The other benefit is to advance the idea of renting or leasing office space on long term basis. With cost management challenges in public construction projects being universal one, studies need to be undertaken to mitigate or minimize them. Professional in the field of building construction will greatly benefit from insights developed by this study on various approaches to manage costs in building construction projects.

1.6 Scope

The scope of the study in this research work is all government departments’ and agencies office block construction projects that have been undertaken in Naivasha Sub-County in a span of 10 years from 2003 to 2012. The study on cost management of these projects will be limited to their planning and construction or implementation phases.

1.7 Limitations

This study experienced a number of challenges along the way. First, some of the respondents especially the public works officers were very elusive and the researcher was obliged to consume a considerable amount of time trying to track them down. Another challenge was the duration of time the researcher was supposed to take. Given that some respondents were not easy to access, the time the research was bound to take was relatively short. The researcher overcame these challenges by frequently visiting the places of work of the seemingly elusive respondents in order to increase the chances of accessing them. The researcher dedicated as much time as possible to this work in order to complete the project within the allocated time.





CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter covers in detail various factors that impede effective cost management and their effects on building construction projects from studies already carried out. Research findings on the major factors that cause cost and time overruns and compromise project quality in public building construction have been reviewed. The conceptual framework for the study is given and has indicated independent and dependent variables that are suspected to be the main contributors to improper cost management in public building construction projects in the survey, which have been clearly stated and discussed. The researcher has also critiqued the previously published literature and identified possible research gaps.

2.2 Theoretical Literature Review

The researcher looked into a number of theories touching cost management and factors that influence the same. The researcher analyzed the cost theory and contract theory

2.2.1 Cost Theory

Cost theory is said to be relate to production theory. The two theories are more often than not used together. However, the production theory dwells on how much to produce whilst the cost theory concentrates on the nature of inputs to be employed. The cost theory facilitates the understanding on what costs matter for decisions made by managers, and what kind of costs do not. The costs that matter include opportunity costs on one hand, and fixed costs, variable costs, and sunk costs on the other hand. Opportunity costs refer to the value of all inputs to a firm’s production in their most valuable alternative use. Inputs that do not vary with the amount produced, for example, accountants and computers, are called fixed costs. There are several reasons for fixed costs. For example, salaried workers are said to be a fixed input if the worker can work overtime without additional compensation. Fixed hours at work are another example. It is argued that an hourly worker sometimes cannot be sent home early if there is not enough work available. As such, workers may not be busy and be able to handle extra work without additional resources. Some inputs like machines take time to purchase and install. Nonetheless, unskilled labour may be adjusted more quickly for example through overtime. Therefore, by necessity the firm might only be able to vary production by increasing labour in the short run. Total variable costs refer to the total cost of all inputs that change with the amount produced (all variable inputs). Total fixed costs, on the other hand, are asserted to be the total cost of all inputs that do not vary with the amount produced (all fixed inputs). Finally, sunk costs are noted to be the costs that have been incurred and cannot be reversed. According to the cost theory, any costs incurred in the past, or indeed any fixed cost for which payment must be made regardless of the decision is irrelevant for any managerial decision. The theory further points that sunk cost are perhaps one of the most psychological difficult things to ignore. For example, investors often allow sunk costs to affect their decision making. In the context the study on factors influencing effective cost management in public sector construction projects, the cost of acquiring machineries, tools and equipment





was sunk and as such deemed irrelevant. What mattered was not actually the acquisition cost, rather it was whether or not these assets offered the best returns for the risk taken when acquiring them.

2.2.2 Contract Theory

One of the objectives of the study was to assess how contractor’s performance affected cost management of public sector’s construction projects. It is important to note that, activities of the contractors are pegged on the contract theory. Scott (2003) asserted that the theory of contract law focuses only on the enforcement of bargains. However, it must consider the entire range from standard form contracts between firms and consumers to commercial contracts between business firms. It is observed that firms that maximize profits face the canonical “contracting problem” of ensuring both efficient ex post trade and efficient ex ante investment in the subject matter of the contract. Parties to a contract trade efficiently when, and only when, the value of the exchanged performance to the buyer (client) exceeds the cost of performance to the seller (project contractor). Parties are said to invest efficiently when their actions maximize a deal’s expected surplus. Many observers would agree that contract law should attempt to facilitate efficient trade and investment. The novelty of the contract theory lies in its systematic development of the implications of the aforementioned object and in its claim that contract law should restrict itself to the pursuit of efficiency alone (Chiappori & Salanie, 2002). Contractor firms need state enforcement in order to permit them to make credible commitments when their promises are not self-enforcing. A court, posited Scott (2003), cannot enforce a contract, nevertheless, without first determining what the contract in question says. Therefore, the parties’ preference for state enforcement entails a further party preference over the set of interpretive theories that courts could employ to interpret their agreements. A theory of interpretation has two aspects: a set of rules for determining the syntactic content of a party’s utterances; and a set of rules of determining the legal significance that should attach to the syntactic content. The scholar added that courts should enforce business contracts as the parties to them would want the contracts enforced. Levin and Tadelis (2010) analyzed the aspect of contracting for government services. They observed that both the national and local governments can provide services with their own employees or by contracting with private or public sector contractors. The scholar modeled the choice between external contracting and internal service provision as one of contractual forms, where they associated external contracting with the use of detailed contracts specifying performance requirements and internal provision with the use of salaried employees. This view according to them appeared to be specifically appropriate for local government service provision. Their model highlighted a trade-off between productive inefficiencies that arose from salaried employees and the costs of specifying and administering more productive performance contracts. This led to a clear set of empirical predictions on which they based their empirical analysis.

2.3 Empirical Literature Review

The researcher reviewed the studies pertinent to factors affecting cost management in public sector construction projects that had been carried out prior to this research. The reviewed studies were in tandem with the budgeting process, procurement and tendering process, contractor performance, disbursement of public funds, and cost management.





2.3.1 Budgeting Process

Aftab, (2011) in his preliminary study on causative factors leading to construction cost overruns identified major factors contributing to the time-delay and cost increase was due to the inadequacy of money and time allocated to the design phase. According to Koushki (2005), the three main causes of cost overruns were contractor and material related problems and owners’ financial constraints. Earlier, in the study of factors influencing construction time and cost overruns on high rise projects in Indonesia, Kaming, (1997) identified four major factors that cause cost overruns as design changes, inadequate planning, unpredictable weather conditions and fluctuations in the cost of building materials. Khaled (2005) in a study on a project control process in pre-construction phase gave an overview of the project control system, identified some basic elements or phases noticed during pre-construction period of a project. These included planning (pre-design) phase that incorporates; (i) Budget estimating – establishment of budget for exclusively planning or re-design phase. (ii) Preliminary scheduling – identification and monitoring of all pre-construction activities. (iii) Control program updating – identification of a suitable reporting system for the owner. The next was design phase which incorporates: (i) detailed design scheduling; (ii) Milestones allocation and up-dating; and (iii) Schedule monitoring and follow-up. Devarajan and Reinikka (2002) observed that budget allocations may be effectively and adequately carried out when there is accountability and strong institutions. The budget utilization, in line with adequacy of funds disbursed, determines, to a great extent, the financial performance of public projects. Nwadiani and Igbineweka (2005), asserted that public expenditure is channeled through government departments which are authorized to budget and spend money in the provision of public utilities. Funds are argued to be disbursed as per budgets and these entail value for money as work which is due for payment is paid for and reconciled with the budgets in case of deficits (Kaplan, 2010). The unavailability of funds in the required amount and at the right time creates uncertainty in planning and greatly increases the cost.

2.3.2 Procurement and Tendering Process

In the study of time and cost overrun in Kenya, Kagiri et al. (2008), reported that, in Kenya, public sector construction projects are identified, planned, and implemented by the government ministries or their implementing agencies as state corporations. The aims of these projects are to improve the country’s infrastructure like health, communication networks, housing, energy, and water. Hence, expeditious implementation to realize the desired benefits to their end users is important. However, it is a well-known fact that time and cost overruns are widely prevalent in the public sector projects (Mwandali, 1996; Talukhaba, 1988; Karimi, 1998; Musa, 1999). Their findings showed that poor communication, lack of experience by project manager, procurement delays, lack of proper planning, poor infrastructure, inadequate resources (especially financial), lack of motivation among the government employees, lengthy tendering methods, numerous and far reaching project variations, project environment, poor project definition as being some of the major contributors to time and cost overruns. Furthermore, according to a study by Khaled (2005), the tendering phase, is the third basic element or phase noticed during pre-construction period of a project. This phase follows planning and designing phases. It incorporates: (i) tender scheduling; (ii) Milestones allocation and up-dating; and (iii) Schedules monitoring and follow up. In the tender award





phase, Khaled indicated that evaluators of tenders must ensure that all bidders are treated fairly in the process of Evaluation and that during “bid-appraisal” process all tenders must be treated equally. However, project owners are faced with a dilemma in choosing the best short-listed tenders if TOR (Terms of Reference) is not respected by the potential contractors in the letter and spirit. Owners’ confusion is generated due to three deficiencies in tenders: no-low tender; tender with many alternatives; and tender having a combination of the above two scenarios. Kasimu, (2012) in the study on significant factors that causes coast overruns in building construction project in Nigeria reported that, under normal circumstances a complete set of drawings and specifications should be made available to the Quantity Surveyor, who would prepare fully described and accurate bills of quantities for tendering purposes Koushki et al. (2005). This minimized the need for changes during the construction stage, because the contractor would have all the design and specification information to base his price on. Such a situation is not always the case (Aibinu & Jagboro, 2002) since the contract project cost does not end being the final project cost. Complete set of drawing is critical because without them it is difficult for a professional Quantity surveyor to prepare a good Bill of Quantities for the contract (Kasimu, 2012). Studies done by Fetene Nega, (2008) on causes and effects of cost overruns on public building construction projects in Ethiopia indicated that, variations of designs and specifications are inevitable in any construction project (Ibbs et al., 2001). Needs of the owner may change in the course of design or construction, market conditions may impose changes to the parameters of the project, and technological developments may alter the design and the choice of the engineer. The engineer’s review of the design may bring about changes to improve or optimize the design and hence the operations of the project. The factors that necessitate changes in designs and specifications of a building construction project are costly and un-welcomed by all parties. Variations in drawings and contract documents usually lead to a change in contract price or contract schedule. Variations also increase the possibility of contractual disputes (O’Brien, 1998). Typically, variations present problems to all the parties involved in the construction process (Faisal et al., 2005). In every construction project, it is common practice that a contingency sum is usually allocated to cater for possible variations in the project, while keeping the overall project cost intact.

2.3.3 Contractor Performance

Ahuja (2004), in the study on project scheduling and monitoring, observed that, in the construction industry, unlike the manufacturing industries, each and every project is unique in nature and thus the characteristics of every project vary. This causes a major hindrance in the process of standardization of construction projects, also affecting project scheduling and monitoring of projects. Project scheduling is an integral part of projects in all stages from the feasibility stage of the project to completion. The critical path method (CPM) and programme evaluation technique (PERT) are the techniques commonly used for project scheduling and monitoring. Research to enhance the computing efficiency of these techniques as required in the changing requirements of the construction industry is ongoing. Ahuja (2004), further found that there were limitations of CPM/PERT scheduling tools and that development of new tools was eminent , due to an increasingly competitive environment and construction companies becoming more sophisticated, narrowing their focus, and becoming specialists in certain types of construction. This specialization requires more focused scheduling tools that prove to be better for certain types of projects. The most





utilized scheduling tools in the construction industry are CPM/PERT. However the limitations of these tools are also being realized and research is going on to improve these tools and increase utilization of other tools such as linear scheduling techniques, simulation techniques and genetic algorithms for construction activities. Barraza, (2000) in a study on probabilistic monitoring of project performance using SS-curves stated that as a project enters into the construction stage, actual progress is recorded and compared with the plans. Owing to various unforeseen reasons the project may not proceed exactly according to plans and schedules. Hence, it is essential that management is kept continually and accurately informed of the progress of the works and that precise predictions are made of the effect of each site occurrence on the available resources and future operations. Depending upon the extent of departure between actual and planned progress, management has to initiate appropriate control action such as re-planning, rescheduling or increasing the level of resources. This is dynamic cycle of reviewing the current status and forecasting the future requirements so that work may be successfully completed. Cleland (1995) in the leadership and project management body of knowledge observed that projects are usually unique and often are associated with unknowns, complexity, and uncertainty. Obviously, a project manager’s role is more challenging than that of a typical, functional manager. In addition to working across functional and organizational environments—traditionally designed to support functional managers—the project manager has other challenges such as providing leadership without documented, formal authority, and working in matrix organizations where unity of command is an issue (Cleland, 1995). Consequently, project managers are perceived to be leading a diverse set of people with little direct control over the team members (Cleland & Ireland, 2002). Additionally, projects are managed using teams in a work environment that is complex for two reasons: first, each project is unique, and second, conditions for team selection and motivation are often far from ideal (Smith, 2001) as a typical organization structure presents problems in team selection, and in many organizations a project manager may not have the discretion to select the project team. In a research study on a scheduling methodology for dealing with uncertainty in construction projects in Italy, Maria Bruni, (2011) documented that an efficient scheduling phase is crucial in order to ensure that the project is completed on time and within budget. In this respect, a detailed baseline project schedule plays a crucial role, as widely recognized in Mehta and Uzsoy (1998), and Mo¨hring and Stork (2000). These scholars noted that it supports project managers in monitoring the work progress, facilitating resource allocation and providing a basis for managing external activities, such as relations with contractors. In construction industry, baseline schedule generation is usually performed by using different scheduling techniques, like, for instance, Project Evaluation and Review Technique (PERT) (Malcolm et al., 1959) and Critical Path Method CPM (Wiest & Levy, 1977) is incorporated in most computer software packages developed for construction project management. The main drawback of these time-oriented scheduling techniques is the assumption of unlimited availability of resources for each project activity (Nkasu, 1994). In construction projects, problems arise when activities being carried out require varied resources that are availed in limited quantities making resource allocation considerations indispensable in the making of a realistic project schedules (Kim & Garza, 2005). As a matter of fact, ignoring resource considerations in the scheduling phase of the project would lead to extremely poor





schedule performance (Just & Murphy, 1994). The complex dynamic and uncertain environment in which construction projects have to be performed highlights the need for effective planning and scheduling tools (Maria et al., 2011). The existing methods for determining a project schedule are based on assumption of complete knowledge of project parameters; but in reality there is uncertainty in construction projects, deriving from a multitude of context dependent sources and often provided as outcome of a risk analysis process (Maria et al., 2011).

2.3.4 Public Funds Disbursement

According to Reinikka and Stevenson (2001), in their study wanted to explain leakage of public funds when they are being disbursed. Their survey findings had a direct impact on policy in Uganda. As the evidence of leakage of public funds became public knowledge, the central government enacted a number of changes; it began publishing monthly transfers of public funds to the districts in newspapers, and broadcasting them on radio. An initial assessment of these reforms showed that the flow of public funds improved dramatically. It is noted that there have been delays in public funds disbursement occasioned by negative implications on the budget and inconsistency in the funds disbursement returns due to poor accountability practices (World Bank, 2005). It is opined by Lawal (2002) that the government disburses funds in order to provide essential services to its citizenry. Budget allocations or funds may be allocated sufficiently when there is accountability or strong institutions according to Devarajan and Reinikka (2002). However, in spite of the increase in public funds disbursement, developing countries still have very poor financial, infrastructural development and delivery of social services expected by the citizens. This situation is alleged to be connected to the mismanagement and embezzlement of the public funds by the officials of government departments (Lawal, 2002). It is argued that there is a strong relationship between funds disbursement and accountability systems (Nwadiani & Igbineweka, 2005). The weak aspect of financial reporting that occurs on funds disbursement alters spending pattern to the optimal pattern granted by their needs, therefore, generating inefficiencies (World Bank, 2005). Economic development of any country depends mainly on its infrastructure. Government of Kenya ‘s Vision 2030 aspires for the country to be firmly interconnected through a network of roads, railways, ports, airports, water and sanitation facilities, and telecommunications. Improvement of infrastructure is seen as fundamental to the growth of the identified driving sectors of the economy. The responsibility for public sector infrastructure is fragmented among different government Ministries and Departments. This fragmentation is alleged to have led to inadequate coordination among the various actors thereby undermining proper maintenance and rehabilitation of the road networks in the country (Legishion, Ndirangu and Kilagat, 2013). Every financial year, the government of Kenya spends substantial amount of money in the public sector infrastructural projects. As such, necessary enhancements ought to be undertaken to improve project performance and efficiency. Disbursement of public funds for Kenyan public construction projects has a serious effect on early completion of projects and its success. Although there have been efforts to improve disbursement by the Government of Kenya in the recent years, problems arising from fund disbursement are getting more severe. According to the study by Legishion et al. (2013), on assessment of factors affecting disbursement of public funds for rural road projects in Kenya, the main employer of roads





projects was asserted to be the government. In their study, most of the respondents were of the view that the government greatly manipulates the public sector construction industry. The government was argued to most often than not, not to be working within its budget. That is, they issue out a number of projects to project contractors without looking at the financial commitment resulting in numerous construction firms not being paid.

2.4 Conceptual Framework

The reviewed empirical studies were conceptualized into a framework as shown in Figure 2.1. The framework has captured both the independent and dependent variables. The independent variables included project budgeting process, procurement process, contractor performance, and disbursement of funds. On the other hand, the dependent variable was the cost management. The aforementioned independent variables were observed to directly affect the dependent variable, that is, cost management. The framework also outlined both the moderating and intervening variables. The modifying variables included mainly the government policies and regulations while the intervening variable comprised stakeholder buy-in of the project and the weather.

Independent Variables Moderating Variables Dependent

Variable

Figure 2.1: Conception Framework

Intervening Variables

Cost

Management

Government policies

and regulations

Stakeholder buy-

in/Acceptance of the

project & Weather

Contractor

Performance

Disbursement of

Funds

Project Budget

Procurement Process





2.5 Critique of Existing Literature

All the work reviewed in the study, have not factored in the role of government through its agents as a regulator and how in carrying out this function as per set policies influence project cost management. It is expected that since the government is the key sponsor of most infrastructural development projects, it would facilitate their successful implementation and completion. The government channels its financial resources through department to the district level for service delivery and development projects. The officers at the district level are given authority to incur expenditure by their respective accounting officers at the ministry level. To facilitate expenditure there are district accountant who process payment for services and goods rendered to the government. Officer from the public works department does all the technical work that involves project design, specifications, making of bill of quantities, supervision and consultancy. The public work officers do approve every step and phase of these construction projects. With all this technical back-up from public works department, together with the support services of the Sub-County supply chain managers, who ensure that all procurement processes adhere to laid down procedures and regulations, it is hard to believe that such projects fail. While such construction projects are in progress, there are scheduled routine site meetings attended by all stakeholders, to monitor and review the work. Kagiri, (2008) identified the following as reasons for public construction projects to fail; poor communication, lack of experience by project manager, procurement delays, lack of proper planning, poor infrastructure, inadequate resources (especially financial), lack of motivation among the government employees, lengthy tendering methods, numerous and far reaching project variations, project environment, poor project definition. In this study, attempts will be made unravel how and why this happens and what can be down to rectify the situation. Kasimu, (2012) accounted how engineers come up with bill quantities for public construction projects, where it is reported that, under normal circumstances a complete set of drawings and specifications are made available to the Quantity Surveyor, who would prepare fully described and accurate bills of quantities for tendering purposes. While this is the ideal scenario, at Sub-County level, officers who prepare the drawings as per specifications given by the head of department undertaking the construction project and the ones doing the bill of quantities are from the public works department although from different functional sections. The tendering committee is primarily composed of the chairperson of the district tender committee, representative from the public works department, the head of department undertaking the construction work, the district accountant, district supply chain management as the secretary and other incorporated members. The study sought to establish the reasons why such construction projects fail against the procedures stipulated in the tendering process and the expertise involved in it.

2.6 Summary of the Literature Review

The study investigated the causes of cost and duration variation, incomplete construction projects in the public sector. The primary causes of cost and duration variations are changes in scope, delayed payment to contractor, poor monitoring and control and high inflation and interest rates. Stakeholders in the public construction industry are advised to utilize site meetings for effective monitoring evaluation scope of work as this has the most effect on cost management. It is recommended that there should be improvement in project





management; change from the traditional contract type to the design-build-transfer type; and improved cash flow on the part of the client so as to reduce payment delays. 2.7 Research Gaps Research gaps in the public building construction projects in Kenya, in the areas of cost management do exist. Though this twin problem of time and cost overruns had been experienced in most government and its agencies building construction projects, their scrutiny had not been undertaken since they were chosen on political considerations. There was found to be a need to inquire into the role played by various government agencies involved in public constructions and recommend on how best their activities can be engaged in order to effectively manage project costs and improve on success rates.

CHAPTER THREE

METHODOLOGY

3.1 Introduction

The research study adopted field survey methodology to uncover factors influencing effective cost management arising during planning and construction stage. This involved field work which was carried out by the use of well structured questionnaires consisting of close-ended questions. These questionnaires were taken round to the heads of departments, public works officers, supply chain managers and contractors to gather first-hand data from them.

3.2 Research Design

Descriptive research design was employed in the study. This design was deemed appropriate since it explained the situation as it were. Also, this design attempts to answer the “why” question(s). Survey research method was adopted because the study was carried out at a specific point in time.

3.3 Population

The population of the study comprised the stakeholders (public service delivery officers, project contractors, public procurement officers, and public works officers) of public sector construction projects in Kenya. The target population of the study consisted of the aforementioned stakeholders drawn from 16 government departmental office blocks construction projects from 2003 to 2012 in Naivasha Sub-County. The stakeholders that constituted the target population were 39.

3.4 Sample and Sampling Method The study adopted the census method due to the fact that the target population was relatively small. As such the sample was equivalent to the target population. The major advantage of employing the census method stems from the fact that it reduces the sampling bias or sampling error. Therefore, the findings of the study were more highly generalizable than in the event that other sampling methods were to be used. 3.5 Research Instrument

Structure questionnaires were exclusively used for data collection. The questionnaires contained open-ended questions in the part of demographic information of the respondents. On the other hand, close-ended questions constituted the second part of the questionnaire





which captured the variables of the study. The questionnaire was, as such, composed of two sections. Section I attempted to capture the general perception of the respondents. Section II focused on the factors identified as influencing cost management from literature review and discussions with stakeholders in public construction industry in Naivasha Sub-County.

3.6 Reliability and Validity of the Research Instrument

The reliability analysis of the questionnaires was tested so as to find out whether they were capable of yielding similar scores. The Cronbach’s alpha was used to measure the reliability of the questionnaires. The variables of the study returned a mean reliability of α = 0.94 which was above the reliability threshold of 0.7 as put across by Reynold and Santos (1999). The high reliability of each of the constructs as reflected in the questionnaire was an indicator of the high reliability of the research instrument. Validity is ideally determined by carrying a test of the degree to which an instrument measures what it is supposed to measure. In the context of this study, the researcher sought to determine the content validity of the research instrument prior to conducting the main study. Given that content validity cannot be statistically determined (Kimberlin & Winterstein, 2008), expert opinion and judgment regarding the validity of the questionnaires was sought from the supervisor.

3.7 Data Collection Procedure

The survey was carried out through questionnaires that were developed inquiring on background information and into factors influencing cost management in public construction projects. The questionnaire survey, therefore, was conducted among four groups of respondents, that is, the clients (Head of Government Department), building construction project consultants (Sub-County Works Officer), Sub-County supply chain manager and the project contractors (contractor awarded each office construction project). Personal delivery of the questionnaire was employed in order to promote prompt response and raise the response rate

3.8 Data Processing and Analysis

Before analyzing, the collected data was first processed by first ensuring that the incomplete data was eliminated to ensure that they were adequate and appropriate for statistical testing. The cleaned data was then coded by use of Statistical Package for Social Science (SPSS Version 21.0). This was followed by running (analyzing) the coded data both descriptively and inferentially. Descriptive analysis constituted means and standard deviations for illustrating the central tendencies and variability of the analyzed data. On the other hand, inferential statistics involved the Pearson’s correlation with the intent of determining the strength of relationship between the independent and dependent variables. Findings were presented in form of tables illustrating both the descriptive and inferential statistics.

CHAPTER FOUR

FINDINGS AND DISCUSSIONS

4.1 Introduction

This chapter outlines the presentation of the findings that resulted from data analysis. The study findings are followed by their discussion. The findings and the discussions are in





tandem with the study objectives. However, the researcher started by presenting the findings touching on the demographic information of the respondents followed by an analysis of key construction project related factors.

4.2. Response Rate

The researcher had issued 39 questionnaires out of which 33 were filled and returned. This represented 84.6% response rate. Given that the researcher administered the questionnaires one-on-one to the respondents was a factor that enhanced the relatively high response rate. Unavailability of some of the prospective respondents was the major hindrance to the attainment of 100% response rate.

4.3. Background Information

The researcher sought to assess the general information of the respondents. This was in terms of main functions of the department, experience in building construction, public projects undertaken, and number of employees of the contractor.

4.3.1 Distribution of Respondents by Main Functions of Department or Organization

Table 4.1 shows the distribution of respondents according to the main functions of their departments.

Table 4.1: Distribution of Respondents by Main Functions of Department/Organization

Main Function Frequency Percent

Public Service Delivery 14 42.4

Public Works 2 6.1

Procurement 3 9.1

Contractor 14 42.4

Total 33 100.0

From the findings, it is clear that respondents who were contractors and those drawn from the public service delivery department constituted the largest proportion (84.8%). Though all the respondents arguably play crucial roles in public sector construction projects, both the contractors and public service delivery personnel were noted to be the most directly involved in such projects.

4.3.2 Distribution of Respondents by their Experience

The researcher also analyzed the respondents according to their experience in the public sector construction project. The findings of the analysis are as indicated in Table 4.2.

Table 4.2: Distribution of Respondents by Experience in Public Building Construction

Experience Frequency Percent

1 - 3 Years 3 9.1

3 - 5 Years 7 21.2

5 - 10 years 8 24.2

10 Years and Above 6 18.2

No Response 9 27.3

Total 33 100.0





It was established that most of the respondents (27.3%) were unwilling to state their experience. However, amongst those who responded, majority had experience ranging between 3 and 10 years in the public sector construction projects. In this case, the findings returned 45.4% cumulatively.

4.3.3 Distribution of Respondents by Average Annual Public Projects

The study also analyzed the contractors who responded in line with the average annual public construction projects they undertook by the time the study took place. Table 4.3 illustrates the findings.

Table 4.3: Average Annual Public Projects (Kshs Millions)

Projects in (Kshs Millions) Frequency Percent

1 2 14.3

1 - 3 5 35.7

3 - 5 3 21.4

5 - 10 4 28.6

Total 14 100.0

By returning 35.7%, most of the contractors were found to have been undertaking projects valued between Kshs 1 million and Kshs 3 million. Indeed, only 2 contractors were found to carry out projects valued at Kshs 1 million per year.

4.3.4 Distribution of Respondents by Number of their Permanent Employees

The researcher also sought to establish the number of permanent employees that the contractors undertaking public sector’s construction projects had. Table 4.4 shows the findings of the analysis.

Table 4.4: No. of Permanent Employees in the Organization

Frequency Percent

Less than 10 6 42.9

10 – 15 4 28.6

15 – 20 3 21.4

More than 20 1 7.1

Total 33 100.0

Most of the contractors (42.9%) opined that they employed less than 10 employees on permanent terms. Only a measly 7.1% of the contractors had more than 20 permanent employees. It, therefore, implied that most of the employees working in public construction projects were casual labourers. This might have been occasioned by probably seasonality of the projects or financial incapacity of the contractors.

4.4 Descriptive Statistics

The data collected by the researcher was in form of Likert scale. This is supported by the fact that the responses were under ordinal measurement and the responses could have possibly been consolidated into a composite scale (Ary, Jacobs, & Sorenson, 2010). The responses could thus not be summed up or combined in order to return a single score because the





questions were not directly related to each other in explaining the variables under study. In line with analysis for Likert-type data, the researcher opted to employ percentages to represent descriptive statistics. 4.4.1 Public Sector Budgetary Cycle and Cost Management The first objective was to establish the effects of the budgeting process on cost management of office construction projects. The study findings are as indicated in Table 4.5.

Table 4.5: Descriptive Statistics for Budgeting Process

n Min Max Mean

Std.

Deviation

i. Delay in Project Budgeting Process 33 1 5 3.70 1.571

ii. Under-budgeting of Construction Projects 33 1 5 3.97 1.447

iii. Reallocation of Project Funds to other Economic

Sectors 33 1 5 3.73 1.306

iv. Ineffective Project Budgetary Process of the Client 33 1 5 3.79 1.269

According to the study findings as indicated in Table 4.5, four statements were found to explain the budgetary process. In other words, delay in project budgeting process, under-budgeting of construction projects, reallocation of Project Funds to other Economic Sectors and ineffective project budgetary process of the client were asserted to explain the budgeting process. The mean of all the statements were inclined towards 4.00 (important) implying that they were crucial to cost management in public construction projects. The standard deviation was more than 1.000 across all factors touching on budgeting process which meant that there were respondents who held extreme opinions regarding the importance of these factors to the budgeting process. Another factor indirectly touching on the budgeting process was “unclear project design and specifications”. Regarding its importance, the data was analyzed and the resultant findings are as shown in Table 4.6.

Table 4.6: Unclear Project Design and Specifications

Frequency Percent

Least Important 3 9.1

Unimportant 3 9.1

Neutral 1 3.0

Important 11 33.3

Most Important 15 45.5

Total 33 100.0

According to the findings majority of the respondents (45.5%) considered unclear project and specifications to be “most important” while cumulatively 78.8% were of the view that it was at least “important” in the light of public construction projects cost management.





4.4.2 Procurement/Tendering Process and Cost Management

The second study objective was to find out the effects of the procurement and tendering process on cost management. Accordingly, the researcher wanted to establish the variability across the various factors touching on the effects of procurement and tendering process on cost management of public construction projects. The findings of the variability were presented in form of percentages as illustrated in Table 4.7.

Table 4.7: Descriptive Statistics for Procurement/Tendering Process

n Min Max Mean Std. Deviation

Clients Not Using Systematic Procurement Procedures 33 1 5 4.00 1.090

Mistakes & Errors in Contract Documents 33 1 5 3.30 1.287

Use of Inappropriate Type of Contract 33 1 5 3.58 1.324

Tendering Maneuvers by Contractors 33 1 5 3.70 1.159

Client Undue Interference with Procurement Process 33 1 5 4.21 1.219

The researcher also sought to establish the degree of importance of the tendering and procurement process in management of construction cost. Five factors were found to be in tandem with this process as illustrated in Table 4.7. Failure of client to use systematic procurement procedures, mistakes and errors in contract documents, use of inappropriate type of contract, tendering maneuvers by contractors, and client undue interference with procurement process touched on the tendering process. The mean of these factors was inclined towards 4.00 (important) which meant that they were important in the cost management of public construction projects. The respondents held extreme opinions in regard to all the factors touching on the procurement process in cost management of public construction projects (std dev > 1.000). The researcher also analyzed the factors touching on public works officers’ vis-à-vis cost management. The results of the analysis are as shown in Table 4.8.

Table 4.8: Role of Public Works Officers in Procurement and Tendering Process

n Min Max Mean

Std.

Deviation

Poor Contract Management by Public Works Officers 33 2 5 3.70 1.212

Misunderstanding between Contractor, Client and Public

Works Officers 33 1 5 3.36 1.537

Incorrect Bill of Quantities from Public Works Officers 33 1 5 3.06 1.456

Poor Preparation & Approval of Project Design &

Specifications by Public Works Officers 32 1 5 3.09 1.445

Adjustment of Bill of Quantities by Public Works Officers 32 1 5 3.16 1.505

Respondents on average opined that poor contract management by public works officers was important (mean ≈ 4.00) in cost management of public sector construction projects.





However, they were unsure whether or not misunderstanding between contractor, client, and public works officers; incorrect bill of quantities from public works officers; poor preparation and approval of project design and specifications by public works officers; and adjustment of bill of quantities by public works officers were important (mean ≈ 3.00).

4.4.3 Construction Project Contractor Performance and Cost Management

In line with the third objective, the study aimed to find out the degree of importance of the construction project contractor performance to cost management. The findings were presented in form of descriptive statistics (mean and standard deviation). Table 4.9 illustrates the descriptive statistics of the research findings.

Table 4.9: Descriptive Statistics for Project Contractor Performance

n Min Max Mean

Std.

Deviation

Lack of Skilled Personnel by the Project Contractor 33 1 5 3.85 1.349

Insufficient No. of Workers with the Project Contractor 33 1 5 4.36 1.055

Inappropriate Work Schedule Adopted by the Project

Contractor 33 1 5 3.88 1.453

Project Contractor Low Labour Productivity 33 1 5 4.03 1.311

Poor Site Management by the Project Contractor 33 1 5 4.03 1.262

Shortage of Tools & Equipment by the Project Contractor 33 1 5 3.85 1.482

Inadequate Project Contractor Experience 33 1 5 4.12 1.244

Unethical Practice by Contractors in order to Maximize

Profits 33 1 5 4.12 1.053

Inappropriate Project Construction Method 33 1 5 4.00 1.275

Table 4.9 shows that all factors touching on the contractor’s performance returned means tending towards 4.00 (important) and standard deviations greater than 1. This implied that the project contractor performance on average was important in influencing cost management of public construction projects. The results as indicated by the standard deviation were interpreted to mean that respondents generally held extreme views regarding the degree of importance of contractor performance in cost management of public construction projects. The study further looked into other factors touching on project contractor performance vis-à-vis cost management. The results of the findings are as indicated in Table 4.10.





Table 4.10: Other Project Contractor Performance Factors touching on Cost

Management

n Min Max Mean

Std.

Deviation

Project Contractor's Failure in Getting Testing & Approvals

from the Project Consultant 33 1 5 3.48 1.439

Poor Communication & Conflicts among Teams 33 1 5 3.00 1.458

Mistrust between Contractor & Consultants Technical

Teams 33 1 5 3.39 1.413

The findings show that the respondents were on average indifferent (mean inclined towards 3.00 – neutral) regarding the degree of importance of project contractor's failure in getting testing and approvals from the project consultant, poor communication and conflicts among teams, and mistrust between contractor and consultants technical teams. 4.4.4 Public Funds Disbursement and Cost Management The fourth study objective was “to examine how disbursement of public funds affects cost management of departmental office construction projects in Naivasha sub-County”. The researcher analyzed the collected data and presented the findings in form of descriptive statistics (mean and standard deviation). The results are as shown in Table 4.11.

Table 4.11: Descriptive Statistics for Disbursement of Public Funds

n Min Max Mean

Std.

Deviation

i. Delayed Disbursement of Project Funds to the

Government Department 33 1 5 3.79 1.244

ii. Cash Flow Problems at the Government Department

Level 32 1 5 3.87 1.185

iii. Price Escalation of Materials & Labour 33 1 5 3.97 1.237

iv. Government Policies & Regulations Hindrances 33 1 5 3.79 1.269

v. Project Procurement Bureaucracy 33 1 5 3.61 1.413

The researcher aimed to establish the importance of disbursement of public funds in cost management of public construction projects. The means as indicated in Table 4.11 were inclined towards 4.00 (important). This was interpreted to mean that respondents averagely viewed disbursement of public funds to be important in cost management of construction projects. Also the respondents held extreme views as exemplified by the relatively large standard deviation. Other factors that revolved around public funds disbursement were analyzed and the findings are as shown in Table 4.12.





Table 4.12: Other Public Funds Disbursement Factors touching on Cost Management

n Min Max Mean

Std.

Deviation

i. Underfunding of the Projects 33 1 5 3.58 1.300

ii. Omissions & Errors in the Bill of Quantities 33 1 5 3.55 1.416

iii. Financial Resource Constraints by the Client 33 1 5 3.36 1.365

iv. Inadequate Project Planning by the Client 33 1 5 3.36 1.194

v. Poor Estimating of Project Resource Requirement

by the Contractor 33 1 5 3.70 1.262

vi. Not Following Systematic Procurement Procedures 32 1 5 3.78 1.362

vii. Poor Project Material Procurement Plan 33 1 5 3.55 1.394

The findings indicated that underfunding of the projects, omissions and errors in the bill of quantities, poor estimating of project resource requirement by the contractor, not following systematic procurement procedures, and poor project material procurement plan were averagely important (mean ≈ 4.00). However, the respondents were on average indifferent (mean ≈ 3.00) on the importance of financial resource constraints by the client, and inadequate project planning by the client.

4.5 Inferential Statistics

The researcher sought to establish the relationship between the independent variables (budgeting process, procurement and tendering process, contractor performance, and funds disbursement) and the dependent variable (cost management). Effective cost management was based on three attributes namely: complete/incomplete project, cost overrun, and duration overrun. The researcher combined together the responses under each independent variable which were closely related in describing the variable in question. The composite score for each independent variable obtained in form of mean was correlated against the dependent variable. On the other hand, the related responses that explained each of the three attributes of the dependent variable were combined together to get a composite score against which the independent variables were correlated. Since the data forming the composite score was on a Likert scale, the inferential analysis was by Pearson’s (r) correlation. The inferential analysis was in line with the study objectives. 4.5.1 Relationship between Budgeting Process and Cost Management (Incomplete/Complete Projects, Cost Overrun, Duration Overrun) The first objective was to determine the effects of budgeting process on cost management. Table 4.13 illustrates the study findings.





Table 4.13: Relationship between Budget Process and Cost Management

Incomplete / Complete

Projects

Cost

Overrun

Duration

Overrun

Budgeting

Process

Pearson Correlation .680**

.451**

.847**

Sig. (2-tailed) .000 .009 .000

n 33 33 33

**. Correlation is significant at the 0.01 level (2-tailed).

According to the findings, there was significant and positive relationship between the budgeting and incomplete/complete projects (r = 0.680; p < 0.01). Also, the budgeting process exhibited very strong and positive relationship (r = 0.847; p < 0.01) with duration overrun. However, the relationship between the budgeting process and cost overrun was moderately strong (r = 0.451; p < 0.01). All relationships were significant at 0.01 level. This was interpreted to mean that the budgeting process affected both duration overrun of the project and whether or not the projects were to be completed. Essentially, for instance, when the budgeting process is not right the duration of the project may last beyond the estimated time while at the same time the completion of the project in question may be compromised. Notably, the budgeting process has moderate effect on the cost overrun. This implies that project costs are not hugely affected by the nature of the budgeting process.

4.5.2 Relationship between Procurement and Tendering Process and Cost Management

The second objective was to investigate the effects of tendering and procurement process on cost management. The findings are shown in Table 4.14.

Table 4.14: Relationship between Procurement and Tendering Process and Cost

Management

Incomplete /

Complete Projects

Cost

Overrun

Duration

Overrun

Procurement &

Tendering Process


.364* .696

**

Sig. (2-tailed) .000 .037 .000

N 33 33 33


*. Correlation is significant at the 0.05 level (2-tailed).

The findings as shown in Table 4.14 indicate that there was strong and positive relationship (0.696; p < 0.01) between procurement and tendering process and duration overrun. This means that the tendering and procurement process determined the duration of the project. When the process was short, the duration was short, while when the process was lengthy the project lasted beyond the estimated time.





Moreover, there was conspicuously strong and positive relationship (r = 0.617; p < 0.01) between procurement and tendering process and the completion of the construction projects. This meant that the aforementioned process influenced the completion of the construction projects. It was further established that procurement and tendering process was weak and positively related (r = 0.364; p < 0.05) to the cost overrun. Interpretatively, this process had only minimal though significant effect on the construction project costs.

4.5.3 Relationship between Project Contractor Performance and Cost Management

The third objective was to establish the effect of contractor’s performance on cost management of construction projects. Table 4.15 shows the results of the statistical analysis.

Table 4.15: Relationship between Project Contractor Performance and Cost

Management

Incomplete /

Complete Projects

Cost

Overrun

Duration

Overrun

Project

Contractor

Performance


.471**

.810**

Sig. (2-tailed) .000 .006 .000

n 33 33 33


It was established that the project contractor’s performance returned a very strong and positive relationship (r = 0.810; p <0.01) when correlated against duration overrun. This was interpreted to mean that performance of the project contractor could determine whether or not the project would take more than the approximated duration of time. More so, the contractor’s performance was strongly and positively related (r = 0.602; p < 0.01) to the projects’ completion. This meant that the actions or inactions of the project contractor had consequences on the completion or incompletion of the construction projects. Yet, there was a moderately strong relationship (r = 0.471; p < 0.01) between project contractor’s performance and cost overrun. This meant that, relative to construction projects, the performance of the project contractor had only moderate effect on escalation of the associated costs.

4.5.4 Relationship between Funds Disbursement and Cost Management

The fourth objective was to examine the effects of public funds disbursement on cost management. The results of the analysis are as indicated in Table 4.16.

Table 4.16: Relationship between Funds Disbursement and Cost Management

Incomplete / Complete

Projects

Cost

Overrun

Duration

Overrun

Funds

Disbursement

Pearson

Correlation -.069 .136 .163

Sig. (2-tailed) .703 .451 .366

n 33 33 33





According to the findings as indicated in Table 4.16, there was very weak relationship between funds disbursement and all the attributes of cost management (incompleteness of projects, cost overrun, and duration overrun). Also the level of confidence regarding the existence of a relationship between the two variables (funds disbursement and cost management) was noticeably low (p > 0.05). This implied that the disbursement of public funds intended for construction projects had insignificant effect on cost management. In other words, how and when the funds are disbursed, according to the findings, is largely inconsequential to completeness of projects, cost overrun, and duration overrun of public construction projects.

CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

The researcher summarized his study findings before drawing pertinent conclusions. This was followed by suggesting relevant recommendations that emanated from the inferences of the study. Summary, conclusions and recommendations are in tandem with the study objectives.

5.2 Summary of the Research Findings

The findings of the study were presented in form of both descriptive and inferential statistics. Descriptive statistics were presented in form of frequencies, percentages, means and standard deviations while inferential statistics were presented in form of Pearson’s correlation coefficient. 5.2.1 Public Sector Budgetary Cycle and Cost Management Delay in project budgeting process, under-budgeting of construction projects, and ineffective project budgetary process of the client were asserted to explain the budgeting process. The mean of all the statements were inclined towards 4.00 (important) implying that they were crucial to cost management in public construction projects. According to the findings majority of the respondents were of the view that it was at least “important” in the light of public construction projects cost management. There was significant and positive relationship between the budgeting and incomplete/complete projects. Also, the budgeting process exhibited very strong and positive relationship with duration overrun. However, the relationship between the budgeting process and cost overrun was moderately strong. This meant that the budgeting process affected both duration overrun of the project and whether or not the projects were to be completed. The budgeting process was found to moderately affect cost overrun. This implies that project costs are not hugely affected by the nature of the budgeting process.


Failure of client to use systematic procurement procedures, mistakes and errors in contract documents, use of inappropriate type of contract, tendering maneuvers by contractors, and client undue interference with procurement process touched on the procurement and tendering process. All these factors were found to be important in the cost management of public construction projects. Respondents on average opined that poor contract management by public works officers was important in cost management of public sector construction projects. However, they were unsure whether or not misunderstanding between contractor,





client, and public works officers; incorrect bill of quantities from public works officers; poor preparation and approval of project design and specifications by public works officers; and adjustment of bill of quantities by public works officers were important. There was strong and positive relationship between procurement and tendering process and duration overrun. This means that the tendering and procurement process determined the duration of the project. Moreover, there was conspicuously strong and positive relationship between procurement and tendering process and the completion of the construction projects. This meant that the aforementioned process influenced the completion of the construction projects. It was further established that procurement and tendering process was weak and positively related to the cost overrun. Interpretatively, this process had only minimal though significant effect on the construction project costs.

5.2.3 Effects of Construction Project Contractor Performance on Cost Management

The project contractor performance on average was established to be important in influencing cost management of public construction projects. The results further indicated that respondents generally held extreme views regarding the degree of importance of contractor performance in cost management of public construction projects. Respondents were on average found to be indifferent regarding the degree of importance of project contractor's failure in getting testing and approvals from the project consultant, poor communication and conflicts among teams, and mistrust between contractor and consultants’ technical teams. It was established that the project contractor’s performance returned a very strong and positive relationship when correlated against duration overrun. This was interpreted to mean that performance of the project contractor could determine whether or not the project would take more than the approximated duration of time. More so, the contractor’s performance was strongly and positively related to the projects’ completion. This meant that the actions or inactions of the project contractor had consequences on the completion or incompletion of the construction projects. Yet, there was a moderately strong relationship between project contractor’s performance and cost overrun, which meant that, relative to construction projects, the performance of the project contractor had only moderate effect on escalation of the associated costs. 5.2.4 Public Funds Disbursement and Cost Management Respondents averagely viewed disbursement of public funds as being important in cost management of construction projects. The findings further indicated that underfunding of the projects, omissions and errors in the bill of quantities, poor estimating of project resource requirement by the contractor, not following systematic procurement procedures, and poor project material procurement plan were averagely important in public sector construction projects. However, the respondents were on average indifferent on the importance of financial resource constraints by the client, and inadequate project planning by the client. There was very weak relationship between funds disbursement and all the attributes of cost management. Also the level of confidence regarding the existence of a relationship between the two variables was noticeably low. This implied that the disbursement of public funds intended for construction projects had insignificant effect on cost management. In other words, how and when the funds are disbursed, according to the findings, was largely





inconsequential to completeness of projects, cost overrun, and duration overrun of public construction projects.

5.3 Conclusions of the Research Findings

After summarizing the study findings, a number of pertinent conclusions were drawn. These are in line with the study objectives. 5.3.1 Public Sector Budgetary Cycle and Cost Management Public sector budgetary cycle was established to be at least important in cost management of public sector construction projects. It was concluded that the budgeting process affects both duration overrun of the project and whether or not the projects are to be completed. It was further inferred that the project costs are not hugely affected by the nature of the budgeting process.


It is concluded that failure of client to use systematic procurement procedures, mistakes and errors in contract documents, use of inappropriate type of contract, tendering maneuvers by contractors, and client undue interference with procurement process touch on the procurement and tendering process. Moreover, it is concluded that the tendering and procurement process determine the duration of the project. In addition, the procurement and tendering process influence the completion of the construction projects. It was further inferred that procurement and tendering process has only minimal though significant effect on the construction project costs.

5.3.3 Effects of Construction Project Contractor Performance on Cost Management

It is inferred that project contractor performance is important in influencing cost management of public construction projects. It is further established that performance of the project contractor can determine whether or not the project would take more than the approximated duration of time. It was also concluded that the actions or inactions of the project contractor has potential consequences on the completion or incompletion of the construction projects. Lastly, it was concluded that the performance of the project contractor has only moderate effect on escalation of the associated costs. 5.3.4 Public Funds Disbursement and Cost Management Disbursement of public funds is inferred to be important in cost management of construction projects. It is further concluded that the disbursement of public funds intended for construction projects insignificantly affect cost management of the aforementioned projects. This implies that how and when the funds are disbursed is largely inconsequential to completeness of projects, cost overrun, and duration overrun of public construction projects.

5.4 Recommendations

After drawing conclusions pertinent to the study findings, the researcher was able to come up with a number of recommendations. These include:





i. It should be ensured by the relevant project financiers that they allocate adequate funds to public construction projects. These funds should at no given time be redirected to other sectors; rather they should be exclusively employed for their intended purposes.

ii. There ought to be systematic procurement and tendering procedures touching on public construction projects. Such procedures would seal loopholes through which public funds could otherwise be lost.

iii. The contractor and his or her personnel should possess the requisite technical skills,

for example, in finance/accounting, management amongst others. More so, in awarding of construction project tenders, experience of the binders and possession of requisite tools and equipment should be one of the major determining factors. The government needs to minimize and/or totally remove bottlenecks that would otherwise increase the cost of the construction projects.

5.5 Suggestions for Further Studies

In line with the study and its findings, the researcher recommends the following areas of study for further research.

i. The role of the government in public construction projects in Kenya

ii. An assessment of challenges facing public construction projects in Kenya

iii. An analysis of factors that determine the success of public construction projects in Kenya





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APPENDIX I

LETTER TO THE RESPONDENTS

Cleopas Gathara Wahome,

School of Human Resource

Development,

Jomo Kenyatta

University Of Agriculture and

Technology, Nakuru CBD Campus,

P.O Box 1063-20100,

Nakuru, Kenya.

RE: LETTER OF INTRODUCTION.

I am a Postgraduate Student studying for a Master of Science degree in Project Management

in the School of Human Resource Development, Jomo Kenyatta University of Agriculture and

Technology. I am currently conducting a study on the topic: Factors Influencing Cost

Management in Public Sector Construction Projects; A Case of Government

Departmental Offices in Naivasha Sub-County. The information gathered will be useful to

various stakeholders in the project management sector in the country.

All information provided will be treated with the highest confidentiality and will be used for

academic purposes only.

Thanking you in advance for your time and cooperation.

Cleopas G. Wahome

RithoStudent (HD317 C007 1665 2011)

Dr. Cecilia N.

University Supervisor





APPENDIX II

RESEARCH QUESTIONNAIRE

Please answer the following Questions as best as you can.

Section I; General Background Information

1. Name of the department/organization……………………………………………….

2. Main functions of the department/organization :( Tick the appropriate choice)

…..Public Service Delivery ….. Public works…..Procurement ….. Contractor

3. Experience in public building construction

…..1-3 years ……. 3-5 years …… 5-10 years …….. 10+ years

4. For the contractor; Average public projects undertaken per year (in KSh. Millions)

……1 ……1-3 ....3-5 …..5-10

5. For the contractor: Number of permanent employee in the organization

…..Less than 10 ……10-15 …….15-20 …..More than 20

Section II: Effects of the Public Sector Budgetary Cycle to Cost Management of Office

Construction Projects in Naivasha Sub-County

Factors Least

Important

Unimportant Neutral Important Most

Important

Delay in project budgeting

process

Under budgeting of

construction projects

Reallocation of project

funds to other economic

sectors

Unclear project design and

specifications

Ineffective project

budgetary process of the

client





Section III: Effects of public sector construction project tendering process to cost

management of office construction projects in Naivasha Sub-County

Factors Least

Important


Important

Clients not using

systematic procurement

procedures

Poor contract

management by public

works officers

Misunderstanding

between contractor, client

and public works officers

Incorrect bill of quantities

from public works officer

Poor preparation and

approval of project design

and specifications by

public works officer

Mistakes and errors in

contact documents

Use of inappropriate type

of contract

Tendering maneuvers by

contractors

Adjustment of bill of

quantities by public works

officers

Client undue interference

with procurement process

Unclear project

specifications





Section IV: Effects of contractor performance to cost management of office construction

project in Naivasha Sub-County

Factors Least

Important


Important

Lack of skilled personnel

by the project contractor

Insufficient number of

workers with the project

contractor

Inappropriate work

schedule adopted by the

project contractor

Project contractor low

labour productivity

Poor site management by

the project contractor

Shortage of tools and

equipment by the project

contractor

Inadequate project

contractor experience

Failure of project

contractor in getting

testing and approvals

from the project

consultant

Poor communication and

conflicts among teams

Mistrust between

contractor and consultants

technical teams

Unethical practice by

contractors in order to

maximize profits

Inappropriate project

construction method





Section V: Effects of timeliness of disbursement of public construction project funds to

cost management of office construction project in Naivasha Sub-County

Factors Least

Important


Important

Delayed disbursement of

project funds to the

government department

Underfunding of the

projects

Cash flow problems at

the government

department level

Price escalation of

materials and labour

Omissions and errors in

the bill of quantities

Financial resource

constraints by the client

Inadequate project

planning by client

Poor estimating of

project resource

requirement by the

contractor

Government policies and

regulations hindrances

Not following systematic

procurement procedures

Poor project material

procurement plan

Project procurement

bureaucracy





Section VII: Factors Affecting Effective Cost Management of Public Construction

Projects

How would you rate the following statements relative to how they affect effective cost management

of public construction projects?

Factors Least

Important

Un-

Important

Neutral Important Most

Important

Delay in project budgeting Budgeting

process/bud

getary

cycle

Under budgeting of projects

Project budgetary reallocation

Unclear Project specifications

Bureaucracy in public project

process

Procureme

nt and

tendering

process

Not following public project

delivery procedures

Poor preparation and approval of

project design and specifications

Poor communication and conflicts

among project teams

Constructio

n project

contractor

Inadequate management skills of

the project teams

Delayed disbursement of project

funds

Disburseme

nt of public

funds

Underfunding of public projects

Cash flow problems during project

implementation





APPENDIX III – ACRONYMS AND DEFINITIONS ACRONYMS

CPM - Critical Path Method

DDC - District Development Committee

ERS - Economic Recovery Strategy

NARC - National Rainbow Coalition

PERT - Program Evaluation and ReviewTechnique

PSRP - Public Sector Reform Program

TOR - Terms of Reference

SPSS - Statistical Packages for Social Sciences

DEFINITIONS

Cost Management: This refers to proper utilization of finances allocated to cater for given expenditures (Koushki et al., 2005).

Budget: It refers to an estimation of the revue and expenses over a

specified future period of time (Aftab, 2011). Budgetary Process: Refers to the procedure by which an organization creates and

manages a financial plan (Aftab, 2011). Disbursement: It is refers to the payment of money from a fund or account

(Legishion et al., 2013).





About the author

Cleopas Gathara Wahome

Nakuru, Kenya

Cleopas Gathara Wahome works with the State Department of livestock under the Public Service Commission of Kenya. He is a 1993 graduate of Egerton University –Njoro Campus, in Animal Production. He taught Agriculture at Kapmaso Secondary School in Kericho County for two years as a Teachers Service Commission of Kenya untrained graduate teacher up to October 1993. Cleopas Gathara Wahome joined Naivasha Sheep and Goats Station in November, 1993 as a livestock production officer in charge of breeding and production programmes. In September, 2005 he was appointed head of this department as the officer in charge overseeing all technical programmes and administrative activities of the station. Naivasha Sheep and Goats Station is a national station mandated to conserve and improve specific genetic resource of small ruminants. In May, 2011, he enrolled for a MSc. in Project Management Course at Nakuru -CBD Campus of Jomo Kenyatta University of Agriculture and Technology. This course empowered him with skills and competencies to prudently manage resources allocated Naivasha Sheep and Goats Station to achieve its desired national mandates. Cleopas can be contacted at [email protected].



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