Professional Documents
Culture Documents
Proceedings
CIB W107 (Construction in Developing Economies)
and
CIB TG23 (Culture in Construction)
Joint Symposium
Sponsored by
Edited by
Stephen Ogunlana
Chotchai Charoenngam
Pannapa Herabat
B. H. W. Hadikusumo
Published by:
ISBN: 974-8208-56-7
November 2004
Copyright 2004 by the School of Civil Engineering, Asian Institute of Technology, Klong
Luang, Pathum Thani 12120, Thailand and The International Council on Innovation and
Research in Building and Construction (CIB), Rotterdam, The Netherlands.
All rights reserved. No part of this work may be reproduced in any form or by any means
- graphic, electronic, or mechanical without the written permission of one or other of the
copyright holders. This not withstanding, the author of a paper may reproduce a part or
parts of the document in the course of his or her normal professional or academic
activities, provided a complete reference to the source is given.
CONTENTS
The third party’s attributes that influence the perceived fairness the process for
handling claims and dispute 409
AJIBADE AYODEJI AIBINU
Constraints on the ICT diffusion within large Australian construction firms 509
V. PEANSUPAP and D.H.T. WALKER
Problems of land delivery for housing development in Lagos state, Nigeria 601
ALUKO, BIOYE TAJUDEEN; OLALEYE, ABEL and
AMIDU, ABDUL-RASHEED
Mortgage financing in Nigeria: challenges and the search for strategies aimed at
achieving global competitiveness 611
OLOYEDE, S. A.
Modelling the determinants of the demand for housing construction in Nigeria 631
A. O. WINDAPO, O. E. OGUNSANMI and R.O. A. IYAGBA
The load-bearing service core: a hybrid & optimal residential building system 647
ROGER-BRUNO RICHARD
viii
Housing policy and strategy to remove people and communities from flood plain
in Ubonratchathani 667
SDHABHON BHOKHA
The demand for accuracy in valuations: the case of Nigeria valuation accuracy
in Nigeria 679
OLUSEGUN ADEBAYO OGUNBA
A study on stakeholder satisfaction with a BOT project: the case of the Bangkok
Mass Transit System 747
W. TANGKITSIRI and S. O. OGUNLANA
PREFACE
The objectives of the CIB W107 2004 symposium are the following:
Stephen O. Ogunlana
Chair, Organising Committee
Global Construction 2004
xiv
xv
ACKNOWLEDGEMENT
Stephen O. Ogunlana
Chair, Organising Committee
Global Construction 2004
xvi
xvii
CIB 2004
Working Commission W107 Construction in Developing Economies
International Symposium on
Organizers
CIB International Council for Research and
Innovation in Building and Construction
OBJECTIVES
The objectives of the CIB W107 2004 symposium are the following:
- Explore the potential effects of globalization on the construction industries in
developing countries
- Explore the challenges of globalization to professionals, firms and countries in the
developing world
xviii
SYMPOSIUM THEMES
There seems to be general agreement on the factors that are serving as the drivers of the
globalization process:
1. Improvements in technology of transportation and communication have reduced
the costs thereby transforming the world into a global village where goods,
services and factors of production can be moved at greater speed and cheaper cost.
2. Tastes have changed generally to favour taking advantages of the opportunities
created by the decrease in costs of transportation and communication.
3. Public policies have influenced the character and pace of globalization.
The symptoms of globalization are best seen through: (1) human migration; (2) trade in
goods and services; and (3) movements of capital and integration of financial markets.
The effects of globalization are very much apparent in the construction industries in
developing countries of Asia and the Middle East. It is not difficult to find large
construction sites with professionals and workers from 20 different nationalities in
countries like Singapore, Taiwan, Saudi Arabia, Qatar, Bahrain, Kuwait, etc.
Increasingly, design and construction are being done in multiple countries. Build operate
transfer projects are being financed by as many as 50 banks from several countries. The
symposium will deliberate on several sub-themes including but not limited to the
following:
The perspective of the symposium, the integration of markets across countries and the
improvement of the abilities of construction companies in developing countries to
compete, is linking the achievements of research and development to the actual business.
Thus, the symposium is expected to gain considerable interest among industry
practitioners. For them the symposium shall provide new knowledge and information
from leading experts and research institutions worldwide on different aspects of
globalizing businesses and operations.
For scholars from the research community the symposium shall provide a stimulating and
comfortable event where thorough presentations and discussions are held on specific
topics of interests. The presence of industry professionals will be an excellent opportunity
for receiving valuable feedback and contacts. This symposium is addressed to the
different working commissions and task groups of the CIB relevant to construction
industry development.
ORGANISING BODIES
CIB is the world’s foremost organization for construction researchers and practitioners.
With its headquarters in Rotterdam, CIB is an international body dedicated to the research
and documentation of the building industry. It brings together professionals from a broad
spectrum of building organizations worldwide. The unrivalled collection of expertise of
the more than 600 members is organized through a network of working commissions
whose subject matter extends over every area of building and construction.
Prof. Timothy Michael Lewis, University of the West Indies, Trinidad & Tobago
Dr. Obas Ebohon, De Montfort University, UK
Dr. Issaka Ndekugri, University of Wolverhampton, UK
Prof. David Langford, University of Strathclyde, UK
Prof. Ben Uwakweh, University of Cincinnati, USA
ABSTRACT
The Gross Domestic Product (GDP) of China has been growing at an average of seven to
nine per cent per annum since economic reforms were introduced more than two decades
ago. China has the second largest construction market in the world, only after the United
States. This sector is one of the most significant components of China’s industry and
accounted for nearly seven per cent of the country’s GDP in 2002. After China joined the
World Trade Organisation (WTO) in November 2001 after almost 15 years of
negotiation, the Chinese construction industry has become more open to world markets.
In an attempt to understand the impact of WTO accession on China’s construction
industry this paper aims to identify the significant opportunities and challenges for
China’s construction industry after WTO accession and provide effective and practical
strategies to overcome significant barriers. To achieve the above-mentioned research
objectives, a questionnaire survey approach was adopted. The questionnaire targeted both
private and government owned companies from a variety of qualification grading,
representing the minimum capital requirements of projects: (1) Super-grade; (2) Grade A;
(3) Grade B; and (4) Grade C. In total, 307 questionnaires were sent to Chinese
construction firms and 47 responses were received, representing a response rate of 15.5
per cent. The research outcomes of this project are a concise list of barriers to effective
WTO accession and recommendations for the Chinese government and the construction
industry.
China has one of the fastest growing economies in the world. China’s rapid economic
development over the past twenty or so years has lifted millions out of severe poverty and
propelled many into extraordinary wealth. China has emerged from virtual isolation to
become the seventh largest trading nation and the sixth largest economy in the world.
Since 1978, China’s GDP has had a sustained growth rate of over 9% per year. As one of
five key “backbone” industries (construction, automobiles, electronics, machinery, and
petrochemicals), the construction sector has been assigned very high priority in the most
recent economic plans. The contribution of the construction industry to GDP has grown
steadily from 4% in 1978 to 7% in 2002. China is the building site for countless new
residential and commercial buildings, gleaming industrial parks, record-breaking public
2 Stewart and Jiang
infrastructure projects, and is expected to soon be home to the world’s tallest building.
According to the Ministry of Construction, over the next five years, five billion square
metres of new housing projects are to be built, this amounts to 10-35 million housing
units annually (compared to less than two million annually in the U.S.). Infrastructure
improvement is a key priority in the 10th five-year plan (2001 - 2005) with up to 400
billion USD being set aside for roads, harbours, railways, airports and power stations. 25
billion USD in construction is related to the Beijing Olympic Games in 2008. Since 1979,
the Chinese government has invested heavily in the construction of urban infrastructure
facilities, including public utilities, parks and other green areas, urban roads, public
communications, water- and gas-supply facilities, and treatment of urban garbage.
The enterprises that constitute China’s construction industry are officially divided into
four distinct categories: State-owned Enterprises (SOEs), Collective – Owned Enterprises
(COEs); privately owned enterprises and self-employment (we address the two together
as private enterprises hereafter) and other types of enterprises. China's state-owned
enterprises account for the majority of China's industrial output and represent China's key
industries. It is necessary for any construction enterprises in China to apply for a
construction enterprises skill certificate, whereby, construction enterprises are classified
into contractors, specialised contractors, and subcontractors. Contractors are further
divided into 12 qualification categories with four grades – Super Grade, Grade A, Grade
B and Grade C, while specialised contractors are further divided into 60 qualification
categories with two to three grades. Subcontractors are further divided into 13
qualification categories with one to two grades. According to the Regulations, the
assessment conditions for qualification include minimum registered capital requirements,
average annual revenue requirements, staff’s qualifications, equipment requirements, etc.
Before China joined the WTO any international construction enterprises that wanted to
enter China’s construction industry had taken the umbrage about restrictions on their
market access, the absence of a level playing field and the lack of transparency [Schaub et
al., 2003]. These firms were only permitted access to China’s market through Sino-
foreign joint ventures (JVs), or by obtaining a Qualification Certificate from the Ministry
of Construction (MOC) or provincial-level authorities on a project-by-project basis. In
addition, various limitations existed in respect of minimum registered capital
requirements for Sino-foreign joint ventures (i.e. Grade A = US$ 10 million; Grade B =
US$ 5 million; and Grade C = US$ 1.6 million).
After accession to the WTO in November 2001, China agreed in its Protocol of Accession
to the WTO to gradually eliminate a number of existing restrictions on foreign investment
in the construction sector, with perhaps the most notable commitment being the
elimination of the prohibition on wholly foreign – owned enterprise (WFOE) construction
companies by December 11 2004, which means WFOE will be permitted direct access to
China’s construction market. Hence international construction companies soon have more
options available to establish operations in China. Full details of pledges in the
construction domain are too numerous to mention herein.
China’s Construction industry after WTO accession 3
OPPORTUNITIES (BENEFITS)
China’s construction industry will benefit in many aspects after WTO accession.
However, there are four main areas where opportunities should arise: (1) construction
market; (2) management and technology; (3) employment; and (4) laws and regulations.
These areas are discussed in the following paragraphs and detailed in Table 1.
Huang et al. (2000) pointed out that with less trading limitations and industry barriers,
more international enterprises would enlarge their direct investment and set up factories
in China to utilise their resource superiority. Moreover, Chen (2001) described that over
the long-term, the investing environment would be improved by implementing
ameliorated regulations and laws. With the adoption of enlarged investment channels,
many financing approaches may be widely used for funding infrastructure construction
projects [Guo (2001)].
Entry into the WTO requires China to implement the basic, principles of General
Agreements of Tariffs and Trade (GATT). They include principles of most favourable
treatment, transparency, market access, national treatment and gradual liberalisation.
With the implementation of these principles, some local regulations protecting Chinese
construction customs have to be abolished gradually [Liu (2000)]. One principle of the
WTO is the construction of law and the transparency of law. After WTO accession, it is
the responsibility for China to ameliorate the laws and regulation to fit the international
customs. Meanwhile, the tendency towards economic globalisation also necessitates for
China’s regulations to accord with international regulations.
CHALLENGES (BARRIERS)
Although China’s WTO accession may provide its construction industry with more
opportunities, these benefits will come at a cost. China is required to make unilateral
concession as its entry fee and is expected to observe the WTO agreements. One of them
is to reduce the prohibitions and barriers for foreign enterprises’ entry to China’s market.
Therefore, competition with foreign construction enterprises is one of the biggest
challenges for local enterprises. Chinese enterprises still lag behind those in developed
countries in both scientific research and operational practices. In order to delve into the
strategies to improve the competitive ability of Chinese construction enterprises the
barriers to their development are discussed in the following sections. Barriers have been
categorised into internal and external barriers.
4 Stewart and Jiang
Internal Barriers
China’s construction enterprises are still labour-intensive and have low labour
productivity. According to the China Statistical Yearbook 2003, there were 47,500
construction enterprises, which employed 21.29 million workers, which means an average
of nearly 450 employees per enterprise. This is far greater than that of construction
enterprises from developed countries. Many Chinese contractors' business activities have
been constrained by their small business scale, low competence in applying advanced
technologies, lack of management expertise, inadequate financing capacity, and human
resource deficiency [Li and Mao (2000)]. The relative lower labour cost, therefore,
becomes their only comparative advantage. However, as Chinese labour costs have
increased nearly 20 times since the early 1980s Chinese contractors are gradually losing
their comparative cost advantage [Zhao (2001)]. Additionally, Chinese contractors are
generally short of working capital, and have a weak financing capability [Zhao (2001)].
Though 34 China-based enterprises were included into the top 225 international
contractors, their share in total revenue was only 4.1%, which was less than Bechtel
Group Inc. (USA) (5.9%). The largest Chinese contractor, China State Construction
Engineering Corp., only acquired a share of 1.1%. Moreover, the experienced managerial
and professional staff of engineering, procurement and construction (EPC) enterprises,
most in their late thirties and forties, have had little chance to receive formal professional
training in international commercial management as part of their tertiary education. The
challenges of finding suitably qualified project management staff has been widely
reported [Huo (2000)]. The enterprises are short of professionals with rich knowledge of,
and experience in, international contracting practices. In addition, foreign enterprises can
provide much better salaries, working conditions and training opportunities than their
local competitors. Once more foreign enterprises enter into China’s construction market,
the talented workers will be attracted by these conditions [Chen (2001), Research Group
(2000)].
External Barriers
One feature of Chinese clients is that they tend to use improper, sometimes illegal
practices when managing their projects. Because the open tender system is not wildly
applied, corruption is pervasive in China’s construction industry. It is common for clients
to ask for “kick-backs”, or insist on using certain poor quality building materials. Their
behaviour has not yet been regulated effectively due to the problems in the enforcement
of various regulations. Deferred payment is another very common barrier preventing
construction enterprises to develop themselves.
Lan and Jackson (2002) analysed the Chinese contracting system and claimed that the
relationship between contractors and subcontractors in China was problematic. The
Chinese government is now concerned about over-subcontracting with many contractors
and designers seeking profits by illegally leasing their licences or by subcontracting their
jobs to unqualified firms. Lack of an established contractor-subcontractor system not only
hinders the development of specialisations amongst construction firms in a full
contractual chain, but also increases the competition among contractors and
subcontractors, which can have a deteriorating effect on the performance of most
construction enterprises [Lan and Jackson (2001)]. Tables 2 and 3 detail a summary of the
internal and external barriers facing the industry.
COPING STRATEGIES
Firstly, the government should establish and ameliorate the system of laws and
regulations in the construction industry. As Research Group (2000) pointed out, the
government should draft new construction laws and regulations, which matches WTO
operational standards within three to five years. In addition, the government should
constitute essential policies with the aim to open the Chinese construction market. The
government should also offer financial support such as bank loans, guarantee funds and
insurance mechanisms to facilitate the development of construction enterprises [Cui
(2001)]. Moreover, they should take measures to promote those enterprises that have
comparative advantages, or are leading the industry. These measures include organising
and providing market information services, facilitating technology transfer and
strengthening professional training through collaboration between Chinese and foreign
educational organisations [Cui (2001)].
In order to improve labour productivity and reduce project costs, China’s construction
enterprises should attach importance to the reform of management and technology
through collaboration with educational institutes, universities and research departments
and set up effective technology transfer systems [Chen and Mohamed (2002)].
Meanwhile, as the tariffs are reduced with the accession of the WTO, the cost for some
advanced materials and equipment, which needs to be imported, will be reduced. In order
to acquire new technologies and international management expertise, Chinese
construction enterprises can undertake project-based joint ventures or other forms of
alliance with international firms [Li (2001)]. For those comparatively small-scale
enterprises, being specialised and developing though mergers are good ways to survive in
the fiercer competitive market after WTO accession. Moreover, in order to resist the
challenges from WTO accession, China’s construction enterprises should enlarge their
investment in technical research and implement international standards and management
systems [Research Group (2000)]. Table 4 details a summary of coping strategies to
enhance the development of Chinese construction enterprises after WTO accession.
RESEARCH METHOD
projects: (1) Super-grade; (2) Grade A; (3) Grade B; and (4) Grade C. In total, 307
questionnaires were sent to Chinese construction firms and 47 responses were received,
representing a response rate of 15.5 per cent. The survey aimed to determine the
significance of a set of benefits and barriers to WTO membership. Additionally,
respondents were required to link barriers to a number of coping strategies and rate the
effectiveness and practicality of these strategies.
Respondent Profile
The respondents’ position description was divided into five distinct categories with the
following breakdown: site engineering (36%), project manager (26%), design engineer
(21%), architect (13%) and principal engineer/director (4%). The respondents’
organisations’ ownership profile was categorised into four categories. As expected,
Stated-owned enterprises provided the largest response rate (36%), followed closely by
Collective-owned (27%), Share-holding (23%) and Private (14%) making up the
remainder of the respondents. The majority of respondents were from the Grade A (42%)
and B (30%) category, followed by Super Grade (15%) and Grade C (13%).
Opportunities (Benefits)
The benefits collated in the literature review were gathered into the questionnaire survey
and the respondents were asked to rate their significance on a scale of ‘1 = insignificant’
to ‘4 = very significant’ (see Table 1). According to the rank shown in the Table 1, it can
be seen that although fierce competition exists between China’s construction enterprises
and foreign ones the desire to attract more foreign investment was ranked as the best
opportunity. Additionally, Chinese enterprises seek more infrastructure projects and want
to implement advanced equipment and environmentally friendly materials. Surprisingly,
the respondents did not rate policies and internationalisation as an important benefit but
this may result from their lack of understanding of the essentialness of effective policy.
China’s Construction industry after WTO accession 7
Challenges (Barriers)
Barriers were categorised as either internal or external. Internal barriers refer to those
defects and shortages that are preventing Chinese construction enterprises to develop and
be competitive in the international market (see Table 2). Low labour productivity and a
lack of experienced professionals were rated as the most significant internal barriers for
China’s construction industry after China joined the WTO. Respondents also listed some
other internal barriers, which they remarked as being significant, namely, low competence
in applying technologies, human resource deficiency, ambiguous ownership rights, and
the lack of a competitive consciousness. External Barriers are concerned about macro
barriers such as those that derive from the government and environment in which the
industry operates (see Table 3). The respondents rated malignant competition in China’s
construction industry as the highest ranked external barrier. Moreover, the respondents
stated some other external barriers that they perceived to be important, namely, supply
exceeds demand, lack of channels to receive international information, and disorder in the
construction market.
8 Stewart and Jiang
This section of the questionnaire asked respondents to link the internal and external
barriers to a series of suggested coping strategies. Additionally, the respondents were
required to rate the effectiveness and practicality of these coping strategies. In Table 4,
Column (1) and (2) detail the coping strategies and their respective codes. Column (3)
details the barrier codes and the percentage of respondents who considered that the
particular coping strategy could overcome specific barriers. For example, k (47%) means
that 47% of the respondents linked barrier k to coping strategy one (CS.1). Column (4)
details the mean significance of the barriers as stated in Tables 2 and 3. Column (5) and
(6) details the mean effectiveness and practicality, respectively. Column (7) describes the
‘usefulness’ of the coping strategies through the summation of Column (5) and (6) (i.e.
Table 4: for the CS.1–k link (2.62 + 2.77) = 5.39). In order to identify the most useful
coping strategies to overcome the significant barriers to efficient WTO accession, a
refinement process was conducted. The refinement steps and the appropriate limits are
detailed as follows: (1) remove barriers with a mean significance less than 2.5; (2)
remove links where less than 20% of respondents linked barriers to coping strategies; and
(3) remove barrier to coping strategy links that have a mean usefulness less than 5. After
refinement, each link is ranked according to the significance of the barrier and the
‘usefulness’ of the coping strategy. For example, for the link CS.1 - k (47%), the
importance of the link is determined by multiplying the mean significance by the
usefulness score (i.e. 3.15 × 5.39 = 16.99).
China’s Construction industry after WTO accession 9
Mean Practicality
Effectiveness (5)
Significance (4)
Barriers Code
Usefulness (7)
Rank (9)
Mean
Mean
Code
(6)
Coping Strategy Description (2)
(1)
CS.1 Ameliorating policies and k (47%) 3.15 2.62 2.77 5.39 16.99 11
regulations l (100%) 2.89 2.77 2.64 5.41 15.63 18
m (94%) 3.13 2.73 2.77 5.50 17.22 10
n (83%) 2.87 2.59 3.08 5.67 16.27 17
o (91%) 3.36 2.44 2.63 5.05 16.97 12
CS.2 Collaboration with educational a (45%) 3.45 2.67 3.24 5.91 20.39 4
institutes h (98%) 3.21 2.70 2.74 5.44 18.49 8
i (32%) 2.79 2.67 2.87 5.54 15.46 20
CS.3 Developing through mergers b (100%) 3.02 2.98 2.81 5.79 17.49 9
d (43%) 2.68 2.45 2.80 5.25 14.07 23
CS.4 Being aggregative and special b (100%) 3.02 3.09 3.19 6.28 18.97 6
CS.5 The government gives more b (28%) 3.02 2.85 2.69 5.54 16.73 14
financial help such as bank loans, d (100%) 2.68 3.21 2.87 6.09 16.32 16
guarantee funds and insurance
CS.6 Cooperation with project-based c (38%) 2.98 3.06 2.44 5.50 16.39 15
joint ventures or other forms of e (100%) 2.77 2.87 2.74 5.61 15.54 19
alliance with multinational f (74%) 2.60 2.97 2.71 5.68 14.77 22
companies
CS.7 Provision of training in e (100%) 2.77 3.09 2.30 5.39 14.93 21
international project operations g (34%) 2.64 2.56 2.50 5.06 13.36 24
CS.8 Using advanced equipment and a (100%) 3.45 3.21 3.17 6.38 22.01 2
materials
CS.9 Implementation of IT systems a (100%) 3.45 2.89 2.60 5.49 18.94 7
CS.10 Implementation of international a (81%) 3.45 3.08 3.03 6.11 21.08 3
management systems j (55%) 2.98 3.12 2.52 5.64 16.81 13
CS.11 Enhancing employee training a (81%) 3.45 3.32 3.61 6.93 23.91 1
h (89%) 3.21 2.67 3.42 6.09 19.55 5
From Table 4, it becomes obvious that CS.11: Enhancing employee training (23.91),
CS.8: Using advanced equipment and materials (22.01), CS.10 Implementing
international management systems (21.08), and CS.2: Collaboration with educational
institutes (20.39) are imperative to overcome barrier a: Low labour productivity. Another
interesting observation is that ameliorating policies and regulations is essential to
overcome external barriers such as protectionism, competition, payment etc. Surprisingly,
respondents did not rate joint ventures and training in international operations as one of
the most important coping strategies. The respondents perceived that they needed to
modify their internal system before adopting technology transfer initiatives.
RESEARCH OUTCOMES
Opportunities (Benefits)
• General: attracting more foreign investment for infrastructure projects.
10 Stewart and Jiang
Government
• Ameliorate policies and regulations through consultation with other WTO members.
• Provide increased financial support such as bank loans, guarantee funds and
insurance mechanisms to encourage and facilitate the development of construction
enterprises.
Individual Enterprises
• General: enhancing employee training and using advanced equipment and materials
are effective and practical ways to improve productivity.
• Super-grade enterprises: undertaking project-based joint ventures or alliances with
multinational companies should enrich international project management experience
and increase the credibility of Chinese construction firms.
• Grade A, B or C enterprises: collaborating with educational institutes, implementing
international management systems, developing through mergers and being
aggregative or specialised can overcome the lack of experienced professionals and
small business scale.
CONCLUSION
This research identified the most significant opportunities and challenges for the Chinese
construction industry after WTO accession and provided some recommendations for
China’s government and construction industry. In order to achieve these research aims, a
questionnaire survey was developed after an extensive literature review. The aim of the
questionnaire was to gauge the perceptions of China’s construction enterprises as to the
opportunities and challenges to effective WTO accession and link these barriers to a
range of coping strategies. Using information collected from 47 responses, the
significance and importance values of these opportunities, challenges and coping
strategies were calculated and ranked using a structured refinement process. Key research
outcomes were derived from the process and presented for the Government and for
different grades of construction enterprises. In summary, the adoption of training and
advanced equipment and technology in association with more transparent government
policies were seen as essential enablers for effective WTO accession.
China’s Construction industry after WTO accession 11
REFERENCES
Chen, B G (2001) Analysis of the impact on the construction industry after WTO
accession. Tongji University (in Chinese).
Chen, L and Mohamed, S (2002) China’s foreign economic cooperation development:
exporting Chinese construction services, Griffith University, Queensland,
Australia, pp. 348-353.
Cui, M M (2001) Change government functions and support enterprises in foreign
economics cooperation development. International Economic Cooperation,
Ministry of Foreign Trade and Economic Cooperation publication, May, pp 6-
8.
Guo, L (2000) Recommendations to Chinese international contractors on how to integrate
business with market by learning from ENR’s top 225. Ministry of Foreign
Trade and Economic Cooperation, October, p. 13.
Huang, C, Li, Q and Shen, L (2000) Analysing the influence of WTO on China’s
construction industry. China Jiangsu International Group, Hong Kong
Polytechnic University, Southeast University (in Chinese).
Huo, J Y (2000) Remarks on project management of overseas contracting business and
international economic cooperation. Ministry of Foreign Trade and Economic
Cooperation, November, p. 47.
Lan, P and Jackson, J T (2002) Current characteristics of the main stakeholders in the
Chinese construction industry. School of Marketing and International Business,
Queensland University of Technology, Australia, April.
Li, J and Mao, L (2000) The impact of China’s accession into the WTO on the
construction sector and recommended strategies. Ministry of Foreign Trade and
Economic Cooperation, April.
Li, S R (2001) Construction management: an important subject subsequent to China's
WTO accession. International Economic Cooperation, Ministry of Foreign
Trade and Economic Cooperation, November.
Liu, S (2000) Construction and WTO, www.tdctrade.com [accessed 30 April 2003].
Research Group (2000) The impacts on China’s construction enterprises after WTO
accession and countermeasures research, www.cnhuafas.com [accessed 20
March 2003] (in Chinese).
Schaub, M Chen, Q J and Shi, E (2003) China’s Big Bang in Construction: Adapt or
Perish. King & Wood Publishers, Shanghai, pp. 2-5.
Zhao, S B and Hu, J Y (2001) How to further promote the development of China’s
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Ministry of Foreign Trade Economic Cooperation, pp.14-16.
12 Stewart and Jiang
INTERNATIONAL DEVELOPMENT: CULTURAL IMPOSITIONS?
RICHARD FELLOWS
Department of Real Estate and Construction, the University of Hong Kong, Pokfulam
Road, Hong Kong, China
fellows@hkucc.hku.hk
ABSTRACT
In the modern context of globalization, with the inherent increase in inter- and multi-
national exchanges, interactions of cultures is inevitable. However, despite rhetoric of
such interactions yielding benefits, power struggles, impositions and increasing structures
of reliance may result. Such actions contain inherent issues of ethics, in particular the
interfacing and interactions of ethics of the host country and the suppliers. A further
aspect is the notion of organisational citizenship behaviour which, in many aspects,
reflects the concept of joint venturing and the inherent advantages of ‘technology
transfer’. This paper explores the cultural issues which are embedded in international
development projects to investigate how such issues may be dealt with and with what
consequences. As such, it has potential impact for the CIB initiative of “revaluing
construction” through asking “whose values”?
INTRODUCTION
The construction industry has long operated across borders of many types. Today,
attention commonly focuses on national boundaries for financial and political reasons but,
as is demonstrated continuously, national boundaries tend to be rather arbitrary and,
hence, quite transient. That transience is not just a feature of ‘development’, as in Asia
and Africa, nor just of restructuring, as in Europe and the former Soviet Union, but may
reflect extending imperialism, albeit apparently democratic, as in USA. What emerges
beyond doubt, and irrespective of the reasons for the changes in national borders, is the
continuing remixing of cultures.
International exchanges and trading take ever more diverse forms; exchanges of goods,
although the oldest form and most common are vital to sustain modern activities.
Exchanges of services are following a similar trend and, commonly, constitute the focus
of attention for economic and social advance in ‘developed’ countries. Nowadays, much
attention is switching to exchanges of information, especially since the launch of the
internet and its moving towards ubiquitous free, or low cost, access. The foci do tend to
accentuate the more physical and everyday aspects of exchanges across various
boundaries (indeed, one may argue that for there to be an exchange, at least in terms of
economics, movement of the subject matter across a boundary, of whatever form, is
16 Fellows
essential, by definition!). However, it seems that other, underlying and, often, more
enduring exchanges operate in less ‘visible’ ways – such as exchanges comprising cross-
border ownership of the means of carrying out (economic) activities with the consequence
of cross-border influence on behaviour and all its constituents.
World trade statistics from the World Trade Organisation [WTO (2002)] indicate that the
2002 world level of trade in merchandise comprised exports of US$ 6455.0 billion and
imports of US$ 6693.0 billion; both showing a 4% increase over 2001 (merchandise
excludes services and construction). For commercial services in 2002, exports totalled
US$ 1570.0 and imports US$ 1545.0; increases of 6% and 5% respectively over 2001.
Thus, goods represent just over 80% of world trade and services, just under 20%. In
almost all regions, 1990-2002 witnessed fairly steady increase in trade.
GLOBALISATION
Whilst many models of marketing specify the objective to be satisfying customers’ needs
through matching supply to those needs, that criterion does not accord with the
imperatives of capitalist free market operations. In such markets, suppliers must be
concerned with demand – yes, underpinned by need, want, desire etc. but, vitally,
supported by both the ability and the preparedness to pay the price to make the demand
effective – sufficiently attractive in terms of suppliers’ performance objectives to generate
sufficient supply.
It is commonly asserted that, for globalisation to take place, Japan is often used as the
exemplar – automotive, electronics, optics, construction industries etc., – there needs to
be a strong domestic base (one might suggest a saturated domestic market base) on which
International Development 17
expansion into foreign markets can occur; perhaps as the only way in which expansion
can occur profitably. Thus, it appears that two related forces must apply for international
expansion – first, the supplier must have an extensive domestic base to yield sufficient
resources (internal and/or external) to facilitate the expansion; second, the international
market must offer sufficient (perceived) potential net gains in terms of the supplier’s
business objectives (identity, quantum and probability) within the supplier’s decision
(time) horizon.
Of course, ‘loss leader’ approaches may be adopted in the short term to enable a long
term gain to be realised; indeed, given the variety of international business activity and
differing performance requirements (short term) amongst competitors, such approaches
may be essential. Further issues arise over trading protectionism – the measures
employed by governments to isolate domestic activities from international competition –
which may be imposed for good domestic reasons but still give rise to questions
concerning economic efficiency and what constitutes ‘fair’ competition; the ‘ideal’ of the
perfect market operates uncontrolled but requires many, individually tiny actors in both
supply and demand camps. The real economic world does not operate as a perfect market
and so, imposed controls are based on value judgements, many of which are politically
influenced.
Whilst globalisation is discussed most usually in connection with private sector activities,
there are hugely important public sector global activities too. Those activities concern
international financing, whether administered by governments themselves or through
international agencies, such as the World Bank and its associated organisations. Due to
risk aversion and consequent recourse requirements, much of the funding occurs as
‘country financing’ – whereby the funds are loaned to the government of the country
which, then, itself, advances the money to finance the project; commonly, the funding
agency will carry out extensive scrutiny of the proposal and audit the project execution
and operation. More project-oriented involvement may be realised through facilities such
as export credit guarantees under which suppliers obtain payment guarantees by their
home government in respect of 70 – 80% of the value of their (export) supply – a form of
international default payment bond, for which the organisation obtaining the guarantee
must pay a premium (presumably, evaluated to be a lower financial cost than the risk
without the guarantee). ‘…to invest abroad, firms must find it more profitable, or
strategically worthwhile, to engage in foreign rather than domestic production’, [Dunning
(1993)].
At the more general level of international trading activity, the World Trade Organization
(WTO), the successor to GATT, seeks to enhance trading conditions around the world by
requiring member countries (after negotiation) to adopt agreed trading conditions which
seek to foster unified and equitable trading terms. The expressed objective is to foster
free trade internationally whilst assisting developing countries [WTO (2004)]. It is
sometimes apparent that the way forward to foster development is the removal of trading
barriers (quotas, tariffs etc.) so that the developing economy must compete directly (given
a few initial years of reducing concessions – protection measures – progressively).
Dunning (1993) uses a framework of ownership factors (O), location factors (L) and
internationalisation configuration factors (I) to provide a context for analysing
competitive elements, somewhat analogous to the transaction cost paradigm of examining
18 Fellows
Given the global increasing incidence of various forms of capitalism, pursuant of the
dominant performance imperatives of profit(ability), size (turnover, market share)
[Baumol (1959)] and non-decreasing distributions of income to owners (dividends)
[Hutton (1996)], the nature of financial control over organisations has changed quite
rapidly; in UK, institutional investors’ holdings of shares increased from 18% in the early
1950’s [Sawyer (1985)] to 80% by 1990 [CBI (1990)]. That change seems
inconsequential prima facie, however, it is the institutional investors which are active
investors (and are well-known to shape the urban commercial property markets by their
activities in financing developments) and so, are dominant in dictating the forms and
levels of returns which their investments must yield. Thus, the incidence of savings in
societies and the nature of savings institutions, impacts on the financial influence of such
societies globally via the international financial markets.
Further, the impact that the external financiers can exert is determined by the financial
structuring of the organisations in which they may invest (arguably, determined by costs
of the available forms of financing and taxation). Additionally, financial institutions are
highly knowledgeable about the operation of financial markets and the returns available
which, coupled with the large sums they wield, results in effective control over
organisations through relatively small percentage shareholdings (as, normally, the
percentage of an organisation’s equity traded per period is small). Combining that
context with extending arrangements by which the financing of construction activities is
an increasingly important element in project awards and that procurement arrangements
are increasingly ‘concession form’ – requiring greater inputs of equity by participating
constructors – the importance of requirements of external financing agencies is clear.
ETHICS
The Oxford English Dictionary provides a variety of definitions of ‘ethics’, all concern
morals (e.g. “the whole field of moral science”). Perhaps the most pertinent definition is,
“The moral principles or system of a particular leader or school of thought; the moral
principles by which any particular person is guided; the rules of conduct recognized in a
particular profession or area of human life”. Clearly, ethics are both collective and
individual constructs which can be adopted or imposed. (Whether imposition of ethics is,
itself, ethical is questionable; and can anything can be imposed without the acquiescence
of the target?)
“Ethics refers to the system of moral values by which the rights and wrongs of behavior
… are judged” [italics added] [Rosenthal and Rosnow (1991)]. Values signify enduring
beliefs in particular ways of behaving or preferences for states in the future [Rokeach
(1972)]. Not only does ethics relate to values but, in order to secure operation, regard
must be given to principles and standards of behaviour. That necessity raises questions of
whose values are employed in deciding the standards and related issues of judgement.
International Development 19
Morals involve judgement of right and wrong, good and bad behaviour, and so on.
Values are central as are the other components of cultures. The issue of context
dependency must be addressed – a reflection of the cultural dimension of Universal-
Particular [Trompenaars and Hampden–Turner (1997)]. Can any action, belief etc. be
good or bad, right or wrong universally? That is not to dismiss objectivism for relativism
but to acknowledge the pluralism of human existence. Moral ethos, which may be a
strong force to encourage or constrain action, is, “…the social climate predisposing
members of an organization toward adopting and enacting some particular ethical
standards and deflecting them away from others” [Snell (1995)]. Morals are first order
beliefs and practices about what is good and what is bad which guide behaviour; ethics
are second order, reflective consideration of moral beliefs and practices [Hinman (1997)].
Variant definitions and perspectives have generated four primary paradigms for ethical
analysis [Leary (1991)]. In deontology, a universal moral code applies. In skepticism,
(relativism; subjectivism) ethical rules are arbitrary and relative to culture and to time;
that view is extended in ethical egoism where ethics become a matter of the conscience of
the individual (as the arbiter of ethics). Thus, egoism concerns pursuit of self-interest and
so, can be related to common business criteria (notably, profit maximisation). Teleology
constitutes a utilitarian approach (utilitarianism; consequentialism) where ethics are
dependent upon the (anticipated) consequences – that suggests a cost-benefit view,
perhaps invoking the judgmental criterion of “the greatest good for the greatest number”
which, itself, is likely to necessitate subjectively determined weightings. Objectivism
asserts that there are definitions of what is right and what is wrong which are accepted
generally (either universally or more locally).
Professional Ethics
A “professional is an agent who freely makes a public promise to serve persons … who
are distinguished by a specific desire for a particular good” [Koehn (1994)]. The
relationship embodies the essentials of the professional’s desire to do good for the client
and to mould the good to the specific needs of the particular client. Thus, there is a
necessary duty of care towards the client – customer which is not present elsewhere –
notably, in business relationships (except due to law etc.). Hence, “members of service
industries can be experts, but they are not professionals…. Immoral business is as
possible as moral business … Immorality in a professional … necessarily involves ‘being
unprofessional’” [Pritchard (1997)].
Ethical codes provide guidance for professionals in their determining appropriate action –
they aid consistency and stability in deciding moral issues [Reeck (1982)]. However,
ethical codes do not, themselves, solve moral dilemmas but do help to raise levels of
awareness and so encourage ethical practise [Henry (1995)].
The nature of business relationships and their regulation seem frought with issues and
problems, usually founded in the necessity for value judgements to be made. Therein lies
the essence of culture and, consequently, ethics. Morals, equity, corruption and
transparency are all germane to examinations of the processes of production and trading
under desires for (economic – resource utilisation) effectiveness and efficiency. The
domain of transaction cost economics has much to contribute in informing of economic
consequences of various market/firm structures, given a holistic perspective as advocated
by, e.g., Dietrich (1994), who notes that, concerning development, “…economic units are
not pre-given and exogenous to economic processes: rather, they can be transformed to
further the objectives of economic agents”.
1
Bolam v Friern Barnet Hospital (1957) 1 W.L.R. 582.
2
Greaves v Baynham Meikle (1975) 1 W.L.R. 1095.
International Development 21
argues that economic institutions will evolve to minimise transaction costs; those costs,
the costs of running the economic system [Arrow (1969)], arise due to bounded
rationality, opportunistic behaviour, and asset specificity [Williamson (1985)]. The
perspective leads Williamson to the view that “…transaction costs are always assessed in
a comparative institutional way, in which one mode of contracting is compared with
another. Accordingly, it is the difference between rather than the absolute magnitude of
transaction costs that matter”. Thus, it is advisable to separate transaction costs from
operational costs (the costs of running an organisation).
The widespread belief that Japanese and other (particularly, Asian) countries industries,
in which relationships between organisations are less rigidly grounded in contract law, are
founded on trust is dismissed by Womack, Jones and Roos (1990) who state that, “The
relationship between suppliers and assemblers in Japan is not built primarily on trust, but
on the mutual interdependence enshrined in the agreed-upon rules of the game”.
Although trust may ensue from continuing business relations, the market-driven,
operational requirements for continuously improving performance emphasise the
importance of the recognition of (mutual) interdependence and of accepted behaviour
(noting the limits as in the concept of ‘rules of the game’). Thus, “The development of
opportunistic or trusting behaviour will be dependent, in part, on the extent to which
governance structures generate convergent perceptions of the world” [Dietrich (1994)].
behaviour concerns, “…employee behaviour that is above and beyond the call of duty and
is therefore discretionary and not rewarded in the context of an organization’s formal
reward structure” [Konovsky and Pugh (1994)].
Both ethical corporate (socially responsible) behaviour and OCB are asserted to improve
organisational performance on the more traditional, notably, financial, measures. Whilst
the former, external activities seem, prima facie, to be cost increasing, a longer term
result could well be reduced costs through enhanced reputation etc, leading to less
promotional requirements, better inter-organisational relationships, improved quality and
‘smoother’ QA certifications etc. OCB, as internal behaviour involving greater inputs by
employees should lead immediately to process and output enhancement (i.e.,
improvements in both efficiency and effectiveness). Researchers [e.g. Konovsky and
Pugh (1994)] have found that fair treatment by superiors encourages / enhances OCB,
effects which are extended by reduced close monitoring of subordinates [Niehoff and
Moorman (1993)] – that involves development of autonomy and trusting relationships.
Further, regarding the formal system, procedural fairness is a source of trust in superior –
subordinate relationships [Lind and Tyler (1988)].
Examination of job specifications and job contents (what is done in the normal execution
of jobs) is, commonly, subject to progressive differences at different levels in the
organisational hierarchy. Generally, at higher levels of a hierarchy, jobs become less
task-specific and more fuzzy, perhaps due to increasing process orientation and individual
autonomy. That suggests that higher level jobs are more likely to generate OCB and may
even require that for their operation, thus, the formalised result is that for such jobs, the
specifications are open-ended and it is difficult to distinguish in-role performance and
OCB [Organ (1988)].
CONCLUSIONS
The issues seem to be epitomised in the current dichotomy of project control perspectives
on a spectrum of transparency (the entire gamut of legal etc. measures to enforce pre-
determined fair dealing, pre-determined by the legislators in power) to trust (the
‘relational contracting’ approaches which endeavour to be based on morality).
Irrespective, control (of power) is enforced (by power) either externally of by the self.
Even in the most ‘ideal’ of cases – whatever one believes that to be – the essential issue
of “whose values’ should apply remains. Pragmatically, recognition of mutual
interdependence seems to offer a way forward but that, of course, may be too long term to
be fully effective.
REFERENCES
ABSTRACT
The small and medium-sized enterprises (SMEs) in the Chinese construction industry
have witnessed progressive development since the late 1990s. As an important participant
in the Chinese construction market, SMEs are confronted with the tasks of keeping
themselves competitive which concern their survival and future growth after China’s
accession into WTO. This issue has increased in significance with China’s gradual
transition from a planned and centralized governing system towards a market-oriented
economic setting. The increased openness of the Chinese economy signals additional
strategic concerns due to globalization, as SMEs now find themselves the need to
compete and collaborate with foreign players who are largely more efficient and
resource-rich. As the SMEs assume a greater role in the Chinese construction industry,
this paper will examine the theories concerning their development. The competitive
environment pertaining to construction SMEs will be analyzed through questionnaire
surveys and interviews with founders, managers and engineers of construction and related
enterprises. Finally, overall competitive strategies for Chinese construction SMEs will be
discussed and a conceptual model is postulated to create and sustain their competitiveness
in China.
INTRODUCTION
The development of small and medium-sized enterprises (SMEs) was strictly limited
under the traditional central planned economy in the early years of modern China. Since
1978, the government started to provide guidelines for reform and development of the
agricultural economic system, which led to the legalization of small market-oriented
businesses in the rural areas (Leo, 1999). In the Chinese construction industry,
construction SMEs have enjoyed rapid development since the late 1990s with progressive
adoption of reforms and opening-up policies. The SMEs have grown to be an important
force in promoting the development of the Chinese construction industry.
With China’s WTO accession in 2001, the Chinese government is committed to open up
the construction market to foreign companies. The entrance of foreign capital, advanced
technology and management expertise will have a profound socio-economic impact on
26 Chew, Yan and Cheah
the Chinese construction market, which brings forth opportunities and challenges to the
development of construction SMEs. Under such a historical backdrop and the emerging
market environment, there is a huge prospect for the development of construction SMEs
in China.
As an important participant in the China construction industry, SMEs are confronted with
tasks of keeping themselves competitive which concern their survival and future growth.
As the SMEs assume a greater role in the Chinese construction industry, this paper will
examine the theories concerning their development. The competitive environment
pertaining to construction SMEs will be analyzed through questionnaire surveys and
interviews with founders, managers and engineers of construction and related enterprises.
Finally, overall competitive strategies for Chinese construction SMEs will be discussed
and a conceptual model is postulated to create and sustain their competitiveness in China.
Although commonly used, the term ‘small and medium-sized enterprises’ (SMEs), is
nevertheless vague, suggesting mainly the idea of a firm which is not large, without being
more specific (Goss, 1991). In China, the new Tentative Classification Standards on the
small and medium-sized enterprises (SMEs) were published by relevant government
agencies with the approval from the State Council on February, 2003. The new standards
were designed in accordance with the SMEs Promotion Law published by the National
People's Congress (NPC) on June 2002. According to these SMEs standards,
medium-sized construction enterprises employ between 600 and 3000 people with annual
revenue between RMB 30 million and RMB 300 million. Small enterprises, on the other
hand, employ less than 600 people with annual revenue less than RMB 30 million (SETC,
2003).
Construction SMEs in China have made several major contributions to the Chinese
construction industry. First, construction SMEs constitute the major driving force in this
industry. Compared with typical state-owned enterprises (SOEs), construction SMEs are
small in size and numbers of employees. However, their flexible mechanisms adopted and
lower capital investments have enabled them to respond to changes of market demand
quickly.
Second, construction SMEs constitute the major channel for creating jobs and are the
basic absorber of the urban and rural labor force. China, as a developing country with a
huge population, is always under great pressure over demand for employment. In the
course of its economic development, the country has faced a series of problems and
difficulties, such as a shortage of financial resources and a need to improve efficiency and
create job opportunities. Construction SMEs are able to replace capital with labour to the
maximum extent as a result of their small investment levels. Thus they can provide or
create more job opportunities than large enterprises.
Third, construction SMEs constitute the basic force for facilitating industry restructuring
and market revitalisation. The large majority of construction SMEs, in order to survive
and develop, has to exploit their own potential to the maximum, actively participating in
market competition and contending with large enterprises for the market share. The
Competitiveness of Chinese Construction SMEs 27
competitive nature of construction SMEs has enabled them to play a positive role in
promoting the growth of the domestic market.
Fourth, construction SMEs constitute a cradle for professional entrepreneurs and
entrepreneurship. The pressure on SMEs to seek survival and development, together with
their independence and competitive nature, has prompted them to shake out losers in
market competition. That pressure has also resulted in development and cultivation of a
group of talented people, expanding the pool of entrepreneurs by means of bold
exploration, great aggressiveness and constant innovation.
In China, SMEs have flourished in the construction industry as ideological barriers have
fallen. For a long time, a lot of attention has been directed towards examining the reform
and development of SOEs (Chen, 1998; Flanagan and Li, 1997; Lan and Jackson, 2002;
Wang and Yang, 2002), with little attention given to the difficulties facing SMEs.
Furthermore, few academics and professionals, in their analyses of the construction
industry, assess the impact of external and internal factors on the survival of construction
SMEs. Moreover, operating within a WTO framework, Chinese construction SMEs will
face a dynamic and competitive environment. Hitherto, little research has been
undertaken to systemically analyze the challenge and opportunity posed by China’s WTO
accession, which would give rise to an effective and integrative strategy for construction
SMEs to compete in the Chinese construction market.
SWOT analysis is concerned with the analysis of an organization’s internal and external
environment with the aim of identifying internal strengths in order to take advantage of its
external opportunities and avoid external threats (Langford and Male, 2001; Male and
Stock, 1991; Porter, 1980). In consideration of the variety of Chinese construction SMEs
with regard to size and ability to attain national resources, the authors contend that the
SWOT analysis concept could be used to investigate Chinese construction SMEs’ market
position. Although Chinese construction SMEs are not identical, they share many things
in common such as organizational culture, ongoing enterprise reform, and the need to
face competition from domestic and foreign contractors.
The strengths, weaknesses, opportunities, and threats facing Chinese construction SMEs
are pilot-studied using a survey of 15 construction enterprises based in Beijing, Tianjin,
Shanghai, Guangdong province and Hebei province. Among the 15 construction
enterprises, there were six large SOE contractors, seven SME contractors, and two SME
design institutes. The respondents consisted of consultants, designers, project managers
and senior managers. Interviews were also conducted with founders, managers and
engineers of construction and related SMEs. The interviewing and survey results are
summarized in Tables 1 and 2 and presented as follows:
STRENGTHS
• Flexible and market driven. From the outset, construction SMEs had to rely on
markets for sourcing supplies and selling products. Most construction SMEs were
small and autonomous compared with SOEs, and thus had flexibility to respond to
market changes quickly. Their management was also more market-oriented.
28 Chew, Yan and Cheah
WEAKNESS
• Limited funds. Although the Chinese government now implemented favourable loan
and taxation policies to support SMEs, it did not directly invest in SMEs as it did with
SOEs. State-owned banks also prefer lending to SOEs than SMEs. Therefore,
construction SMEs found it difficult to access bank finance, and they seldom
benefited from low-cost supplies through the central plan system.
• Low level of employees’ education. One of the major problems in construction
SMEs is the employees’ low level of education. The average profile of employees of
construction SMEs is made up of mainly unskilled workers who are previously
farmers with no proper training in construction.
• Lack of resources and low competitiveness to compete in large projects. Most
construction SMEs are made up of a small workforce undertaking residential building
and other small, simple projects for the local community using limited plant and
equipment. Sometimes they acted as sub-contractors on bigger projects. Due to
limited funds, poor equipment and lack of highly skilled manpower, most
construction SMEs could not compete with large SOEs in bidding for large projects.
OPPORTUNITIES
The WTO accession by China affords numerous opportunities for construction SMEs.
Under the market-oriented system within the WTO framework, construction SMEs could
obtain greater autonomy and secure most of the resources such as construction materials,
equipments, and labour. Foreign direct investment will provide further stimulus for
economic growth, and help construction SMEs to become part of the supply chain for
foreign multi-national construction firms under cooperative premises. With changes in the
regulatory system and the introduction of SMEs Promotion Law, coupled with the growth
of national fixed capital investment, construction SMEs could envision a better position
for their future development.
THREATS
Following the entry of more foreign-funded enterprises into Chinese construction market,
the competition among subcontractors, who are mainly the construction SMEs, will be
intensified. Most construction SMEs pursued labour-intensive projects and provided low
value-added to clients as subcontractors, with little differentiation in product and service
quality. They did not possess effective skills or innovative capability to create a new
service and offer a unique product. The uncertainty in economy and politics further affect
the growth of construction SMEs.
30 Chew, Yan and Cheah
Development strategies
STRATEGIC ALLIANCE
Strategic alliances refer to a form of lateral working relationship between a firm and its
competitors in one or more aspects of marketing (Li, 1998). The premise of this strategy
is based on resource dependence and interorganizational exchange perspectives, which
hold that organizations seek to reduce environmental uncertainty by exchanging resources
for mutual benefits. In order to take advantage of opportunities and cope with challenges
facing the construction SMEs, strategic alliance is a promising strategy.
• Alliances with domestic partners. To cope with the competition from larger SOEs,
construction SMEs can adopt alliance as a flexible strategy, partnering with those
SOEs as a form of “co-petition”, where competition and cooperation co-exists
simultaneously. Alternatively, construction SMEs can also pursue backward (vertical)
integration and alliance with the clients to reduce the bargaining power of the buyers.
• Alliances with foreign partners. The WTO entry of China affords foreign
contractors more opportunities to enter the Chinese construction market. SMEs can
form alliances to become subcontractors for these international contractors, either on a
project-specific or long-term strategic basis. The alliance would benefit Chinese
construction SMEs in the form of technology transfer. More importantly, the
Competitiveness of Chinese Construction SMEs 31
INNOVATION STRATEGY
An important feature of the Chinese construction industry is the increasingly fast pace of
change in product and service markets. Coupled with rapidly declining product life cycles
in the information technology, there are growing competitive pressures for construction
SMEs to respond quickly to the market environment. Thus the capacity for innovation is a
critical factor for construction SMEs’ success.
Innovation can be accrued to construction SMEs externally and/or internally. External
innovation would entail developing new products and/or services. Internal innovation can
encompass new processes, organizational structures and culture. For construction SMEs,
innovation lies in three aspects as follows:
• Innovation in technology. New technology can create value-added product and
services, contributing to higher productivity and growth. One key technology is the
deployment of e-commerce. Through the use of the internet and online transactions,
e-commerce may create new business opportunities for construction SMEs, such as
developing new channels, maintaining close relations with both upstream and
downstream companies and improving service quality.
• High-performance organization. To achieve high performance, the organization of
construction SMEs should emphasize on specifically designed jobs, using flexible
work roles to reduce the gap between decision-making authority and workers,
improving teamwork and design of sustainable governance structures. Life-long
learning and empowerment for the workforce are features of such an organization.
• Culture change. To underpin the innovation strategy, there must be a drastic change
of culture from one that is risk averse to risk taking. Mindset change is a pre-requisite
for technology and organizational innovation. The founder or top management of
construction SMEs should lead by example and inculcate an entrepreneurial culture
throughout the entire organization. In addition, forming partnership with foreign
contractors also helps to change the organizational culture.
DIFFERENTIATION STRATEGY
Differentiation is concerned with creating the perception that something is seen by buyers
as being unique (Male and Stock, 1991). Differentiation strategy is attractive when buyer
preferences and/or requirements are diverse. In China, construction industry encompasses
a wide range of activities, from the construction of residential dwellings and urban
development to commercial and industrial building, and the infrastructure associated with
air, sea and road transportation, telecommunications, mining and energy.
Given the limited resources in terms of finances, human expertise and production process,
it is appropriate for construction SMEs to adopt a differentiation strategy, either in
32 Chew, Yan and Cheah
CASE STUDY
To illustrate the conceptual framework and suggested strategies, the authors conducted a
case study. The case study company is known as the Guangsha Group in Zhejiang
province of China. In 1992, the company employed about 1,000 employees, with a total
output value reaching RMB125 million. Guangsha has grown from a medium-sized
construction company to a diversified group over the past decade. At present, Guangsha
has attained first class national qualifications for construction and installation of building,
foundation work, building decoration, and earthwork.
The rapid growth of Guangsha is the outcome of innovation. The chairman, Mr. Lou
Zhongfu, has spelt out the vision of Guangsha as a market-oriented and customer-driven
corporation. Through organizational restructuring, Guangsha was able to achieve
self-development, self-control and an enhanced mode of communication. Guangsha
continued to improve its technology and equipment through systematic adoption of new
methods, materials, and management techniques. In 1994, Guangsha established a
research institute of architecture and construction, which was the first research institute
owned by a private enterprise in the Chinese construction industry. Culture plays an
important part for Guangsha’s success. Mr. Lou envisioned and developed a unique brand
of “Guangsha Ren” (the Chinese version of Guangsha people). The core of “Guangsha
Ren” is to focus on both the economic objective and social morality. In summary, the
culture in Guangsha is sincerity, brand, and people-orientation.
Guangsha has streamlined the product and service chain by using differentiation and
alliance strategy. Guangsha practices partnering with clients and consultants in creating a
win-win environment where trust, commitment, and shared vision are achieved and
benefits of all partners are maximized. Guangsha is not only active in the construction of
private residential, commercial, institutional and industrial buildings, but is also active in
design and supervision projects.
As a summary of what has been achieved in the past ten years after implementing the
development strategy, Guangsha has formulated a new mission statement and its motto
now is “To focus on multi-culture, scale and internationalization”. At present, the range
of construction works of Guangsha involved all sectors within the field. In 2002, the
group owned about 50 subsidiary companies with 20,000 employees, and the total output
value reached RMB5.5 billion. Compared with 1992, the output and profits of Guangsha
had increased 4,400% and 3,850% in 2002 respectively.
This section describes the implementation of potential development strategies within
Guangsha. Guangsha’s actions in adopting innovation, differentiating the production and
service, and collaborating with clients and consultants affirm the propositions made by
the authors.
Competitiveness of Chinese Construction SMEs 33
CONCLUSION
Due to the country’s institutional changes and its accession to the WTO, China’s
construction SMEs are in a transition period. To maintain their competitiveness in the
rapidly changing environment, new strategies are needed. Based on the pilot survey and
interviews, the strengths, weaknesses, opportunities, and threats of construction SMEs
have been identified. Drawing from the SWOT analysis, a conceptual framework for the
development strategies for Chinese construction SMEs is postulated by the authors, which
includes strategic alliances, innovation and differentiation. This framework is illustrated
by a case study of a prominent Chinese construction corporation which was formerly a
construction SME.
It should be noted that the development strategies proposed in this paper are only
possibilities construed by the authors following a preliminary SWOT analysis. The
development strategies through alliances, innovation and differentiation have been found
to be effective through the case study. However, Chinese construction SMEs are not
identical, even as they share certain common characteristics. Therefore, the strategies
suggested in this framework serve mainly as general approaches for Chinese construction
SMEs. Research into the different grades of construction SMEs in China are needed in
future to formulate more specific development strategies to meet their objectives.
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Flanagan, R. and Li, S.R. (1997), International Construction: a perspective of China, the
Chartered Institute of Building, UK.
Goss, D. (1991) Small business and society, London and New York: Routledge.
Lan, P. and Jackson, J.T. (2002). “Current characteristics of the main stakeholders in the
Chinese construction industry”, International Journal for Construction
Marketing, volume 1, issue 1.
Leo, P.D. (1999) “Small business as a supplement in the People’s Republic of China
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34 Chew, Yan and Cheah
MAHMOUD A. HAGGAG
Department of Architectural Engineering, College of Engineering, UAE University, P.O.
Box 17555 Al-Ain, UAE. mhaggag@uaeu.ac.ae
ABSTRACT
Over the past few decades, Arab cities have been subject to dramatic external
interventions and western influences. The colonization, and associated cultural
imperialisms of Arab and European, and more recently the rapid modernization have all
transformed and internationalized cultures, conceptualization, and planning ideologies
which affected the spatial development and the pattern of urban spaces. The aim of this
paper is to look at the spatial pattern of urban fabric in Arab cities and how they change
under the impact of globalization. This transformation is examined in relation to the
global city of Dubai, the second largest city in the United Arab Emirates. Dubai has been
chosen as a case study because it has been a subject of colonialism, and has been
significantly shaped by various imported ideologies: Arab, Persian and British;
particularly with regard to contemporary planning policies. In addition to that, the fast
urban development that followed the 1971 federation completely changed the character of
the city.
Keywords: Arab cities, colonization, Dubai, globalization, urban space, urban pattern.
INTRODUCTION
Cities are part of larger society that their spatial form is inter-related with the economic,
social, cultural, political, and environmental structure of the society. Urban spaces are
further influenced by developments and decisions on higher spatial levels. Architects and
planners agree that the transformation of urban patterns in the Arab cities change as a
consequence of the interaction of individual decisions with variety of structures and
developments on different special levels. The reasons of that change can be traced back
to the impact of the colonialism as well as to the urban development that take place,
regarding nationally and globally. The later is generally classified under the concept of
globalization. It comprises many processes, including the spatial integration of economic
activities, movement of capital, migration of people, and development of advanced
information and communication technologies.
This paper looks at the spatial pattern of Arab cities and how they change under the
impact of globalization. The study focuses on the impact of globalization on the
transformation pattern of urban spaces. To achieve the aim of this paper, the study
introduces a framework of globalization as urban development process. The role of
information and communication technologies as main driver of globalization that
36 Haggag
All processes have one thing in common; they involve a variety of components that
generate products. Urban development process is defined as the activities of a group of
people (clients, developers, professionals, contractors, suppliers, financiers, etc.) acting
with their resources (finance, skills, materials, etc.) to produce a particular building
environment and urban spaces. These are influenced by political, economical, social and
environmental aspects, which are the main drivers of globalization (see figure 1). The
role of the participants may vary according to changes in socio-economic and political
circumstances and cultural development of the society. The impact of globalization on
the urban pattern in Arab cities varies, according to the circumstances of the above
aspects. The fact that modern urban space is distancing itself from traditional/vernacular
urban patterns is a warning aspect of globalization. These will be discusses later in this
paper.
WHAT IS GLOBALIZATION?
Environmental Impacts
Economical Impacts
Financial process - Technological process
Political Impacts
Figure 1: Factors impact urban development process and the main drivers of globalization
Globalization itself is an image, an idea, and an ideology. The idea that globalization is
inevitable and that it is linked to laissez-faire economic policy has been a powerful force
in itself (Newman and Thornley, 2002). There are also countervailing interpretations of
globalization, which emphasis its critique. These ideological uses of the concept of
globalization are themselves rapidly transmitted around the world and became part of the
power politics of actors on the international scale. That globalization allows the rapid
spread of alternative ideas as has been demonstrated in the rapid growth of opposition to
the activities of the World Trade Organization [Thoenley and Rydin, 2002].
Cities are not powerless in the face of globalization, but, through good governance and in
effective partnerships, they can play an important part in mediating and directing their
consequences for economic and human development in positive way. The challenge is to
develop and implement policies that support not only the function of cities as engines of
economic growth, but also their role as agents of social change. This challenge is highly
accelerated by Information and Communication Technologies (ICTs). Globalization has
placed human settlements in a highly competitive framework of inter-city linkage and
networks with a geographic context only by planetary boundaries. This new constellation
of globally networked cities implies that a city may have more relations with some
faraway place than with its hinterland and that such cities act as energy nodes in a global
force field. These are processes with considerable potential, and the urban strategies of
many governments are now moving towards providing an enabling environment for
human settlement to compete on the international stage [Sen, 1999].
ICTs are often presented as 'liberating'; emancipating society from spatial constraints
imposed by the limitation of yesterday's technologies. They enable businesses to develop
global markets and allow people to form communities of interest that are based on shared
values [Wellman, 1999]. However, while ICTs enrichment to some, they leave others
insolvent. ICTs are increasing global urbanization in three major ways:
ICTs allow specialist urban centers to extend their powers, markets and control over
ever-more distant regional, national, international and global hinterland. ICTs support the
accelerating and increase contacts, transactions; communication flow and interaction that
help bind, integrate and add economic energy to the vast, extended and multi-centered
urban settlements, spaces, corridors and regions of our age [Bunnell, 2002].
38 Haggag
Within the global economy, the growing speed, and complexity of innovation in all
sectors seems to demand a parallel concentration in the cities with the assets to sustain
on-going competitiveness.
Demand for ICTs is highly driven by the growth of metropolitan market. Large global
cities are of inconsistent importance in driving ICTs investment and innovation [Graham
and Marvin, 1996]. This is mainly because of cities' cultures of modernization, their
concentrations of capital, their relatively high disposable income and their concentration
of internationally oriented firms and institutions.
The complex interaction of human settlements and ICTs is helping to build new urban
space and new landscapes of innovation, economic development, cultural interactions,
political dynamics and social inequalities within cities and urban regions.
In the west, industrialization reached a first climax in the second half of the 19th century.
The transmission of this new civilization to the Arab countries was filtered through
Europe's colonial development activities. Western countries and the Arab world have a
long history of encounters, exchanges and conflicts, which saw the two opposites in
changing roles. During the early Middle Age, Western countries had much to learn from
the highly developed Arab culture [Clark, 1998]. During the Renaissance, Western
countries started drifting towards different horizon of cultural development and
discovered other spheres of interest. The main reason for this change, as pointed out by
Bianca, [2000] was that the age of discoveries gave these countries the possibility of
bypassing the core regions of the Arab world.
By 1920, large parts of the Arab world were in western hands. Western-type apartment
houses and public building started lining the street fronts of new districts. French and
Italian squires and open spaces were also established in many Arab cities. Western
architects and planners were commissioned to do important architectural and urban
projects. This trend also influenced provincial capitals such as Alppo, Damascus or
Baghdad, where the Ottoman administration established new western-type municipalities
to supervise urban development. Saad Zaghloul street in Alexandria, a shopping
constructed before the first World War, is reminiscent of western colonial architecture as
shown in figure (2).
The new independent nations were more or less forced to continue their pre-established
economic patterns, which had become dependent on international trade structures and
were geared to the application of modern western technology. Rapid industrialization
may not have been the only alternative at the time, but it was hard to escape its pressures,
considering the superior living standards of western nations. The cleavage between "West
and East" was thus introduced into the very social body of new Arab nations [Henry, and
Springborg, 2001]. The dynamics of the socio-economic changes produced by the
industrial age found their physical expression in the radical transformation of existing
traditional Arab cities. Whereas during previous centuries, changes in the architectural
fabric and urban spaces had always occurred as part of a natural evolutionary process, the
new development was of a different nature, mainly because of the record speed and the
massive scale of new construction.
Impact of globalisation on urban spaces of Arab cities 39
The French squire, Alexandria, Egypt Saad Zaghloul street, Alexandria, Egypt
It has been argued that the two most reliable indicators of good urban form are the degree
of integration of individual architectural components and the successful interaction
between buildings and open spaces within the overall built environment. With the rise of
modern movement, urban form in the traditional sense ceased to be a concern. Many of
its urban design schemes resemble mere blow-up of abstract master plan diagrams, and
therefore transmit the corresponding limitations to the built environment. This can be
seen in Le Corbusier's concept of the "Radiant City" which was to find many followers all
over the world. Its characteristics are deceiving in terms of urban form qualities:
contextual values and human-scale interrelations between buildings and open spaces are
neglected. Massive traffic arteries disrupt potentially connected urban components.
Geometrically arranged skyscrapers float as unrelated objects in this loose open space.
On the other hand, the urban form of most traditional Arab cities follows rules which are
diametrically opposed to those of "Rodiant City". The formation of the urban structure
based on an incremental or organic aggregation process, originating in the definition of
socially relevant micro-spaces which are connected into larger unites [Bianca, 2000].
Open spaces and pedestrian movement systems are integrated into the various
components of the urban structure. Close linkages with other buildings ensured the
integration of single units into larger clusters, producing a cohesive urban environment.
Available open spaces were allocated to and often integrated with specific architectural
units, such as Mosques, Suk, and Khans. The streets became subsidiary to the cellular
urban structure and were often transformed into narrow internal corridors. The city was
conceived as closed universe, and man was enveloped by multiple architectural shells
embodying and reflecting his cultural values. In addition to that, the circulation system
40 Haggag
helped implement increasing degrees of privacy, ensuring that every section of the
network matched the character of the space and the social needs of its users.
Modern planning interventions, in traditional Arab cities tend to disregard the traditional
urban system and to emulate the Western approach, cutting axial road systems into the
organically grown city and dividing the formerly coherent fabric into isolated blocks.
Modern highway schemes are the first step of a much wider erosion process and trigger
off a number of subsequent steps of destruction. Bianco, [2000] emphasized that the
redevelopment opportunities arising from increased vehicular accessibility creates
speculative pressures develop along the fringes of new roads, and new street-oriented
blocks are built according to the foreign typology. The modern buildings often
overshadow the ancient structure. As a result, the remaining fragments of historic fabric
lose their physical, functional and semiotic context.
According to the interaction of socio-cultural and urban forms of the city, there are two
distinct patterns: orthogenetic and heterogenic. Orthogenetic cities develop upon a local
base and their role is to carry forward into systematic and reflective dimensions an old
culture. They transform the implicit little traditions of the local culture into an explicit
and systematic great tradition. The heterogenic cities reflect the influence of other areas
and cultures. They represent technical orders and different ideologies of the local culture.
In such cities, the priority comes to be given to economic growth. These two opposite
patterns are well recognized in most traditional Arab cities, particularly with the growing
presence and influence of dominant western cosmopolitan communities. In these cases,
western concepts and ideologies have been adopted and implemented, which to some
extent contradict the traditional way of life. Local traditions are increasingly covered up
in favor of typical western architectural style and occidentalized urban and planning
techniques.
In most modern cities of Arab countries, western planning ideologies have been adopted.
This adaptation might contradict the traditional way of life. The conflicts arising from this
situation have rarely been seriously debated. There is almost complete rupture between
the structure of the traditional urban fabric and the imported western style environment.
Due to the record speed of development, there was no chance for an evolutionary process
to emerge, where new technologies and building methods could be tested and adapted in
accordance with the laws of the original cultural system [Bianca, 2000]. Accordingly,
modern environmental planning techniques and concepts have taken over, with the effect
that they have overthrown the authentic traditional pattern of Arab cities. In most Arab
cities, the pretended dominance of the foreign model has been taken for granted.
Therefore, large-scale development projects have been imported and implemented
without taking into consideration the cultural context and environmental conditions. As a
result, many traditional urban fabrics have been left to decay, while modern western style
patterns have been built at an amazing pace to replace them. Skyscrapers, curtain wall and
glass facades, highways and tunnels now characterize most traditional Arab cities.
Prior to the discovery of oil, the economy of the UAE cities depended on fishing, pearl
hunting and trades. The economy was capable of supporting small settlements located
mainly on the Gulf shores. In 1971, the UAE came into existence as an independent
Impact of globalisation on urban spaces of Arab cities 41
nation, merging seven sheikdoms (Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al-Qaiwan,
Ras Al-Khaimah, and Fujairah). Until that time, most of population was of Arab tribal
origin. They had controlled the deserts, cultivated date palms in the oases, fished along
the coastline, and collected pearls. Some had settled permanently in the small towns along
the coast and engaged in maritime trade. Merchants from southern Iran and Indian arrived
in the early 20th century. In 1950s, other immigrants came from the northern Arab states.
Nevertheless, the population remained small: 100,000 in 1960, and 180,000 by 1968
[Higgins, 1995]. The fast urban development that followed the 1971 federation
completely changed the character of the traditional cities of the UAE. Workers from Asia,
Europe and the USA arrived, increasing the population to 2.8 million by 1998 [Ministry
of Planning, 1999]. The dynamism of the UAE economy, boosted by vast oil revenues
and relieved by the end of conflict in the Gulf, is likely to continue to attract immigrants.
The traditional architecture of the UAE cities was the result of the hot and humid climate.
High-density buildings were constructed close together, creating narrow alleys, which
were shaded most of the day. The main traditional architectural features are the
courtyards and the wind-tower. This pattern is well recognized in Shindaghah and
Bastikia settlements in Dubai. Modern urban development in the UAE destroyed much of
the local urban character. Such development altered the lifestyle of the people and caused
a redistribution of the population among the emirates. Most cities of the UAE turned to
international planning ideologies that paid little or no attention to local traditional
structure, as shown in the case study of Dubai.
Dubai has been significantly shaped by various imported ideologies: Arab, Persian and
British; particularly with regard to contemporary planning policies. The fast urban
development that followed the 1971 federation completely changed the character of the
city. The rapid transformation of Dubai and its wider urban region during the last few
decades demands greater critical analysis than it has so far attracted. Three issues in
particular motivate this profile. First, an overarching theme is the Emirate of Dubai as an
international trading center "globalizing city". Since 1970s (followed the United Arab
Emirates' federation), Dubai has undergone a reorientation from federal city to national
"node" in global networks. A second motivation concerns the dramatic nature of the
development of the city. Population increase, spatial expansion and economic growth
over several decades are part of this motivation. Urban landscape and open spaces have
also been a story of the ascendance of "spectacular space". The most spectacular of all is
the development of the centre of Dubai (Sheikh Zayed Street), which includes one of the
world's fames tallest buildings, Emirates twin towers. The third theme demanding
attention in Dubai is its emerging status as an urban region. Much urban development,
including Rashid Port, Jabal Ali Industrial Center, the Free Zone, and other projects have,
on the one hand, added to increased trade activities in Dubai, and on the other, accelerated
open-door policies of urbanization.
Urban development process, in Dubai, can be divided into the traditional process, the
conventional process, and the modern process. In the traditional process, the changes are
usually slow and minor, participants are limited and often have multiple tasks, and the
techniques used are primitive. The modern process is usually concerned with highly
42 Haggag
The traditional process in Dubai reflects architectural and planning ideologies of the pre-
modern era. Up to the 1950s, Dubai was confined to three traditional residential quarters
surrounding the creek: Deira, which was made up of Arabs, Persians and Baluchies; Al-
Shindaghah, a former residence of the ruling family, made up of Arabs only; and Bur
Dubai, which was dominated by Persian and Indian merchants (see figure 3 ).
The modern process was established in Dubai during the second half of the 19th century,
with fast urban development following the discovery of oil. Therefore, the demand for
occidental buildings and western planning ideologies increased. In 1954, a British firm
was commissioned to improve port facilities and deepen the creek entrance. Few years
later, a new municipal council was established and dominated mainly by foreigners. One
of the most important roles of the municipality was the active participation of establishing
the Dubai Town Planning Scheme, which was carried out in 1971. This plan had an
impact on the growth of the city and especially the provision of an efficient network
linking both sides of the creek through constructing Al-Maktoum and Garhoud bridges as
Impact of globalisation on urban spaces of Arab cities 43
well as Al-Shindaghah tunnel. It also covered the necessity of upgrading the building and
planning regulations. In 1972, an enormous project "Rashid Port" was constructed. A few
years later, an enormous international industrial center, "Jabal Ali Centre" was
established. These projects have, on the one hand, added to increased trade activities in
Dubai, and on the other, accelerated open-door policies for globalization. These policies
attracted a huge number of immigrants to come to the city. During this period of rapid
development, the building industry and urban fabric had been strongly affected by two
factors. First: the import of building materials as well as the establishment of foreign
factories in Dubai. Second: planning organization was based mainly on occidental codes
and dominated by foreign professionals. Therefore, mostly western architects controlled
the architectural profession in Dubai. Meanwhile, the traditional contracting system was
replaced by a modern system with the participation of western professionals in order to
cope with the new standards and technologies provided by foreign consultants.
The spatial development pattern of Dubai shows that, during the last 40 years, most of the
participants of the urban development process, such as developers, professionals,
contractors, and suppliers were foreigners. Meanwhile, both foreigners and local
professionals, mainly graduates from western universities and institutions, controlled the
resources of the development process. This system, in addition to the use of ICTs, had a
great influence on the development process. These influences can strongly be recognized
in the occidental architectural style and urban spaces, particularly in the central area of
Dubai (see figure 4). A number of enormous mega-projects are now under constructions,
including Dubai Marina project (a master planned community for 40,000 people located
in the centre of Jumeirah), the Palm project (city within a city, with estimated cost of 0.6
billion US$), Burj Dubai (the World's Tallest tower with one of the largest retail spaces in
the world), and Mall of the Emirates (with estimated cost of one billion US$).
CONCLUSION
There is a rapidly changes in the urban form in most of the Arab cities, according to their
economic, political and cultural circumstances. Globalization has affected the fabric of
the urban spaces, in positive as well as negative ways. The major urban impacts of
globalization on urban spaces, as products of spatial development, are summarized in the
following.
Globalization has significantly increased both our technical and our social knowledge.
This knowledge is being shared, allowing learning about, if not transfer of, successful
policies and programs. We have the scientific knowledge to avoid and to control
environmental degradation; we have the planning competence to improve urban design, to
plan cities well, to equalize educational opportunity and to open the doors to a better
quality of life for all of the residents of cities. Habitat has provided the lead in the
documentation of best practices. Best practices often illustrate only the best that can done
under existing national policies and decision-making process; what is further needed is a
set of "best policy" and "best decision-making processes" for wider distribution.
Citizen participation in planning and local government has been on the increased
almost everywhere in the world. It has rightly been a major thrust of Habitat's efforts over
the years. How far participation will develop to change decision-making depends on the
existing relationship of power, which globalization has served to reinforce.
Decentralization of powers from national governments to cities is ambiguous in this
regard, particularly in the Arab cities; since the resource base of national economies is not
effectively controlled at local level.
Impact of globalisation on urban spaces of Arab cities 45
REFERENCES
Bianca, S (2000), Urban Form in the Arab World: Past and present, Thames and Hudson,
London.
Bunnell, T (2002), 'Cities for Nations? Examining the City-Nation-State Relation in
Information-age Malaysia' International Journal for Urban and Regional Research
Vol. 26, No. 2, pp.284-298.
Clark, D (1998), Urban World – Global City, Routledge, New York.
Graham, S and Marvin, (1996), Telecommunications and the City: Electronic Spaces,
Urban places, Routledge, London.
Henry, C and Springborg, R (2001), Globalization and the Politics of Development in the
Middle East, Cambridge University Press, Cambridge.
Higgins, K (1995), The Emirates. Reading, UK. Garnet Publishing Ltd.
Ministry of Planning, UAE, (1999), Annual Statistical Abstract. Issue no 24. Abu Dhabi.
Musterd, S et al, (1999), 'Towards Undivided Cities: The Potential of Economic
Revitalization and Housing Redifferentiation', Housing Studies, Vol. 14, No. 5,
pp.573-584.
Newman, P and Thornley, A (2002), 'Globalization, World Cities, and Urban Planning:
Developing a Conceptual Framework' in Thornley, A and Rydin Y. (eds),
Planning in Global Era, Ashegate, Hampshire, pp. 13-26
Peter, M and van Kempen, R (1999), Globalizing Cities: Is There a New Spatial Order?
Blackwell, Oxford.
Sen, A (1999), Development as Fredom, Knof, New York.
Thoenley, A and Rydin,Y (2002), 'Globalization, World Cities, and Urban Planning:
Developing a Conceptual Framework' in Thornley, A and Rydin Y. (eds),
Planning in Global Era, Ashegate, Hampshire, pp. 1-12.
Wellman, B (1999), Networks in the Global Village: Life in Contemporary Communities,
Westview Press, Boulder.
46 Haggag
MEETING THE CHALLENGES OF CHANGE FOR BUILDING
PROFESSIONALS OF HONG KONG
JULIE K.W. MO
Division of Building Science and Technology, City University of Hong Kong
83 Tat Chee Avenue, Hong Kong
bsjmockw@cityu.edu.hk
ABSTRACT
Building professionals, like other professionals such as doctors and lawyers, are facing
many challenges under the rapid change of the modern world. In the particular context of
Hong Kong, the poor quality of buildings found in some recent projects has shaken the
public’s confidence in building professionals, calling for reforms of the building industry.
Works of the building professionals are subjected to closer public scrutiny as public
resources are diminishing and the local political climate changing. Globalization has also
rendered competition keener among the professionals, both internal and external of their
discipline. In addition, the complexity of modern buildings, new technological
innovations, and environmental concerns have all made building procurement more
sophisticated, demanding higher abilities and greater attention of the building
professionals. Under these circumstances, building professionals need to review their way
of working and adopt a new paradigm of practice in order to cope with the demand on
their professions.
In this paper, four issues that need to be addressed in the changing mode of practice for
the building professionals of Hong Kong will be discussed: 1) the social and political
demand for accountability and performance, 2) technological advancement and
knowledge expansion, 3) the cultural and environmental concern, and 4) globalization
and market competition. Some recommendations will also be made in the attempt to
enhance the performance of the building professionals in meeting the challenges for better
quality buildings.
INTRODUCTION
Since the turnover of Hong Kong’s sovereignty to the People’s Republic of China by the
British in 1997, there have been quite some changes in the territory. Although a ‘one
country two systems’ regime was introduced to maintain ‘status quo’ for Hong Kong,
Hong Kong would have to undergo change inevitably. Apart from having to adapt itself
to the new political and social settings, Hong Kong being an international city is affected
by the dynamics of change in the world, as could be seen by the effect of Asia’s economic
48 Mo
crisis in the late 90s. The building industry playing an important role in the social and
economic development of Hong Kong has certainly been affected by all the changes and
in turn, influencing the practices of its building professionals.
Hugh (1959), Larson (1977), Hoyle & John (1995) describe professionals to have
monopolized special knowledge, established elite bodies, negotiated autonomy, claimed
exclusive right of practice, and enjoyed high status and remuneration in society. This also
applies to the building professionals of Hong Kong such as architects, engineers and
surveyors. However, such privileges of professionals have become a subject of public’s
interrogation under the new political, economic and social environment of the present
Hong Kong. With no exception, the building professionals are also faced with having to
be more accountable for, and effective in, their performance under intensified public
scrutiny and dwindling public resources. The poor construction quality found in some
recent building projects has aggravated the situation further by drawing the public’s
attention to many inadequacies of the building industry, resulting in an outcry for its
major reform. The Construction Industry Review Committee was hence formed in April,
2000 by the Hong Kong Special Administrative Region (HKSAR) Government to
undertake a comprehensive review of the operation of the construction industry and to
make recommendations for measures to improve the quality of construction works in
Hong Kong.
In addition to the public demand, reform of the building industry and its relevant
professional practices has been necessitated by a number of other causes. The structure
and operation of the building industry in Hong Kong has been quite substantially affected
by the rapid increase in size, number and complexity of building projects in the 80s and
90s. These developments, together with new technological innovations, have made
building procurement more sophisticated, requiring higher abilities of the professionals.
During this same time, Hong Kong like other places in the world witnessed a rapid
advancement in information technology. This has facilitated easy access to all kinds of
knowledge, challenging the claim for ownership of special knowledge by the building
professionals on the one hand, and demanding high IT skills on the other. The loud call
for sustainable developments has also been heard in densely populated Hong Kong,
demanding great attention from the building professionals to deliver building projects that
are environmental friendly. The effect of globalization and the gradual opening up of
Chinese Mainland’s market, coupled with the economic downturn in Hong Kong in the
late 90s, have driven the building professionals to extend their services beyond the
boundary of the Region, and hence they need to be more competitive.
Under the above mentioned circumstances, the knowledge base, role and function of the
building professionals of Hong Kong have to be revisited in order to meet with all the
challenges. In this paper, the changing mode of practices for the building professionals of
Hong Kong will be addressed under four issues, which are essentially issues that
professionals have to deal with in our contemporary world. These are: 1) the social and
political demand for accountability and performance, 2) technological advancement and
knowledge expansion, 3) the cultural and environmental concern, and 4) globalization
and market competition. Some recommendations will also be made in the discussion for
enhancing the performance of the building professionals.
Meeting the challenges of change for building profession 49
The conception of a profession is, as pointed out by many writers, a negotiation of social
recognition for status and monopoly of expertise by an occupation with the state
(Freidson in Larson, 1977:xii-xiii; Rueschemeyer, 1983:41; Collins in Bottery, 1998:4).
In Larson’s (1977:xii) notion of profession, the distinctive autonomy of a profession
depends upon the power of the state and its privileged position is secured by their
influence of the elite who sponsors it. Cooper et al (quoted in Macdonald, 1995:34) also
suggests that profession is probably best phrased by the term ‘the regulative bargain’. In
this connection, Macdonald (ibid) further states, “…the style of ‘the regulative bargain’
will be strongly conditioned by the ‘political culture’ (Burrage, 1988; Joppke, 1992) or
the ‘political power network’ (Mann, 1986, 1993), and this must be seen as an ever-
present feature of the world in which the profession has its being.”
Indeed, the social political changes in Hong Kong have reopened the dialogue of
‘regulative bargain’ for professions. With Hong Kong progressing into its modern
democratic state, politicians elected by the lay public have become a powerful body
dominating decisions over legislative matters. Although this change has given more right
and opportunity for people from different walks of life to participate and contribute in
public affairs, it has also generated a climate of politicization. Under such a climate,
professional practices that affect public interests are under close scrutiny of the social eye,
and the issues of ‘accountability’ and ‘performance’ have become much more critical
(Dent, M. & Whitehead, S., 2002:2, 7-9). As such, building professionals need to
reconsider their modes of practice in light of this new social political culture.
During the period from late 1998 to early 2000, 3 housing projects of the Hong Kong
Housing Authority located in the area of Tung Chung, Yau Tong, and Shatin respectively,
were reported to have serious foundation problems of inadequate pile depths and non-
complying founding materials. Substantial remedial strengthening works were required as
a consequence; and in two of the worse blocks, demolition had ultimately to be carried
out. This had resulted in a need to review the adequacy of some 364 housing blocks under
construction to ensure the structural safety of these blocks by the Authority in order to
regain public confidence. There were much public debates over the scandal; the Chairman
of the Housing Authority was eventually forced to resign, and other government officials
and professionals reprimanded. This was only one of the many examples illustrating the
changing social and political scene in Hong Kong, demanding high accountability and
performance of professionals.
resulted in greater difficulties and heavier responsibilities for the building professionals in
providing services.
In the report ‘Construction for Excellence’ prepared by the Construction Industry Review
Committee mentioned in the Introduction (2001:2), the building industry was urged ‘to
seek continuous improvement instead of just meeting the minimum requirements set by
the clients and regulatory authorities’. To address this social political demand,
professional bodies should prescribe codes of practice not just for ‘self-regulating’ but
also for ‘self-projecting’ form of practices so as to gain public’s trust while maintaining
autonomy for the building professionals. To improve building performances in meeting
the heightened societal expectations on building professionals’ services and to overcome
increasing regulation of professional activities, building professionals through the
coordination of their professional institutes have to be proactive in collaborating with the
government authorities on establishing better design standards so as to improve peoples’
living, instead of being subjected passively to rules and regulations imposed by the
officials. As MacDonald (1995:35) argues, though the actions of professional bodies are
self-seeking, the professions must be able to persuade the public and the legislators that
there is a reasonable quantum of altruism and public spirit in their motivation.
To further gain the public’s support, codes of professional ethics to be observed by the
building professionals need also be strengthened to account not only for the interests of
the clients, but also those of the users and the community of Hong Kong at large. Schon
(1987:7) points out that when professionals fail to recognize or respond to value conflicts
and public problems, fall short of ethical and performance standards, they are increasingly
subject to expression of disapproval and dissatisfaction. Low (1996:5) also remarks,
“Professionalization requires a detachment to maintain equilibrium between the universal
and the particular.” Indeed, building professionals should strike a balance between the
interests of the public and the clients. It is imperative for them to maintain a professional
role in shaping a quality living environment instead of merely delivering a building to suit
the requirements of the clients only. As Thorne & Cuthbert (1996:183) state that
professionals value autonomy and expect high degrees of personal discretion in defining
the nature of their role, building professionals should make use of their given autonomy
to uphold their ethical role as professionals.
Apart from the ease of access to knowledge base, the growth of innovations in science
and technology has brought with it new technical knowledge, concepts and ideas,
threatening old ones and rendering them obsolete (Dubin, 1990:17). In the case of
building construction, Soubra (1993:205) also comments, “The spread of computer-aided
design and drafting together with the diffusion of innovation in construction methods and
materials, particularly in the industrialized countries, is altering the technological
intensity of the industry.” The impact of technological advancement on professional
practices is getting greater, warranting some close attention of the building professionals
of Hong Kong particularly if their practices go international.
research work by the academia has been undertaken. A lot of the expert knowledge of
professionals comes through practice, where practitioners acquire experience through
having to deal with ‘actual’ issues and to come up with suitable means in arriving at an
optimal solution (Eraut, 1994:106). In order to utilize this expert knowledge in promoting
building excellence and in maintaining competence, there should be a stronger link
between practice and research. Hence, the building professionals of Hong Kong should
actively engage themselves in reflecting on their practices (as Schon’s description of
‘reflection-on-action’ 1 and Eraut’s ‘metaprocess’ 2 ) and in participating in research
activities; they should also be obligated to devote time and effort in disseminating the
knowledge and experience so gained through forums and publications.
Building professionals of Hong Kong are faced with even more contentious cultural and
environmental issues in that the scarcity of land resources and rapid growth in population
of the region has generated much controversy on what to build and how to build. A
balance between cultural environmental concerns and economic considerations has often
to be struck in making land use and development decisions. The conflict between social
benefits and commercial interests has generated endless heated debates in society, as in
the case of the Hopewell development in the Wanchai district. Dissatisfaction of the
public has also been mounting, as demonstrated in the fight over the seafront reclamation
in Central district between the public and the Government. Building professionals
assuming a professional role in contributing towards the well being of people’s living and
the environment have to take an active part in responding to all these issues.
1
Reflection-on-action is the post factum assessment of one’s professional activities which may take forms
ranging from a more-or-less intuitive judgment of a mental replay of a lesson, through to the objective,
formal and summative evaluation. (Hoyle &John, 1995:125)
2
Metaprocess is the term used to describe the thinking involved in directing one’s own behavior and
controlling one’s engagement in the various processes undertaken by the professionals (Eraut,1994:115).
Meeting the challenges of change for building profession 53
To address the cultural issues, professional bodies should promote for a strong
commitment of members towards upholding cultural values. To uphold cultural values,
building professionals should be sensitive to the effects of new development on the
culture and history of the place where their building projects are to be situated. Every
effort should be made to convince clients to maintain the characteristics of the place and
to preserve historic buildings where suitable. A thorough study conducted to collect the
views of the users and the public would certainly be useful to the professionals in the
delivery of their building projects. Unnecessary criticisms of the public on the
professionals’ work could then be avoided. As Abbot rightly (1988:16) comments that
professions legitimate their control by attaching their expertise to values with general
cultural legitimacy, building professionals would gain confidence of the public by
respecting their views and culture.
To show concern for the environment, the building professionals of Hong Kong should
actively involve themselves in affairs relevant to environmental protection and
sustainability. Professional bodies should initiate deliberations with, and facilitate
dialogues among building professionals, government bodies, interest groups and the
public to address environmental and related matters, and to help resolve arguments
between different parties. Building professionals should also enhance their knowledge
and skills through participating regularly in workshops, forums and conferences (local
and international) to learn, to share ideas, and to seek solutions for environmental
problems. In addition, building professionals of the various disciplines should closely
collaborate with one another in working towards more environmental friendly
constructions and sustainable developments for Hong Kong and the world.
The global economy, coupled with the rapid advancement of computing technology and
electronic communication, has both facilitated and necessitated the development of
international professional services for many professions. Baden-Fuller (1993:102-104)
comments that becoming international is no longer a marginal but central activity for
professional firms. However, international activities are neither universally profitable nor
easy to manage. It is essential for professionals to understand how to cope with the
critical forces of internationalization and the dynamics of the market place in order to be
successful. Fladmoe-Lindquist (1993:144, 152) also points out that the problems of
uncertainty, information asymmetry, and bilateral negotiation etc. with the globalization
of professional services are often complicated by cross-cultural communication.
Furthermore, there are often issues of mutual recognition whereby professional bodies
would have to look into regulatory compatibility across borders, and to facilitate
members’ regulatory learning in rendering their professional services competitive
(Nicolaidis, 1993:64).
In Hong Kong, apart from the drive of globalization, the recent economic recession
resulting in a drastic drop of the local property demand and the opening up of the Chinese
Mainland market have forced the building professionals to look for job opportunities
abroad and across the border. In a survey carried out by HKIA in early 2004, 104 out of
307 member respondents indicated that they have projects in Chinese Mainland in the
54 Mo
Under the changing mode of operation and fierce competition in sharing of the pie among
building professionals, building professionals of respective disciplines are subjected to
the pressure of having to diversify and expand their scope of work, while maintaining
edge as experts of their discipline. The outsourcing of building works by the Hong Kong
SAR Government with the aim to reduce public expenditure has also led to a new form of
job offers, demanding the building professionals perhaps to review their traditional way
of practices. All these economical factors have posed new challenges to the building
professionals and might even at times be conflicting with the values that the public
expects of them.
CONCLUSION
With the fast evolution of the world and the ever-mounting societal expectation on the
accountability and performance of professionals, building professionals of Hong Kong
have to spontaneously respond to the challenges that are posed on their professions.
While there are continuous pressure from clients to build fast and cheap, public call for
higher standard of health and safety, environmental protection and sustainable
development is also exceedingly demanding. Globalization of professional services
requires new ways of operation as well. The mode of practices for the building
professionals has to change as a consequence of all these changing demands. It is hence
necessary for professional practices to be more adaptable to different business
environments, with the building professionals responding fast to political, economic, and
social situations. In the era of rapid knowledge expansion and technological
advancement, building professionals have to equip themselves constantly with a wider
pool of knowledge, skills and techniques through continuous development and research
Meeting the challenges of change for building profession 55
work, and be able to apply them to produce quality buildings in an efficient and effective
manner. To earn public trust and confidence, building professionals should also be both
self-projecting and self-regulating, with full commitment to continuous enhancement of
professional competence and upholding of professional integrity.
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Baden-Fuller (1993) ‘The Globalization of Professional Service Firms: Evidence from
Four Case Studies’ in Aharoni, Y. (ed.) Coalitions and Competition – the
Globalization of Professional Business Services, London: Routledge.
Bottery, M. (1998) Professionals and Policy: Management Strategy in a Competitive
World, London: Cassell.
Cooper, D., Lowe, A., Puxty A., Robson, K. and Willmott, H. (1988) ‘Regulating the
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accountancy profession: episodes in the relation between the profession and the
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Dent, M. and Whitehead, S. ‘Introduction: configuring the ‘new’ professional’ in Dent,
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and Whitehead, S. (eds.) Managing Professional Identities – Knowledge,
Performativity and the “New” Professional, London: Routledge
Dubin, S.S. (1990) ‘Maintaining Competence through Updating’ in Willis, S.L. and
Dubin,
S.S. (eds.) Maintaining Professional Competence – Approaches to Career
Enhancement, Vitality, and Success throughout a Work Life, San Francisco and
Oxford: Jossey Bass Inc.
Eraut, M. (1988) ‘Knowledge Creation and Knowledge Use in Professional Contexts’,
Studies in Higher Education, 10, (2), pp117-32.
Eraut, M. (1994) Developing Professional Knowledge and Competence, Lewes: the
Falmer Press.
Farr, J. and Middlebrooks, C. (1990) ‘Enhancing Motivation to Participate in Professional
Development’ in Willis, S.L. and Dubin, S.S. (eds.) Maintaining Professional
Competence – Approaches to Career Enhancement, Vitality, and Success
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throughout a Work Life, San Francisco and Oxford: Jossey Bass Inc.
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Competition – the Globalization of Professional Business Services,
London: Routledge.
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of Daedalus The Professions in America, USA: Beacon Press.
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Hoyle, E. and John, P. (1995) Professional knowledge and Professional Practice,
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Hughes, E. (1959) ‘The Study of Occupations’ in Merton, R.K., Broom, L. and Cottrell,
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Low, L. (1996) Professionals at the Crossroads in Singapore, Singapore: Times
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MacDonald, K. (1995) The Sociology of the Professions, London: SAGE Publications
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Buckingham: SRHE and Open University Press.
WINNING CONSTRUCTION CONTRACTS IN DEVELOPING COUNTRIES IN
SOUTH EAST ASIA
ABSTRACT
Architectural, engineering and construction (AEC) firms are expected to venture into
foreign locations to undertake construction projects because of the need to increase sales
and profitability. The objective of this paper is to identify the more significant factors
that help foreign AEC firms clinch construction projects in developing countries in South
East Asia (SEA). Factors that hinder firms from winning contracts are also identified so
that firms can find ways of overcoming these barriers. The research is based on a
questionnaire survey of Singapore and US AEC firms that had undertaken construction
projects in developing countries in SEA. It is found that firms need to pay more attention
to the market and working conditions in SEA to properly understand the foreign market.
To win projects in SEA, foreign AEC firms should help clients reduce their financial
burdens. Offering high quality specialized services is found to be a key factor among the
firms studied. Firms should also have high quality inputs and maintain an excellent track
record. Specific suggestions on how to win construction contracts in SEA are also
discussed. The findings are useful to foreign AEC firms as they may help them win
projects in the SEA construction industry.
INTRODUCTION
There are many reasons why architectural, engineering and construction (AEC) firms
should undertake projects outside their home countries. These include slow growth at
home (Leonidou, 2001), high growth in foreign countries, the advantages associated with
developing an external wing of an economy (Westhead et al., 2002), and globalization.
South East Asia is often viewed as the most international of regional global markets, and
even though it is a disparate group of nations, they are often lumped together as a single
market. (Mawhinney, 2001). With globalization, investors are expected to ‘set up shop’
in foreign locations, including South East Asian countries (SEA). This translates into
higher demand for constructed products such as factories, manufacturing plants and
offices. Foreign AEC firms will thus have increased demand for their services. To
realize this additional demand, they must first secure the contracts. But foreign AEC
firms may not fully understand the factors that will help them secure work in SEA.
58 Ling
The objective of this paper is to identify the significant factors that can help foreign AEC
firms win design and construction projects in SEA. In this paper, the projects
investigated were based in developing countries in SEA (host countries). The projects
were executed by foreign AEC firms. These firms have headquarters outside the host
countries. The ‘host country’ is the nation where the project is based, in this case, SEA.
The home country is the nation where the foreign AEC firms’ headquarters is based.
Within a company, managers should attempt to cultivate a spirit among employees that
doing business overseas is vital for securing profitable sales and achieving long-term
viability (Robson et al., 2002). Bernard and Jensen (1999) found evidence that: exporters
are better than non-exporters; good firms become good exporters; and both growth rates
and levels of success measures are higher after undertaking export activities. Workers
benefit from exporting in the form of higher pay and better future employment prospects.
Firms benefit from exporting because they diversify risk, increase innovation, and
improve survival chances.
However, it is likely that AEC firms have difficulty securing projects in a new foreign
location. Moreover, SEA has many problems such as poorly planned investments,
government intervention, inflexible economies, lack of transparency in corporate
governance, lack of long term thinking, and shortages of skilled labour forces
(Mawhinney, 2001). This research therefore investigates the factors that can help AEC
firms win construction projects in SEA.
RESEARCH METHOD
This paper is part of a major research project investigating the performance levels,
enablers, barriers, strategies, aims and benefits of international construction projects. The
research method is a structured questionnaire survey.
The questionnaire comprised a list of possible factors that may help foreign AEC firms
secure a project, identified earlier by Ofori et al. (2001). Respondents were asked to
indicate the extent to which each of the listed factors helped secure a specific
international project outside their home countries, using a seven-point Likert scale, where
1 represented ‘big hindrance’, 4 meant ‘neither help nor hinder’, and 7 stood for ‘great
help in helping a firm secure the project’.
Winning construction contracts in developing countries 59
The population frame for this study comprised AEC firms that had undertaken and
completed projects outside their home countries. As there is no world registry on AEC
firms that export their services, the size of the population is not known. A research
decision was made to limit the study to Singapore and the US. Therefore, the sampling
frame comprised AEC firms which have headquarters in the USA or Singapore, and had
undertaken international projects.
The USA samples comprised all USA-based international contractors and international
design firms ranked by the Engineering News Record in 2001 and 2002. Altogether,
there are 150 such firms. The Singapore sample size was also set at 150, to avoid bias. In
Singapore, all the Building and Construction Authority listed top 30 firms that export
AEC services were selected. Due to a lack of published data, another 120 firms were
randomly selected from the registry of Singapore Contractors Association (SCAL),
Singapore Institute of Architects (SIA) and Association of Consulting Engineers
Singapore (ACES).
A pilot study was conducted and this led to a few minor adjustments to the questionnaire.
The finalized questionnaire was then distributed by post to the selected samples in August
and September 2002. The questionnaire was self-administered, which precluded
verification of responses.
Questionnaires were sent to 300 AEC firms. 71 responses were received (24% response
rate). This paper focuses on the 25 firms that had SEA experience. The projects reported
were based in Cambodia, Indonesia, Malaysia, Myanmar, Philippines, Thailand and
Vietnam. Details of the respondents and projects are given in Tables 1 and 2
respectively. Most respondents are from the top management and have more than 10
years of industry experience. 40% of the firms have more than 10% of their revenue
derived from overseas projects.
The majority of the projects are private sector. This is not surprising as governments in
SEA may prefer to award public projects to indigenous AEC firms. A large percentage of
the projects is general building, and based on design-bid-build system. The majority of
the foreign AEC firms were awarded the contracts through selective bidding and
negotiation. This underscores the importance of developing business relationships in
SEA rather than relying on open bid invitations.
As the 25 data-sets comprised projects from seven different SEA countries, analysis of
variance (Anova) was first undertaken to check whether there is significant difference
between the performance of projects in the different countries. The Anova result showed
that there is no significant difference (p ≤ 0.05) between the performance of projects in
different SEA countries undertaken by foreign AEC firms (see Table 3). Therefore, it is
appropriate to put the projects together for further data analysis.
RESULTS
Table 4 shows the results of the survey on the enablers that helped foreign AEC firms
secure projects in SEA. Overall means were calculated. The higher the mean, the greater
the variable’s contribution in helping a foreign firm secures a project. The rankings
(Rank) and frequency of usage (N) are also indicated in Table 4.
Another Anova was carried out, to check whether there is significant difference in the
degree to which a variable helped or hindered a foreign AEC firm in different countries.
Except for ‘Size of firm’ (to be discussed later), the Anova results showed that there is no
significant difference (p ≤ 0.05) between the degree to which a variable helped or
hindered foreign firms in different countries (see Table 4, columns 5-6). Therefore, it is
appropriate to discuss the enablers and hindrances without differentiating which country
the project was based within SEA.
The statistical t-test results show that out of 33 variables, 27 (shown in bold font) of these
helped foreign AEC firms secure projects in SEA. The three most important are:
Six variables did not pass the t-test (p ≥ 0.05). Among these, four variables have negative
t-values (shown in italics), indicating that these are significant hindrances. It is
recommended that foreign AEC firms pay close attention to these, and try to overcome
these hindrances, so that they are more likely to be successful in clinching jobs in SEA.
DISCUSSION
The 33 variables are grouped into five components for further discussion. These are:
understand the foreign market; help clients reduce financial burden; offer high quality
specialized services; source for high quality inputs; and maintain a good track record.
These factors are now discussed.
Nine variables are grouped under the first factor: Understand the foreign market. To
secure projects in SEA, AEC firms need to have very detailed information and knowledge
of the market of the SEA country which it is entering. It should also form associations
and networks. Networks of contacts provide access to people and information of potential
value (Daft, 1986).
The results show that certain conditions in the host country are barriers that hinder foreign
firms from winning the project. The host county’s protectionist policies, it legislations,
and local sentiments are barriers which prevented foreign AEC firms from winning
projects in SEA. Foreign firms should therefore pay more attention to these barriers, and
find ways to overcome them.
Winning construction contracts in developing countries 63
It is recommended that foreign AEC firms form joint ventures with local firms who are
knowledgeable and have the right connections. The potential local partner must show
evidence of his extensive connections and network. Besides forming foreign-local joint
venture, powerful local politicians may be invited to be partners of the AEC firm. These
politicians can help in speeding up the government approval process.
A good understanding of the foreign market can also be achieved by setting up physical
office and staffing it with senior employees from the head office. This is better than just
having the relevant professionals fly into the foreign country every once in a while. The
senior employees who are based in the foreign location can gain a good understanding of
the system and learn first hand about the laws and regulations relating to foreign
exchange control, administrative and bureaucracy matters. They will also know the new
regulations that are being introduced, which may delay the project or approval processes.
Preventive steps can then be taken early.
Six variables relating to financial matters help foreign AEC firms win projects in SEA.
Firms must find ways to help clients reduce their project financial burden, either through
offering very competitive bids, offering project financing, or help clients to structure
financing packages.
Offering competitive bids are important because SEA market is very competitive, and
most clients in SEA still award contracts to the lowest bidder. The fiercest competitors
are firms from China, especially her state-owned firms that may have very strong
financial backing from the Chinese government.
The survey results show that clients in SEA often expect foreign AEC firms to be able to
offer financing or to assist in structuring such packages. This is consistent with Tiong
and Yeo’s (1993) study which found that structuring a financing scheme for clients from
developing countries is one of the most important ways of winning bids for projects that
are funded by international funding agencies. Attractive financial package can tip the
scales in favour of an otherwise uncompetitive tenderer (Stallworthy and Kharbanda,
1985). AEC firms may also provide financing or take an equity in the project through
build-operate-transfer arrangement (Wang et al., 2000). They can only do this if they
themselves have financial strength and muscles. Alternatively, they can team up with
bankers. Unfortunately, some banks are too cautious and are reluctant to offer financing
to firms venturing overseas.
Being able to offer good financial terms means that foreign AEC firms need to have
financial strength, which usually comes with being large in size. The Anova showed that
there is significant difference in the role that the size of firm played in helping to clinch
projects in different countries. Being large sized help foreign firms win projects in
Philippines and Vietnam, but not the rest. It is wondered if being ex-colonies of the USA
had a role in making these countries welcome big firms more.
While being price competitive helps firms secure projects in SEA, it is cautioned that
foreign firms should be wary of non-payment or late payment by some SEA clients.
64 Ling
Advance payments and letters of credit may be used to ensure that payment would
actually be made.
Eight variables are grouped under one component labelled as ‘offer high quality
specialized services’. The findings emphasize the need to offer superior products or
service. To do this, firms could adopt differentiation strategy (Porter, 1990). Foreign
firms should have superior technical expertise, specialty in a certain field, and ability in
handing complex projects. This involves having a core competence that competitors
cannot easily match or imitate (Hamel and Prahalad, 1994). In international construction,
AEC firms must provide specialty or niche services or products that indigenous firms
could not. The service or product should also have superior quality or delivered in a
shorter time. Regardless of the adopted business strategy, great attention in satisfying the
clients’ needs is essential (Kangari and Lucas, 1997).
The results also show that AEC firms need to embark on aggressive marketing to create
demand when trying to win projects in SEA. This may be because some clients in SEA
are not sophisticated enough to identify a good business opportunity. Therefore, foreign
AEC firms need to highlight this to clients, and then persuade them to employ the same
AEC firm to supply the constructed facility to undertake the business operations.
Five variables are grouped under ‘source for high quality inputs’. For firms to be able to
offer high quality and specialized services, they should first conduct an internal capability
assessment (Howes and Tah, 2003). Where shortfalls occur, then it is necessary to
establish what internal measures are necessary. The firms must be able to employ
competent professionals and skilled workers or technical staff to handle the overseas
project. It is recommended that only excellent and self-motivated staff should be posted
to overseas This staff, if from the head office, could train a local counterpart so that the
latter can eventually handle the operations. The downside of this strategy is that the in-
country counterpart may move to a competitor because such people are in short supply.
Foreign firms should also be able to find good suppliers, contractors and subcontractors to
help them execute the project. The respondents also felt that the material supplies,
logistics and infrastructure in SEA impeded them from securing projects. This finding
indicates the potential for foreign firms to supply SEA with more services and technology
in these areas.
Winning construction contracts in developing countries 65
Five variables are grouped under ‘maintain a good track record’. AEC firms that have
good track record at home, in SEA and in other countries are more likely to win projects
in SEA. A good track record indicates that the firm has good reputation. Clients award
contracts to firms with good reputation because they are less likely to exhibit
untrustworthy behaviour and could be expected to deal honestly (Granovetter, 1985)
because they do not want to damage their reputation and risk alienation (Provan, 1993).
According to Hill (1990), individuals who have good reputations do not exhibit
opportunistic behaviour which yields only short-term benefits but a long-term cost
because of lack or loss of trust.
The results also show that home country clients are more likely to engage them to
construct their facilities when these clients venture into SEA. AEC firms should therefore
continue to network with their home country clients. With its good reputation, the home
country government is more likely to help the AEC firm win contracts in SEA through
lobbying and official representations.
CONCLUSION
The objective of this paper was to identify factors that can help foreign AEC firms win
projects in SEA. It was achieved through a survey of foreign AEC firms with SEA
experience. The results of this study show that to win projects in SEA, foreign AEC
firms need to understand the SEA market thoroughly and be able to help clients reduce
their financing burdens. They need to have price competitiveness and provide superior
products or services. This suggests a doubly demanding dual task of implementing both
differentiation strategy and low-cost strategy simultaneously.
It was found that in essence, to secure projects in SEA, AEC firms need to have very
detailed information and knowledge of SEA, and form associations and networks. They
need to get support from both the host and their own home country governments. AEC
firms also need to have sound marketing strategies, and form alliances with clients from
their home countries who are investing in SEA. As for project financing, clients in SEA
often expect AEC firms to be able to offer financing or to assist in structuring such
packages.
The most important variables all point to the need for AEC firms to offer high quality
niche services. AEC firms need to focus internally on their own operations and
strengthen themselves to ensure that they offer superior product or service at competitive
prices. This research has shown that expertise in a specialized sub-market and in a
technical discipline helps firms win projects in SEA.
One of the limitations of this study is the small number of responses received. Due to
time and cost constraints, another limitation is that the responses were obtained from
Singapore and US AEC firms instead of more nationalities. More sets of data will be
collected to make the findings generalizable.
The findings in this study are pertinent and helpful to international AEC firms in several
66 Ling
ways. With increased globalization, AEC firms would undertake more projects overseas
to survive. Effectively addressing the factors that have been identified in the study can
help them win projects in SEA and perform profitably. They could strengthen their
firms’ capabilities in the areas which have been found to help foreign AEC firms clinch
projects in SEA. They could also focus on the more important attributes (those ranked
higher) to help them secure projects in SEA. In addition, they may want to pay attention
to the areas which are found to be impediments in winning projects in SEA, and look at
ways of overcoming these barriers.
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No. 4, pp.385-418.
Winning construction contracts in developing countries 67
ABSTRACT
The paper proposes a paradigm shift from the traditional capacity building in small and
medium contracting firms which target the lower value market segment and, instead fast
track the development of “large” local contractors who are better placed to compete with
foreign firms and mitigate the threats of globalisation to construction industries in
developing countries.
INTRODUCTION
The Construction Industry (CI) creates and maintains the built environment, which is the
cornerstone for the socio-economic development for any nation and a reflection of a
nation’s development. Unfortunately most construction industries in developing countries
are in very poor shape, Rwelamila (2000) summed up the status of the African
construction industries as having low and unreliable rates of profitability; negligible
investments in capital, and research and development; training in these industries is
falling apart and too many clients still equate price with cost by selecting contractors and
70 Muhegi and Malongo
consultants purely on the basis of the tendered price. To put it simply the African
construction industries are under siege due to poor performance.
The advent of globalisation and the transformation of leading economies into knowledge
based economies will further marginalise the construction industries in developing
countries if appropriate measures and initiatives are not taken to reverse this status quo.
Ofori (2000) outlined these to include a fundamental and comprehensive review of all
aspects of each construction industry in a developing country. This review should provide
the basis for the formulation of initiatives to attain progress on a broad front throughout
the industry. The review should aim to enable the industry to face the challenges, which
will be posed in its domestic market as well as wider issues of an international nature.
The process should involve the main stakeholders of the industry although government
can play a leading role.
This paper conducts an analysis of the challenges facing the Tanzanian construction
industry. It reviews previous construction industry development initiatives in the country
and draws from deliberations conducted in four consultative meetings convened to chart
out strategies for mitigating the threats posed by globalisation to the local construction
industry.
The paper draws on emerging trends in the construction industry worldwide and
recommends initiatives for adoption.
Architectural and Quantity Surveying firms are registered by the Architects and
Quantity Surveyors Registration Board (AQRB) .The Board has 89 registered
architectural firms of which 93% are local and 33 registered quantity surveying
firms of which 97% are local. The registration of consultants is not classified
therefore there is no threshold as to the complexity or maximum contract value that
these firms may undertake.
These regulatory bodies which were all established by acts of parliament in 1997 are also
charged with the responsibility of developing the respective firms / professionals
registered with them.
The performance of the local construction industry can be measured using several
indicators. In Tanzania the industry contributes 4.7% of the countries GDP and 47.3% of
the Gross Fixed Capital Formation (GFCF). Furthermore, significant portion of the
government’s development budget (about 60%) is also spent on construction projects.
The industry has recorded steady growth from 8.7% in 2001, to 11% during 2002 and
15% in 2003. This growth is attributed to continued Government investment in
infrastructure. Also, the economic reforms carried out during the past decade have
attracted a significant increase in donor, private sector and foreign direct investment in
infrastructure developments.
Despite the increase in investment and growth, the market share of local players both
consultants and contractors remains very low. Foreign contracting firms managed to get
80% (by value) of all contracts during 2003 leaving only 20% for the locals.
Since approximately 85% by value of most construction works entails the procurement of
a contractor, the paper will now focus on issues facing Contractors in Tanzania.
The Contracting industry is characterised by two distinct market segments, the high end,
high value, complex projects segment which is dominated by foreign contractors owing to
their superior technical and management expertise and access to financial resources and,
about 5% of the local construction firms which are in Classes I to III.
The other segment is the low end, low value projects segment serviced by 95% of purely
local contractors. This market segment is “overcrowded” by small family based
contractors. The ensuing competition for the jobs in this segment leaves at least 19% of
these contractors unable to win a single contract every year.
Data analysed by the Contractors Registration Board from Contractors Annual Returns
for the year 2003 as summarised in Table 1 below shows that civil works get the biggest
contract values followed by building works. The value of projects awarded to small
contractors in classes V-VII is at best on a subsistence level with a contractor getting an
average of 3 small contracts per annum.
72 Muhegi and Malongo
In the higher classes the scenario is not any better. A typical Class I Tanzanian contractor
is allowed by law to undertake works of unlimited value. The data extracted from annual
returns for the past three years indicates that the largest contract executed by a local
contractor was in the region of USD 8.0 million. By and large a Class I Tanzanian
Contractor is a small to medium sized enterprise by International Standards.
Between 1995 and June 2004 a total of 41 road and bridge construction projects have
been completed in the country. These projects with a total value of 998.8 billion
Tanzanian Shillings (about 1 billion US Dollars) were executed by foreign construction
firms. Local firms could not qualify due to a myriad of reasons including, donor
conditionalities, not having the requisite experience and financial turnovers and
unfamiliarity with the required delivery methods e.g. design and build.
The scenario depicted in the Tanzanian industry is not very different from other
developing countries, Drewer (1980) attributed this to the fact that most of the
construction projects that developing nations require for their socio-economic
development are beyond the capability of their industries to undertake owing to the size,
novelty and complexity of those projects.
Through data analysed from Annual Returns for year 2003 on a sample of 638
Contractors “the Supply Side” and 31 major Clients “the Demand Side”, the Contractors
Registration Board has identified major constraints affecting the development of capacity
and competence in the local industry from the Contractors Perspective and from the
Clients perspective as tabulated in Table 2 and 3 below ;
In summary these results identify problems on the “supply side” (Contractors) of the
industry as being;
Poor corporate management of local firms
Resources Constraints – access to finance, knowledge and skills, plant and
equipment
Stiff Competition /Access to work opportunities
The results form a basis for determining where development initiatives of the
Construction Industry in Tanzania should be focussed. In this case, improvement of the
delivery system of contractors - “supply side” is a priority in order to enable the local
contractors gain the requisite capacity and competence to claim a significant market share
of the investment that is being channelled into infrastructure development.
This conflicts with Milford et al’s (2000) argument that “supply side” development
initiatives may not necessarily be the most important focus in developing countries and
rather advocated for increased infrastructure investment as a strategy to develop the
construction industry in South Africa. This is not surprising, as earlier noted by Ofori
(2000) a fundamental and comprehensive review of all aspects in each construction,
industry in a developing country is of paramount importance prior to formulating
strategies, implying, that there are no “one size fits all” solutions in CI development.
74 Muhegi and Malongo
There have been several initiatives aimed at developing the Construction Industry during
the last two decades. These include ;
As in most developing countries, these initiatives have been government led and were
geared to the development of small and medium size contractors. The justification for
directing most developmental initiatives in the construction industry to SME’s has been
that since small and medium scale enterprises tend to be relatively labour intensive and
utilise low levels of technology, a strategy commensurate with the development of this
sector is consistent with employment creation, poverty alleviation and income
distribution objectives, which, is ideologically correct for any developing country.
Although these initiatives have borne significant progress in the Tanzanian construction
industry, most local firms are still unable to undertake large and technically complex
projects. A major shortcoming in these strategies is that “large” local contractors have
been left out from most developmental initiatives and have thus failed to provide any
formidable competition to their foreign compatriots for the high value projects as the
market share indices show.
Emerging trends in the construction industry worldwide provide a test case as to whether
the traditional approaches in CI development adopted by most developing countries are
still adequate. When reviewing the developments in the construction industry in Asia
Raftery et al (1998) identified three major trends ;
These trends have also permeated into the Tanzanian industry and the effects are already
visible with the disadvantages heavily outweighing the advantages.
For example, while the increase in public and private sector investment in infrastructure
projects corresponds to an increase in construction demand, local construction companies
are not experiencing a corresponding increase in their market share of the industry due to
lack of the requisite competitive edge over foreign companies. Furthermore the increase
in private sector funded projects reduces the impact of regulatory frameworks which offer
margins of preference to local contractors during procurement since these policies are
not applicable to the private sector. It is therefore inevitable that foreign contractors shall
continue dominating the high value complex project market segment.
It can be argued that the presence of foreign construction firms could offer scope for the
development of the Tanzanian industry. Several authors have conducted studies on the
technology transfer potential from foreign contractors, Moavenzadeh and Hagopian
(1984) see foreign contractors as the sole factor influencing the development of
construction industries in developing countries. This model is criticized by Ofori (1996)
who notes that the objectives of foreign contractors and host developing countries differ.
Carrillo (1994) shows that foreign firms are not keen to effectively transfer their
technology since that is a means of nurturing their future competitors. However, Ofori
(1996) notes that both local and foreign firms can benefit if systematic efforts are made
by the later to develop the former. In Tanzania there are no institutional mechanisms to
ensure that there is technology transfer from foreign firms to local firms hence, the impact
of foreign firms in developing the local capacity has been insignificant.
New trends are emerging in project delivery requirements imposed by clients which are a
departure from the traditional procurement and project delivery methods in Tanzania. For
example ;
The Central Tender Board is adopting Design and Build (D&B) mode for the
construction of most major road works. Therefore contractors winning such
contracts will have to assume a complex role of managing engineering, quantity
surveying and construction services.
The Tanzanian national road agency TANROADS is embarking on a Performance-
based Maintenance and Management system for Roads (PMMR) whereby
contractors will enter into Service Level Agreements with the Client as opposed to
the traditional Works Contracts. Under PMMR Contractors will have to determine
the type and extent of maintenance to be done to meet the service level agreed.
Payments to the contractor will be based on outputs of attaining the service level
rather than inputs from the Bills of Quantities.
The proposed Kigamboni Bridge which links Dar es Salaam City with Kigamboni
peninsular shall be constructed on a Build Operate Own Transfer (BOOT) basis,
with stakeholders in the supply chain so as to cope with these new customer
requirements.
In view of the above there is a need to critically review the development initiatives to be
applied to match these new trends. A logical question would be ; Is the current focus on
developing small and medium sized enterprises still a viable option to mitigate the threats
of globalisation in Tanzania? The answer is NO for two basic reasons.
The net impact of increasing the local market share through the low value market
segment which is the domain of these firms is negligible.
The structure and resources within these firms do not allow them to transform into
firms that can offer competition to foreign contractors, Furthermore, these firms are
not attractive for joint ventures and strategic partnerships with more advanced
foreign firms.
If the Tanzanian construction industry is to survive in the globalised CI arena, there has to
be a paradigm shift in the CI development agenda to match these new trends in
procurement and delivery of projects. This entails embarking on deliberate efforts to fast
track the development of “large” local contractors to international levels. This is a major
departure from contractor development policies in most developing countries. As
Seng’enge (2004) coined it, we can no longer count on our traditional small, family based
practices to face the challenges ahead of us. This is not a matter of engineering or politics;
it is a matter of fact.
Civil works account for 50% in value of the market share in the Tanzanian
Construction Industry.
Most Civil works carried out are Government or Donor funded, hence the
program is more likely to get government support as opposed to privately funded
projects.
Currently there are 33 registered civil works contractors in classes I – III. The selection of
contractors to participate in this program could be daunting and subject to criticism. A
broad based selection team with representation from contractors associations and other
stakeholders will be set up to deal with the selection. Transparent selection criteria will be
clearly spelt out.
D Set aside at least 500km of planned paved road works for the program. These
shall be broken down in packages of 30km and the participating contractors
shall be requested to bid for these packages.
D Waive the requirements of the Public Procurement Act which requires open
tendering for all government funded projects
D Provide a tax exemption (including VAT) over the five-year period for all
capital plant and equipment for the project.
At the end of the program it is anticipated that the local industry shall have at least 12
contractors who have
• the necessary experience and internationally accepted production rate for the
construction of paved roads
• the necessary financial turnovers required when bidding for such jobs in the open
market under International Competitive Bidding
• the required complement of skills, plant and equipment for complex road works.
78 Muhegi and Malongo
Bearing in mind the nature and structure of the local construction industries. Owners of
these firms will have to be convinced that the benefits in participating in the program
outweigh the risks. They will have to accept professional advice on re-structuring their
firms and investing in proposed areas for their capacity building. As the old maxim says,
they will have to “think global and act local”, Botha et al(2004) summarised it that in a
couple of years there will only be two types of CEO’s who will exist……those who think
globally and those who are unemployed.
CONCLUSION
REFERENCES
J. V. B.TORRANCE
Faculty of Architecture, Planning and Surveying, Universiti Teknologi MARA (U.i.T.M),
Shah Alam 40450, Selangor, Malaysia, jvbtorrance@yahoo.com
ABSTRACT
This paper discusses the origins and effects of globalisation, its influences upon the
international construction industry, including the increasing importance of cross-cultural
management. The major effects of large scale demographic changes on the structure of
international trade are considered and their potential impacts upon construction markets
including Malaysia’s responses to W.T.O and A.F.T.A. Furthermore, the effects of
privatisation on changing client types and changing methods of project procurement are
reviewed.
How the development of the Knowledge Era particularly Malaysia’s strategy, coupled
with the influences of I.C.T. and Malaysia’s Multi Media Super Corridor (MSC) have
changed the pattern of education for construction professionals, particularly construction
managers at all levels, is emphasised. Consequently, these are, or should be, improving
the structure and the management of the supply chain, in Malaysia applications of E-
commerce are being developed.
BACKGROUND
The last twenty years have seen unprecedented change. As is often necessary, we must
examine where we have come from to understand where we currently are and where we
may be going in the future.
With regard to globalisation and the changing shape of international interactions, the
beginning must be the retreat of centralized, atheistic communism and the rise of free
market economics. The end of the Cold War some 20 years ago brought the removal of
the Iron Curtain, the break up of the U.S.S.R., the disappearance of the Bamboo Curtain
and the collapse of the Berlin Wall. These were not only potent symbols of changing
political and economic climates but they opened gateways to a surge in trade
liberalization and rapid commercial growth
The General Agreement on Tariffs and Trade (G.A.T.T.) had previously been making
major achievements but the World Trade Organisation gave international trade a huge
push forward. The Asian Development Bank, World Bank and the International
82 Torrance
Monetary Fund may also be viewed as double edged weapons. However imperfect
though those three organizations may be, they have made possible changes that would not
otherwise have been accomplished to the same extent.
Foreign direct investment is powering growth in the Asian economies. “History is clear
on this point”, said the then President of Mexico, Ernesto Zedollo, “in every case where a
poor nation has significantly overcome its poverty, this has been achieved while engaging
in production for export markets and opening itself to the influence of foreign investment,
goods and technology – that is by participating in globalisation (speech to World
Economic Forum, Davos, Switzerland, January 2000).
The term Globalisation was probably given its real meaning, first of all, by Theodore
Levitt in his book entitled “The Globalisation of Markets: Challenging the Myth of
Industrial Obsolescence” (1985). However, the Greek urban planner Constantin Doxiadis
in 1959 (in Papaioannou, 2000), suggested that global views of world interdependence
had developed, inevitably, due to the increased growth and urbanization of the world
population, enticed by the technological dynamism. In his view of human settlements he
did not use the word globalisation explicitly; the urban transition from Metropolis
patterns to Megalopolis then to the Ecumenopolis, or the universal city, were strongly
outlined within his framework of the 5-Ekistic Elements.
He was writing at a time when the world population was around 3 billion. The world
population has, of course, more than doubled, to over 6 billion in the intervening time.
Over the last few years India itself, with now over one billion people, has produced an
average of 35,000 new births every day. That is the equivalent of a small new town to be
built every day. South East Asia sits between the world’s two great populations, India
with one billion and China with 1.3 billion. Indonesia, the fourth most populous country
in the world lies just south. What a set of challenges and opportunities for the region’s
construction industries.
MASS COMMUNICATION
Those who have lived through the transformation from analogue to digital technology
have witnessed the force of change and have felt the effects of a shrinking world. Cheap,
speedy international travel has made any part of the globe easily accessible. The advent
of the container ship revolutionised the movement of mass cargoes. But it was the
transistor which led to satellite radio communication which opened up the “wireless age”.
Satellite TV has provided instant access to news from anywhere. The Internet is less than
10 years old but now we can S.M.S across the world and can carry out our business
transactions by E-commerce. But this is a whole set of subjects on their own.
However, the construction industry has yet to grasp the full potential of E-commerce and
electronic business. Not only in its daily operations but in ways that could transform its
major business operations. Winch (1996) has described the construction industry as the
ultimate networking framework. But it has only just begun to realize this and the
potential for future change. Supply chain management is, at last, receiving serious efforts
at modernisation as construction organisations have a dawning recognition of the
importance of the supply chain and the need to manage it much more efficiently.
Many of us who entered academic careers in higher education some 40 years ago felt the
force of change, and knew the need for it, especially in the professions of the construction
industry, as university education began to rapidly expand. But it was Peter Drucker
(Flaherty, 1999) who first comprehended the enormity of the Knowledge Revolution and
the coming of the Knowledge Economy and the Knowledge Worker. Malaysia has
rapidly expanded its higher education sector and has accelerated its Knowledge Economy
strategy, as part of its “Vision 2020” plans to be a fully developed nation by 2020. Figure
1 illustrates Malaysia’s economic leapfrog from an industrial to post-industrial advanced
industrial society.
However, in those early days, a major weakness for the construction industry was the
existence of very few post-graduate courses in construction project management. Indeed,
the construction industry had only recently begun to receive any significant numbers of
university and polytechnic graduates with an adequate education in management. This
under supply of suitable graduates continued for many years and was only assisted, at
least in the U.K., by the Finneston Report (1980) with the creation of the M. Eng degree
as a management extension to engineering education. In preparing this paper, one report
revisited was entitled Construction Management in Building, Present and Future (CIOB,
1965). This refers to only a trickle of graduates entering construction management at the
level of contract management, site management and project management but makes no
reference at all to post-graduate qualifications or training.
Since then there has been a huge expansion in the number of available masters degree
programmes in construction management. Project management is, or ought to be, a
central and major focus of such post-graduate programmes, whether they call themselves
M.Sc. in Construction Management or M.B.A in Construction Management or M.Sc. in
Integrated Construction Project Management (i.e. at U.i.T.M) or whatever. In Malaysia
there has been a parallel rapid growth, and it can be certain that growth will continue,
sometimes with franchising or twinning arrangements in collaboration with foreign
universities or, probably with increasing effect, through the internet. Whatever they are
called and however they are packaged and delivered, the products of such post-graduate
courses must understand the widest possible picture and this must now, of course, be
global. These new knowledge workers must perceive the relationship between the
Market and the Client with the Industry, the Business, the Project, the Supply Chain and
the Project Manager.
Client organisations, on a broad front, have become increasingly dissatisfied with the
fragmented and disputations character of the construction industry. At a recent public
forum, a senior representative of a major Malaysian public sector client organization
stated that what they wanted was to get “the CON out of Construction and Contractor”.
The Knowledge Era, with expanded higher education, is providing us with the means to
achieve this, so we must recruit and develop the best university graduates and post-
graduates for the industry and put the best and the majority of them into management;
managing the business and managing the project. They must not only be competent in
HRM and OB but in Strategic Planning and Strategic Project Management, Risk
Management, I.C.T & E-commerce, Value Management, Business Management,
International Management and Conflict Management through A.D.R.. Cross-cultural and
Multi-cultural Management must also be high on their agenda together with good
business ethics. They must master the inter-connectivity and complexity of the whole
picture, the whole operational framework, globally within the internet driven, W.T.O.
enabled free market. Indeed, they must be masters of their own destiny within the
coming Knowledge Era and understand how to lead it.
They must provide strategic leadership and professional operational competence. The
client organisations, both in the public and private sectors, do, indeed, passionately, want
to get the “CON” out of construction. The need is not for more CON-sultants but to get
the best brains with the necessary intellectual and professional competences into the
construction companies and in command of construction project management.
Globalisation and trends in international construction industry 85
In education, the growth in new knowledge has driven change continuously. In the early
20th century an honours degree in U.K universities was only of the comparable
intellectual standing and content of the present school leaving certificate.
Many reports of the 1960s, including the American Society for Engineering Education
(Goals of American Engineering Education ASEE 1968) and the Robbins Report
(Robbins, 1962) on U.K. higher education development helped to lay the foundations for
the coming of the Knowledge Economy. Lord Robbins in his report stated “graduate
expectations will need to fall” and so they have.
Until that time, until the rapid expansion of higher education, with access made available
to 15%, then 25% then 35% and soon, 50% of all school leavers (i.e. “the age
participation ratio”), graduates had been scarce, in short supply and any motivated
graduate with a good honours degree could well expect to rise to a high level in his or her
profession. Now they will need a masters degree plus a sound professional training and,
particularly, effective experiential learning (Figure 2, Faridah, 1998). In the near future,
more and more will need a doctoral degree. Indeed, again as predicted by the A.S.E.E. in
the 1970s, there has been a surge, over the past 15 years or so, of men and women
completing Ph.D degrees in construction management.
86 Torrance
Those with a “weak” first degree, or a less focused career development path, can expect
to fit into one of the supporting roles in administration or in technical support – all of
which are, of course, essential to the functioning of the organisation. Indeed, the
bachelors degree has simply become the end of the basic education process for the middle
class in every developed society.
One of the areas in which the construction industry has been heavily criticized for poor
performance, including in the U.K and in Malaysia, is supply chain management. (Winch,
1996). Not so the Japanese. Their culture, both national and organizational, takes a much
more responsible and integrated approach to supply chain management. This is
characterised by networks of tiered, interlocking supply relationships, known as
“keiretsu”. Firms at the top of a keiretsu will often have long-term relationships with key
suppliers and may even hold an equity stake in some of them. Taking Shimizu as an
example (Cox and Townsend,1998), there are approximately 500 companies within the
Shimizu Keiretsu, known as the “Kanekikai” – the name given to the family of sub-
contractors. This group includes between 65 – 70,000 skilled workers. One of the
primary suppliers is Kaneko Corporation, a specialist steel erector and sub-contractor to
Shimizu for over 110 years.
With the continuing growth in tertiary level education of those professions destined,
primarily, to function within the construction project and the construction company, the
supply of first degree holders is likely to reach that stage, as predicted by Robbins, where
graduate expectations will fall. More responsible positions and functions will be held by
those with post-graduate qualifications. Those with less well developed qualifications
will need to look for wider fields in which to develop their careers. This author’s hope
and expectation is that many more of them will find their way into managerial and senior
managerial functions within the supply chain. We should have graduates managing the
Specialist Subcontractors. This, together with greater standardisation, modularisation and
compatibility of connection systems, alongside greater use of mechanisation and
mechanical tools, and aids, would lead to greater off-site component manufacture and
systematic on-site assembly, much needed in Malaysia. So, let us get the “CON” out of
sub-contracting.
CLIENT ORGANISATIONS
With the changing economic environment, with the development of free market
economics has come the Private Finance Initiative (P.F.I) and Public/Private Partnering
(P.P.P.). Privatisation has brought change to the way that the construction industry
carries out its business. B.O.O.T and B.O.O. (this author’s own favourite is the
privatisation of prisons), partnering, government sector/private sector alliances, other
forms of strategic alliances (with strategic networking), particularly Joint Ventures, have
Globalisation and trends in international construction industry 87
proliferated in the last 10 years. These changes together with new forms of procurement
have irreversbly altered the way that the construction industry operates.
Clients, particularly when they are Multi-National Corporations (M.N.C.), have become
much more sophisticated and demanding in their dealings with the Construction Industry.
Partnering has grown out of mutual respect and mutual involvement in the partners’
businesses for their collective benefit. These clients have a global spread in their
businesses and they expect their construction companies to have a global reach.
The Japanese have had global partnering with their major client organisations for the past
50 years. Although other major construction companies have been active in the
international market over the same time, they are now having to restrategise their business
operations. Bovis is a singular example of this, with operations in over 30 countries
across the globe (Lampl,1999).
Although there have been a number of publications in recent years in which international
markets and the process of globalisation have been explored from the point of view of
individual countries and their construction companies, little has been written on the Asian
construction market. One singular exception is provided by Raftery (1998) who
considered recent developments in the Asian region and demonstrated three trends:
A) a larger private sector participation in infrastructure projects.
B) increasing vertical integration in packaging construction projects.
C) increased foreign participation in domestic construction.
Figure 3.
88 Torrance
These three factors are impinging on the Malaysian construction industry but it is
adapting, growing, maturing and exploiting these changes. With some back-up from the
Ministry of Works and the C.I.D.B., the Malaysian construction industry has rapidly
grown in its home market, has embraced privatisation and has vigorously spread out into
international markets across the globe. From a past count, Malaysian construction
organisations were active in 36 different countries (CIDB,1998). The value of the work
being carried out at that time is illustrated in Figure 3.
Governments and national economies are being steadily merged into large economic and
trading blocks, such as the E.U., NAFTA, ASEAN, EAEG and APEC. This is explored
in the writings of authors such as Wiseman (1996) and Dickens (1997), Globally, inter-
cultural comparisons and analyses are being carried out in support of international
business and social interactions. The first and probably the most important work was by
Geert Hofstede whose research lead to the publication of his important books “Culture’s
Consequences”(1980) and “Culture and Organisation” (1991) which are foundation
works in the quest for greater inter-cultural understanding. But much more remains to be
done.
Together with the growing international activity in construction there has been an
increasing awareness of the importance of better understanding cross-cultural
management. A great deal of study and research has been done into this important area in
recent times which has increased our understanding of such topics as the work ethics of
different cultures and the management of multi-cultural teams. Whereas East Asian
cultures are strongly related to Collectivism, Abbas Ali (2001) showed that the Islamic
Work Ethic is strongly related to Individualism. However, it has been well known for
many years that the best project managers are those who “can cross cultural boundaries”.
DEMOGRAPHIC CHANGE
The, so called, “demographic time bomb” has been the subject of serious close scrutiny
for many years as population growth has dropped and the aging population has increased
in major trading countries such as Japan, Singapore, the U.S.A and Europe. This will
bring about major changes in world trade and commerce. In a recent analysis (Economist
11/10/2003 ref. Figure 4) it was predicted that by 2036 the combined economics of
Brazil, Russia, India and China (BRIC) will surpass the economics of the G6 nations.
The most striking result is that by 2009 the annual increase in total dollar spending in the
BRIC group could be greater than in the G6. By 2025 spending could be increasing twice
as fast in BRIC.
Globalisation and trends in international construction industry 89
Figure 4. BRIC
Drucker (1998) identified seven major forms of change, each a source of entrepreneurship
opportunity in its own sight. The four most important of these changes all reside within
the enterprise itself, be that a business, an institution or a service sector:
• The first is the unexpected success (or failure) or unexpected outside event.
• The second is the incongruity between what actually happens and what is supposed
to happen.
• The third is the inadequacy in an underlying process that is taken for granted.
• The fourth is changes in industrial and market structure that catch everyone by
surprise.
Drucker’s three other well-springs of innovation that occur outside the enterprises are:
Although economic predictions need to be viewed with some caution, the forces of
demographic changes, economic growth, particularly in China and India, and the rapidly
growing regional co-operation through AFTA, EAEG, APEC and bilateral trade
agreements with Japan and China are undeniable. South East Asia, in particular, is facing
unprecedented opportunities.
The question is, are we, particularly in construction, doing enough to prepare for the
associated challenges and opportunities?
90 Torrance
REFERENCES
Abbas Ali (2001) Scaling an Islamic Work Ethic. Journal of Social Psychology,
128(5),575-583.
Bryan, L and Farrel, D. (1996) Global Capital Revolution, Markets Unbound, Unleashing
Global Capitalism. Wiley, New York.
Chartered Institute of Building (1965) Construction Management in Building – Present
and Future. Mortimer, London
CIDB(Malaysia) News. March 1999.
Cox, A. and Townsend, M.(1998) Strategic Procurement in Construction. Telford,
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COMPARISON OF SOME ASPECTS OF THE CONSTRUCTION INDUSTRY OF
NIGERIA AND THE REPUBLIC OF BENIN
S. D. H. ZANNOU
Almega B.T.P, OSB. P9061, Republic of Benin
ABSTRACT
The study sought to identify the various types of procurement methods, tendering
approaches, contract types and factors determining them in each country. Employing both
data and opinion-based information gathering method commonly used in studies in
international construction, a purposive sample of 12 construction industry consultants drawn
from the two countries each (N24), the study was able to observe very close similarities in
these aspects of the construction industry. The authors believe that transfer of construction
services across the international borders of these two neighbouring countries is imminent as a
result of the structural similarities in the contract types, tendering methods and procurement
systems, now that the geographical regional is advancing towards economic integration.
INTRODUCTION
The world has become a global village with the advent of information technology (IT). This
has affected transfer of services and products across international borders. The construction
industry is not left out. Strassman (1989) has indicated the value of studying international
construction practices. Studies of Edmonds and Miles (1984), Wells (1986), Fox (1990),
Walker (1990), Ogunlana,. Promkuntong & Jearkjirm (1996) are few examples of research
undertaken in the field of international construction. There is recent renewal of interest in the
study of international construction. European Construction Institute (ECI) is an example of a
body, which makes available, information on construction activities and services in the
European community. The studies are of value in international construction business deals,
in the European community.
92 Oyediran, Dada and Zannou
The operations in the construction industry of both countries stand to benefit from such a
study, as it is capable of initiating transfer of construction technology and services. It could
also open up areas of research for researchers interested in international construction across
the West African Coast.
It was discovered that in Francophone countries “the bureaux d’etudes carried out the
structural design and another firm (control et surveillance) is appointed to supervise the
works on site. The architect prepares all contractual details leading to the selection of the
contractor. He also selects the Structural Engineer. The client does not deal with the
Structural Engineer, but rather the “Ingenieur Counseils”, whose it is to carry out the control
and supervision (Emile 1979; Renaud and Letertre 1995; Ordonance n0 96/04, 1996; Bayon
1996 and Dumas 1982). In Nigeria, as well as in most other English speaking countries, the
architect has been the traditional head of the design and consultant team. He may or may not
recommend the appointment of other consultants. There is no independent consultant
controlling construction and supervision at the post contract stage, aspects as we have in
Republic of Benin. (Otobo, 1985; Iyagba and Idoro, 1995; Ayeni 1998, 1997).
The study aims at identifying the various types of procurement methods obtainable in both
countries. Thus we examine the methods of tendering available for various categories of
client groupings and also the contract types obtainable. The study further seeks to identify
those factors, which dictate the choice of the tendering methods and the contract types. The
outcome of the study will indicate the differences and similarities existing in procurement
methods and processes in the two countries.
Comparison of Nigerian and Republic of Benin construction industry 93
METHODOLOGY
The two countries are located in the sub-Saharan Africa, also in the West-African sub-
region. The two countries gained independence in 1960, though from different colonial
masters, which apparently accounts for structural variations in governance and commerce.
Politically the two countries operate democratic system of government. Nigeria is a leading
producer and exporter of crude oil, which constitutes the largest share of her revenue
earnings. The two countries are located on the same limestone belt, thus providing raw
materials for their industry. Nigeria ranks 10th while the Republic of Benin ranks 103rd in
the world population.
Studies in international construction have been adopting approaches used by Freeman
(1982), Edmonds and Miles (1984) , Strassman (1989), Skitmore and Marsden (1988) and of
recent by Oyediran (1998). This study relies heavily on opinion-based information. This
opinion-based information is obtainable from the consultants in the industry. The study also
benefited from the combined resources of the researchers, in data collection and knowledge
of each the countries (one being a Nigerian and the other a Beninoise), thereby minimizing
the problem of communication due to language barrier. The information used for the study
was obtained from two leading economic and commercial centers of both countries (Lagos in
Nigeria and Cotonou in Republic of Benin). The study used purposive sampling method. The
sample was drawn on 13 architectural consulting firms in Cotonou and 12 consulting firms in
Lagos. In all, 24 of the firms returned admissible response and these where used for the
analysis of the study.
A major instrument of the research design is a three-part, eighteen items questionnaire. The
parts are: Part 1:General – This part seeks general information that will enable the researcher
determine the admissibility of the respondent’s information, and Part 2: This part seeks
information on the methods of tendering, contract type, factors responsible for the choice and
criteria for adoption of a particular contract type across a spectrum of three broad types of
clients. Ordinal scaling was used adopting “Always”. ‘Mostly”, “Sometimes”, “Rarely” and
“Never” as the ranking intervals. Part 3 deals with project-specific information. This is to
corroborate the opinion-based information of part 2. It adopts an adapted Likert method to
measure the relevant responses. Relevant index was obtained using.
4 kini
Ii = ∑ Eqn.(1)
i =0 nk
where ki = Ranking of event I, and ni = Frequency of event i
The following events were attached the corresponding ranking: “Always” – 4; “Mostly” – 3;
“Sometimes” – 2; “Rarely” – 1 and “Never” – 0. The indices were further used to determine
the similarities or otherwise of the subject in question between both countries. The spearman
rank correlation coefficient, rs is employed to determine the correlation of the variable
between the countries. This is given as
6∑ d 2
rs = 1- Eqn.(2)
n (n 2 − n )
94 Oyediran, Dada and Zannou
Where
rs = Spearman Rank Correlation Coefficient;
d2 = Squared difference between the two ranks;
n = Number of objects being compared and
1 and 6 are theoretical constants.
Project specific questions were analyzed using descriptive statistics.
Our attempt at studying the various types of procurement methods obtainable in the two
countries dwelt on finding out information on types of tendering and contract types. The
tendering types were also examined on three broad categorization of client types:
Government (Public) Clients; Private (Companies) Clients and Individuals (Private) clients.
Literature itemizes three commonest forms of tendering: Open tendering, Selective tendering
and negotiated tendering. Oyediran (1995) identified a variant of open tendering, while
Ayeni (1997) discussed other variants of selective and negotiated tendering.
There is a perfect positive correlation (+1) between the uses of open tendering as a tendering
method in both countries. For all categories of clients, the indices for Nigeria are higher than
Benin Republic’s. It is obvious also that the public sectors of both countries have very strong
preference for open tendering as a means of initiating the procurement process of their
construction projects.
Government uses selective tendering, but not pronounced as corporate bodies in both
countries. The Spearman ran correlation coefficient of +1 is an indication of perfect positive
association or similarities in both countries. The index obtained from the Nigeria data is
averagely higher than that for the Republic of Benin. The result also indicates that private
clients in both countries are not as disposed to using selective tendering as the corporate
bodies and the government. In both countries the index of the frequency of use is below the
average (0.50).
It was desirable to know, from the experience of the respondents, what they considered as the
most commonly used tendering methods for various categories of clients they have been
involved with over the years. Table 4.0 shows the distribution.
Table 4.0 indicates the similarities in tendering methods for both countries.
We also examined the respondents on on-the-job project information. Table 5.0 shows that
open tendering is the commonest type of tendering in both countries. There appears to be no
significant difference between the percentage values obtained for selective tendering and
Negotiated tendering in Nigeria. For Benin Republic, the percentage values obtained for
selective and negotiated tendering are not the same but are close by less than 10%, to suggest
96 Oyediran, Dada and Zannou
that there is no significant difference also. As tables 1.0-4.0 all combined suggest,
government as is generally known to be the largest client of the construction industry,
employs open tendering in most of her projects. In Nigeria the index for open tendering is
0.81, 0.71 for selective tendering and 0.73 for negotiated tendering. The corresponding
values for Republic of Benin are 0.75, 0.63 and 0.71 respectively.
The criteria for the adoption of a tendering method were also of relevance. Table 6.0
shows that ranking index for the specified criteria.
While time is of essence in the choice of tendering method in Nigeria, input from the
contractor is of essence in the Republic of Benin. Time criteria is a characteristic of private
sector project, while knowledge of the design team about available contractors favours both
open and selective tendering methods. The input from contractor criteria tilts towards
negotiated tendering. Even though the spearman rank correlation coefficient is positive, it is
not high enough to suggest strong similarities between the two countries criteria for choice of
tendering method. Going by this result, variants of open tendering and negotiated tendering
are practical options that practitioners may be adopting.
PROCUREMENT METHODS
Going by Skitmore and Marsden (1988) and Frank’s (1984) review of procurement methods
being used in the construction industry, we undertook to discover which of them are being
used in both countries and the degree of their use (see Table 7.0). Other procurement
methods common to the Nigeria Construction market is the labour only by individual private
clients and direct labour by public (government) clients. However, attention was not given to
them due to the fact that external consultants are seldom involved in such projects.
Comparison of Nigerian and Republic of Benin construction industry 97
Table 7.0 clearly shows that the traditional method, which is based on standard forms of
contract, with minimal contractor’s input from inception, is the commonest in both countries.
There is high degree of similarities between the procurement methods in the countries as the
high spearman rank correlation coefficient of 0.95 indicates. These similarities offer
prospects for transfer of construction services in both directions.
How do clients and construction allocate their construction desire and business risks? The
risk allotment is indicated by the contractual arrangement methods adopted. The picture
painted in table 80 is indicative, while table 10.0 shows the result of the opinion of the
consultants on the frequency of their adoption.
Cost reimbursable contracts seem to be unknown in the Republic of Benin. As table 8.0 and
9.0 indicate, there are similarities between the contractual types used in the two countries as
corroborated by the value of the spearman rank correlation coefficient (rs= 1).
98 Oyediran, Dada and Zannou
Companies prospecting transfer of their services may be interested on what determines the
selection of contractors for award of contracts. Our finding is shown in the following table
10.0
. INDEX OF IMPORTANCE
Nigeria AVERAGE
Republic of Benin
Govt. Companies Individuals Gov. Project Companies Individuals Niger Rep. Of
project (Private) (Private) (Public) (Private) (Private) ia Benin
Tender Sum 0.82 0.56 0.81 0.82 0.77 0.67 0.83 0.75
Contractor’s 0.90 0.85 0.68 0.68 0.50 0.35 0.81 0.51
reputation
Prime 0.44 0.32 0.29 0.71 0.77 0.57 0.35 0.68
Financial
position
Completion 0.51 0.56 0.67 0.43 0.45 0.02 0.58 0.30
period
Previous 0.43 0.31 0.33 0.27 0.15 0.58 0.35 0.33
business
relationship
Personal 0.39 0.61 0.67 0.08 0.37 0.82 0.55 0.42
connection
As shown in tables 11.0 and 12.0, there are two most important criteria for selection of
contractor for award of contract in Nigeria. These criteria are (1) Tender Sum and
(2) The Contractor’s reputation.
However, in the Republic of Benin, the two most important criteria are (1) Tender sum and
the Contractors Prime Financial position.
The Spearman rank correlation is positive. However the similarities between the criteria for
selection adopted by each country is inconclusive. It is noteworthy to observe that personal
business connection ranks very high in individual (private) client project.
Comparison of Nigerian and Republic of Benin construction industry 99
SUMMARY
Nigeria gives preference to contractor’s reputation. This suggests desire for technological
ability. The Republic of Benin clients give preference to the contractor’s financial standing.
These seem to show that each of the countries attaches different criteria for the expected
performance of their selected contractors.
CONCLUSION
Transfer of construction services between the international borders of these countries may
not pose much problem to practitioners. The learning period may not be long, by reason of
the observed similarities. However cultural factors and economic environment seems to play
key roles in the criteria for selection of contractors.
This study has not probed into the legal environment for entrance into the market of
each country. This may be a subject of further research. The possibility of ease of transfer of
construction services between the international borders of Nigeria and Republic of Benin is
high. However, further examination of the effect of cultural and economic environment on
contractors’ business strategy need to be carried out.
100 Oyediran, Dada and Zannou
REFERENCES
Oyediran, O.S. (1998) Construction Industry Scenario in Nigeria and Benin Republic.
Unpublished Seminar paper, department of Building, University of Lagos
Raftery J.; Pasadilla, B. Chiang, U.H. Hui, E.C.M and Tang, B. (1998). Globalisation and
Construction industry development: implications of recent developments in the
construction sector in Asia. Construction Management and Economics, 16, 729 –
737.
Renaud, N. and Letertre, F. (1995) Terminologies des dossiers dapple d’offre, Paris: Foucher.
Strassmann, W.P. (1989) “The Rise, fall and Transformation of Overseas Construction
Contracting”World Development, 17(6), 738-794.
Skitmore, R.M and Marsden, D.E (1988) “Which Procurement System? Towards a universal
Procurement Selections Technique”. Construction Management and Economics, 6(1),
71 – 89.
Walker A (1990) “Management of Urban Construction in Developing Countries – China’s
Experience” Proceedings of International Construction Conference in Australia. 225
– 243.
Wells, J. (1986) The Construction Industry in Developing Countries: Alternative strategies
for Development, London: Groom Helm.
102 Oyediran, Dada and Zannou
GLOBALISATION AND PRIVATE INFRASTRUCTURE INVESTMENTS IN
EMERGING MARKETS
LUCY CHEGE
CSIR Building and Construction Technology, P.O. Box 395 Pretoria 0001, South Africa
lchege@csir.co.za
ABSTRACT
The budgets of many emerging economies are overstretched by competing claims on the
available resources, with major implications for infrastructure and service delivery. This
is a serious predicament particularly in poorer emerging economies where inadequate
infrastructure imposes huge constraints on sustainable development. To augment the
public sources of funding for infrastructure investment, several of these countries are
developing various schemes that will enable the utilization of private financing from both
domestic and international investors. Domestic sources of financing may be limited in
these countries, and globalisation appears to offer a window of opportunity for tapping
private capital for infrastructure investment.
Despite the above benefit, it is argued that globalisation has brought a mixed basket of
hope and disillusionment to emerging markets. On the one hand, there is the euphoria
that comes with increased private capital inflows and market access, and on the other,
there is disenchantment with the negative consequences of certain forms of foreign
investment. The financial crises that occurred in Asia and Latin America are cases in
point. These apparent contradictions have severely heightened the fears of globalisation
harboured by emerging markets. Nevertheless, it is argued that globalisation can have a
positive impact and that the onus lies on emerging economies to develop and adopt the
strategic measures necessary to manage the process of globalisation to their advantage,
subsequently to benefit from increased capital flows into infrastructure investments.
BACKGROUND
There is a critical need for an alternative model for infrastructure financing in emerging
economies. This need is predicated upon the urgent desire for effective and efficient
infrastructure and service delivery sufficient to make material differences to the lives of
many impoverished citizens. Given the low domestic capital base of many emerging
104 Chege and Ebohon
economies, caused by a very low savings rate, foreign direct investments are increasingly
seen as a possible bridge. This is particularly the case given that the rapidly unfolding
process of globalisation seems to have reduced the world to a global village, minimising
the incidence of externalities and market failures. Access to information and goods and
services has increased. The resultant global competition has positive impacts on
economies of scale, to the benefit of consumers through lower overall costs. Whilst
unfair trade practices and catastrophic financial crises have been closely associated with
the globalisation process, there is the belief that the process can be effectively managed
towards desirable objectives.
For the emerging economies, globalisation has presented daunting challenges. The
volume and volatility of capital flows has increased the risks of banking and currency
crises, as well as costs (World Bank 1999 in Yusuf, 2001). Examples of currency crises
were seen in Latin America and Asia. Production and trade is increasingly dominated by
transnational corporations using the options afforded by globalisation to their own best
advantage (Yusuf, 2001). The subject of globalisation has attracted numerous emotional
responses, and eminent scholars such Joseph Stiglitz, the winner of the 2001 Nobel Prize
in Economics, have raised some serious concerns.
The main source of discontent can be found in the pressures mounted on the developing
countries by the developed countries to dispense with trade barriers and other restrictive
trade practices under the guise of globalisation and free trade, while imposing formidable
trade barriers on exports from developing countries. Stiglitz (2003) discusses the latter
issue in some detail. Developing countries have been denied access to markets through
sophisticated tariff structures and administrative measures. The results are increasing
dependence on multilateral financial assistance. The exorbitant proportion of gross
domestic product devoted to debt servicing has heightened the suspicion of developing
countries and fuelled resistance to globalisation. Nevertheless, it has become apparent
that the process of globalisation is unstoppable, which means that developing countries
have to adopt policies that will enable them to benefit from it while minimising the
drawbacks.
INTRODUCTION
The construction industry plays a significant role in any economy, but it is dependent on
other sectors of the economy which are susceptible to the globalisation process. As a
result, the construction industry is affected by globalisation in varying ways that may not
have been fully explored. In a review of globalisation and construction industry
development, Raftery et al (1998) argue that some of the possible negative implications
of globalisation are that:
• There is a danger that local industries which support the construction sector could be
stifled, crippling the competitiveness of the domestic construction industry.
• The internationalization of construction favours countries with advanced construction
industries. This is manifested in the trend that pure contracting is usually no longer a
viable option in construction projects; new construction procurement arrangements are
preferred. The involvement of lesser developed countries in foreign construction projects
is thus constrained, except perhaps in the area of labour deployment, and even then, this is
Globalisation and private infrastructure investment in emerging markets 105
usually at the much lower end of the value added construction process where relatively
little in the way of skills is expected.
• As the international construction industry is concerned mostly with large-scale
construction, only large and technologically qualified contractors are allowed to enter into
overseas contracts. The prequalification requirement in bidding procedures of foreign
construction projects precludes the participation of medium-sized operations or those in
pure contracting. To be able to qualify, a firm must demonstrate that it has previously
secured a certain amount of contracts of comparable magnitude and complexity.
Ofori (2000) further elaborated on the analysis of Raftery et al (1998). Through citing
various authors, he drew attention to the impacts of the globalisation process, including
the loss of business opportunities for local firms (Ofori, 1996) and the loss of confidence
in local firms (Hillebrandt, 1999). This could probably be attributed to the lack of
competitive strength of local firms relative to the elaborate technological and managerial
capacity of global firms. Nevertheless, some positive impacts of globalisation have been
cited by Ofori (2000), including the impact on national development objectives through
the completion of sophisticated projects which are impossible with local contractors
(Drewer, 1980) and business opportunities for local contractors through subcontracting
and strategic alliances (Ofori, 1996). These opportunities could be beneficial to local
contractors given an appropriate production function.
This paper does not attempt to exhaust the complex debate around the pros and cons of
globalisation; instead it focuses on the responses that developing countries must adopt to
minimise the negative impacts of the globalisation process. The objectives of this paper
are thus to:
The possibility of fulfilling these objectives has been gauged by undertaking an analytical
review of the amounts and impacts of global capital flows into infrastructure investments
in emerging economies. The major contribution of this paper to the globalisation debate
has been the departure from the macro approach in favour of an industry approach. The
rationale being that such a micro understanding of the globalisation process lays a better
foundation for the much wider aggregate or macro analysis and strategies.
At this juncture it is perhaps useful to distinguish foreign direct investment (FDI) from
other capital flows. Several authors have identified capital flows with the biological
106 Chege and Ebohon
It is argued that the flow of FDI as ‘good cholesterol’ is driven by numerous factors.
Furthermore, it has also been argued that the drivers of investment in particular sectors of
the economy are diversification benefits, risk and return, the regulatory framework, and
industry analysis (Chege, 2003). Ramamurti and Doh (2004) classify the drivers as
industry level and country level, and argue that infrastructure FDI boomed in the 1990s
due to several beliefs explained as follows.
• Industry level drivers. Ramamurti and Doh (2004) argue that there was the belief
that:
o Irastructure sectors were losing their “natural monopoly” characteristics and
hence the need for government regulation;
o first-movers would profit handsomely from the resulting globalisation of
infrastructure sectors;
o new financing techniques would limit the Multinational Corporation’s
(MNC’s) risks;
• Country level drivers. For these drivers, Ramamurti and Doh (2004) argue that there
was the belief that:
o the climate for infrastructure FDI in developing countries had changed
qualitatively for better in the 1990s; and, finally
o host developing countries were no longer likely to expropriate foreign
infrastructure assets, as they had in the past.
In addition to the above, this paper identifies three other FDI drivers, namely the
investment objectives of investors, performance of the stock market, and the nature of
corporate governance.
The investment objectives of the investor are significant to the investment decision-
making process. Strong (2003) discusses four main investment objectives, namely
stability of principal, income, capital appreciation and growth of income. These
objectives have a direct relationship with the degree of risk that the investor is willing to
undertake. For example, Zoukis (2004) highlights that the Germans purchased close to
$4 billion in US real estate in 2003. An historical aversion to the US stock market,
coupled with a conservative investment style and patient-money mentality, make their
continuing investment in this sector a safe bet.
In recent times, the declining trend in stock market returns has also been an important
driver of capital into alternative investments such as infrastructure and real estate; it can
be argued that globally, real estate has also become a safer investment when compared to
equities. Ernst and Young (2004) have stated that “large global funds have shown
significant interest in investing in real estate assets on a globally diversified basis. Three
years of tremendous losses in the equity markets have further intensified the interest in
global real estate investment opportunities.”
Globalisation and private infrastructure investment in emerging markets 107
With the recent financial scandals in major corporations, investors are also becoming
increasingly concerned about good corporate governance. The Organization for
Economic Cooperation and Development (2004) holds a similar view and states that the
relationship between corporate governance and the increasingly international character of
investment are of particular importance. Furthermore, international flows of capital
enable companies to access financing from a much larger pool of investors.
Since the 1990s, the capital flows into infrastructure have increased dramatically in most
regions, for various reasons. According to Ramamurti and Doh (2004), FDI flows to the
infrastructure sectors of developing countries in the early 1990s represented one-third of
all capital flows. Sader (2000) states that between 1990 and 1998, developing countries
received an estimated US$138.3 billion in FDI inflows directly through private
infrastructure investments, representing over 17% of total FDI commitments in the
developing world.
Figure 1 presents a regional pattern of FDI flows to infrastructure, from which it is clear
that Latin America and the Caribbean had the greatest share of infrastructure FDI flows
between 1990 and 1998.
25
20
US$ billions
15
10
0
1990 1991 1992 1993 1994 1995 1996 1997 1998
East Asia and Pacific 0.24 0.29 1.03 1.64 2.04 2.86 3.87 4.40 2.57
Europe and Central Asia 0.03 0.10 0.17 0.35 1.17 2.98 3.68 5.59 4.00
Latin America and the 2.21 4.74 4.87 5.19 6.67 6.60 9.44 16.84 22.12
Caribbean
Middle East and North 0.14 0.09 0.01 1.13 0.45 0.11 0.20 2.96 2.43
Africa
South Asia 0.07 0.11 0.01 0.19 0.74 0.75 2.71 4.13 0.57
Sub-Saharan Africa 0.01 0.00 0.02 0.02 0.49 0.60 0.97 2.40 1.33
In 1995, FDI slowed down a little in the region but there was a significant increase in
1996. The Asian financial crisis caused a dramatic decrease in investment in East Asia
and the Pacific after 1997. After 1997, the financial crisis also had a large role to play in
the dramatic decrease in investment in all the regions except Latin America and the
Caribbean. After the crisis, the surviving resources for private infrastructure were mainly
dedicated to projects with political risk insurance or guarantees from multilateral
development banks (Izaguirre and Rao, 2000).
In assessing the impact of the increased private capital flows depicted in Figure 1, this
paper argues that private capital flows have had a major impact in terms of fiscal
expansion, the extension of services and efficiency. This paper also highlights that
distinguishing between the impacts of private domestic capital and private foreign capital
is complex because of the difficulties in obtaining disaggregated data.
FDI flows have led to fiscal expansion. It is highly likely that privatisation in many
countries has bolstered government revenue in three respects. Firstly, money previously
devoted to the kind of infrastructure now provided by the private sector could be diverted
to other competing areas of the economy. Secondly, governments’ revenues should have
also risen through tax charges on the infrastructure services provided by the private
sector. Thirdly, through various procurement systems associated with FDI flows, such as
build-operate-transfer (BOT), where the private sector is not only responsible for
financing the infrastructure but also for operations and management, there should be
improvements to cost recovery for services rendered. One of the major constraints on
infrastructure provision and replication is the low scope for cost recovery owing to
increased resistance to service payments. This is because of the perception that public
services should be free of charge even to those who can afford to pay. Therefore, the
significance of cost recovery to infrastructure provision in many emerging economies
should not be under-estimated.
It is also argued that there has been extension of services across the procurement value
chain due to FDI flows into infrastructure. The use of FDI in BOT-type of contracts has
ensured that there is sufficient investment to cover the provision of services throughout
the service delivery lifecycle. Due to the long-term nature of these contracts, there is a
guarantee that service levels will be maintained at optimum levels specified and
infrastructure assets will not be subject to dilapidation due to lack of maintenance; as
often is the case particularly when budgets are constrained. In addition, the use of BOT
type contracts has also resulted in efficiency gains. There is a growing body of evidence
on the impact of private participation, revolving around the issues of increased
efficiencies as a result of private sector participation. Some examples of increased
efficiencies are provided by Harris (2003), who states that Borlotti et al (2001) found that
31 privatized telecommunications companies in 25 developed and developing countries
Globalisation and private infrastructure investment in emerging markets 109
saw significant improvements in operating efficiency. Harris (2003) also states that
Estache and Kouassi (2002) found that water companies in Africa were more efficient
than public ones.
In adopting a strategy to cope with the above challenges, one of the major stumbling
blocks for the construction industry is that the global markets for infrastructure and real
estate are not homogenous. This implies that some markets are more robust than others
and as a consequence remain the dominant direction of FDI flows. Nevertheless, in
response to the challenges to FDI flows presented in this paper, some strategic decisions
that might be taken by developing countries to attract FDI into infrastructure investment
are as follows.
This paper highlights that FDI capital flows into infrastructure have increased since the
1990s. The paper argues that these capital flows have been driven by various factors
namely, industry and country level factors, the investment objectives of the investor, the
trends in the stock market and corporate governance requirements. The analysis in this
paper suggests that FDI could provide opportunities for financing infrastructure
investments in the developing countries to augment dwindling government revenues. The
paper highlights that FDI could continue to have several positive impacts through fiscal
expansion, extension of services and efficiency. The managerial and technological skills
transfer that accompanies FDI could ensure efficiency and effectiveness of infrastructure
production and delivery. However, the paper strongly argues that FDI does not flow in an
institutional vacuum; it requires effective domestic economic strategies in order to
provide the intended benefits.
110 Chege and Ebohon
REFERENCES
T. WATANABE
Frontier Engineering Course, Kochi University of Technology, Tosayamada-cho, Kochi,
782-8502, Japan. watanabe.tsunemi@kochi-tech.ac.jp
ABSTRACT
In public procurement pursuing economy and procedural fairness are common issues in
many countries; thus, they can be called “global” goals. However, solutions to these goals
are not unique. Especially in construction each country has its own local history and
culture. In discussing reform of the public works bidding process; therefore, it is
indispensable to have “glocal” viewpoints, that is, the both global and local ones. A
certain framework or a “governing equation” is also needed to represent these “glocal”
viewpoints.
In this paper, characteristics of competitive bidding of public works in Japan and the U.S.
are studied and compared. These findings are then interpreted along with a trust theory.
An attempt is also made to develop a draft of the above framework. Finally, with the
developed framework, a direction of the Japanese bidding process is proposed.
Conventional bidding processes in Japan and the U.S. form systems that can be called
“assurance systems” and “competition systems,” respectively. But each has its own
problems. Japan needs to develop a new type of social intelligence, and the U.S. needs to
cultivate a sense of mutual trust. These directions were derived from the developed
framework. To develop the new type of social intelligence in Japan, it is needed to make
the bidding a place for “the battle game” between the public and the private sector.
INTRODUCTION
In public procurement pursuing economy and procedural fairness are common issues in
many countries; thus, they can be called “global” goals. However, solutions to these goals
are not unique. Especially in construction each country has its own local history and
culture. In discussing reform of the public works bidding process; therefore, it is
indispensable to have “glocal” viewpoints, that is, the both global and local ones
(Watanabe 2003). A certain framework or a “governing equation” is needed to incorporate
these “glocal” viewpoints.
In this paper, characteristics of competitive bidding of public works in Japan and the U.S.
112 Watanabe
are studied and compared. These findings are then interpreted along with a trust theory.
An attempt is made to develop a draft of the above framework. Finally, with the
developed framework, a direction of the Japanese bidding process is proposed.
The purpose of this section is to introduce the structural theory of trust proposed by
Yamagishi (Yamagishi 1998) and to explain four keywords of this theory: social
uncertainty, trust, assurance, and opportunity costs.
A situation with the social uncertainty is defined as the situation in which one has a loss if
the other acts selfishly (Yamagishi 1998). The social uncertainty influences the way each
business transaction is made. For example, Kollock explains this theme using examples of
the transaction of rice and row rubber. The social uncertainty associated with transaction
of rice is low. That is, it is impossible for the buyer to completely grasp quality of the
rubber at the time of its purchase. The transaction of rice is made among unspecified
players in the market (Kollock 1994).
In the case of commodity with high social uncertainty, transaction with trust or assurance
is needed. Yamagishi explains “trust” as “one’s expectation that the other does not have
an intension to exploit oneself based on one’s evaluation of the other’s personality and the
other’s emotion toward oneself when the social uncertainty exists” (Yamagishi 1998).
Thus, one way to deal with this social uncertainty is to trust the other party in transaction.
In the case of rubber transaction with high transaction, however, buyers make transactions
with particular rubber producers with whom a long-term commitment relationship is
developed. By forming this commitment the both parties judge each other that the other
has no reason to exploit oneself. Yamagishi claims that the “assurance” is developed from
judging that the social uncertainty does not exist.
Although to obtain the assurance by developing a long-term commitment has the benefit
of eliminating the social uncertainty, it has a side effect: giving up additional benefits that
would be obtained by doing the business with a new party. These sacrificed benefits are
called the opportunity costs.
The reason for developing the discussion based on the structural theory of trust is that the
social uncertainty associated with construction business transaction is high. Especially in
Western countries where the client and the contractor tend to be in an adversarial
relationship, studies on trust have been important issues in construction production. This
concretely shows how high the social uncertainty associated with construction is and how
much western practitioners and academia have been “struggling” with it.
Although the Japanese construction industry had been enjoying assurance as described
later, a criticism that the opportunity costs are high is becoming stronger.
Framework for public procurement system reform under “Glocalization” 113
Figure 1 represents recent competition situations of public works in the U.S. The level of
infrastructure development and management has reached a certain level in the U.S. Thus,
American public are very much concerned with how effectively and efficiently tax is
spent for infrastructure development and management. This concern becomes the
requirement for the public client to achieve a significant cost saving for public works,
which is represented with the thick left-to-right arrow. The prime contractor must bid
under this saving requirement.
Stock value↑ Sub.
Client(Engr.) Project-based cont-
employment Union rac-
Price tor
Prime Prime
esti- From public cont- S
ma- contractor ractor Sub- i
tion price↑ con. t
Owner Bid- -total price Project e
price
D price↓ ding -unit price mgt. ↑ W
e & -schedule -time o
s Design claim -cost Re- r
i docu- Function -quality sour-
g
n ments ce k
Public works competition is a
Design “battle game” between
(Design price↓ desire from public and
Engineer) price↑ desire from contractors!
The bid price of the prime contractor is made based on subcontractors’ prices, which are
often influenced by strong unions. Since the most important administration principle of
the contractor is to secure target profit as well as achieving high stock value, the
contractor’s bid should be high enough to bring sufficient profit. Desires to achieve high
wages for the union and high profit for the contractor are represented with thick
right-to-left arrows, respectively. Thus, the public works competition in the U.S. is
considered a “battle game” between the price down requirement from the public and the
price increase desire from the private sector.
As depicted in Figure 2, the competitive bidding rule of public works in the U.S. can be
clearly defined as “competition of the lowest price to fulfill the requirement specified by
the design documents given target profit and project staff through productivity
improvement” (Watanabe 2003 and 2004). The project management systems, systematic
methods of making a construction plan, developing an appropriate organization,
monitoring the progress and the actual cost, and taking a corrective action whenever
needed, play a crucial role in improving the site productivity. The information collected
and analyzed through the management systems also becomes a logical and quantitative
evidence for a claim submitted by the contractor. The progress payment method becomes
114 Watanabe
a foundation of the project management systems and the whole public works systems.
The bidding competition rule of the U.S. is considered to systematize the whole public
works implementation procedure. Appropriate application of this rule enables the public
to save the construction cost, the contractor to secure the profit, and the worker to obtain
high wage. Here we call these systems “competition systems.”
To maintain the competitive ground, a certain level of efforts to reduce the social
uncertainty is needed to prevent contractors from “cutting the corner.” Rules to avoid
contractor’s abuse and public client’s abuse have been implemented in the U.S.
In the U.S., thus, reduction of both the opportunity costs through promoting bidding
competition and the social uncertainty through preventing client’s abuse are important
General competitive bidding has been playing an important role in achieving the both.
Framework for public procurement system reform under “Glocalization” 115
Furthermore, the ceiling price, the price estimated by “almighty” public engineers using a
profound cost estimation system, has been recognized to be “true.” As represented with
the word of “ceiling,” the ceiling price also becomes the highest allowable bid price. Thus,
the ceiling price has influenced the contractor’s bid price very much.
Being different from the administration principle of the U.S. contractor, the general
principle of the Japanese contractor is to achieve its high turnover rather than high profit.
The high turnover has been crucial in maintaining the lifetime employment system and a
high rank, which restricts the size of a project for which the contractor can bid,
determined based on the business evaluation score process, a Japanese PQ process, with
high weight associated with the value of works completed.
High priority on the turnover makes bidders’ attitude “passive:” they are usually ready to
accept a project whenever they have to do so regardless of the profit margin. When the
“Dango” is formed, a combination of rotational and complementary bidding, the ceiling
price usually becomes the target contract value. When this is not formed, the lowest
allowable price becomes the target contract value.
In Japanese public works the designated competitive bidding had been used for most of
projects though the general competitive bidding should be used in principle. In reality,
furthermore, all designated bidders have been jointly guaranteeing project completion
through the Dango. The commitment relationship developed by the designation and
Dango have virtually reduced the social uncertainty to zero and provided assurance to the
public clients and the prime contractors. Mutual cooperative relationship between prime
contractors and subcontractors is also nothing more than the commitment relationship and
has also provided assurance to the both parties.
The U.S. competition systems are not almighty. Promotion of price competition seems to
put the contractor and the public client in an adversarial relationship. In the U.S.
construction industry there is a self-questioning such as “the attributes of honor, integrity
and pride in workmanship have been replaced with confrontation, claims, delayed
projects, cost overruns and a host of other problems that render all parties less than fully
effective. Some firms employ more attorneys than engineers, and “claims” seminars for
both owners and contractors proliferated” (Warne 1994).
Limiting the public client’s discretion reduces the social uncertainty through preventing
an untrustworthy contractor from being selected through favoritism. However, strict
application of this limiting rule also might have increased the social uncertainty because it
has left a possibility for an untrustworthy contractor with the poor performance record
such as bad claim record from being selected.
Thus, reduction of the social uncertainty becomes an urgent issue in the U.S.
Crux of the Japanese assurance systems is in reducing the social uncertainty. Recently,
however, two noteworthy environmental changes, which make the conventional assurance
systems it difficult to function, are occurring.
As a result of the second change, the assurance between the public client and the prime
contractor and that between the prime and subcontractors are lowering, and the assurance
systems themselves are facing a danger in crumbling away. The second environmental
change shows a possibility that the social uncertainty sharply increases.
In Japan it is being recognized that the opportunity costs associated with the conventional
assurance systems are high. Furthermore, implementation of new measures to suppress
the social uncertainty is required. In the U.S., reduction of the social uncertainty is
required.
Public works systems should go through evolution whenever needed. As shown in Figure
4, directions where the two systems should head are the reduction of social uncertainty
and opportunity costs. This goal is considered a global goal; however, paths to the goal
are local, that is, different from country to country.
Functions of
Social the systems
Uncertainty U.S.
Japan
Local
paths
Global goal?
Opportunity Cost
Figure 4 Global Goal of Public Works Systems and Local Paths to it in Japan and the U.S.
According to the structural theory of trust, under the situation in which the both social
uncertainty and opportunity costs are high, there exists a possibility that a “high trustful
person” obtains a large profit than a “low trustful person.” Here, a “high trustful person”
is defined as the person with “high general trust,” which represents a tendency to trust
other people (Yamagishi 1998).
118 Watanabe
Yamagishi addresses the key measures to deal with the situation in which the both social
uncertainty and the opportunity costs are high as follows: i) to acquire trustworthy, honest,
and fair humanity, ii) to trust goodness of humanity of other people in general, iii) to
develop “social intelligence” to assess trustworthiness of other people, and iv) to make
the above three measures work simultaneously. Yamagishi also emphasizes that the
general trust is nothing more than the confidence to deal with relationship with other
people based on the “social intelligence” (Yamagishi 1998).
Focusing on the public clients, reform implied from the trust theory are that they should
a) enhance their trustworthiness, b) develop the “social intelligence” to assess
trustworthiness of bidders, and c) deal with bidders with trust and confidence.
Table 1 shows evaluations and issues of systems reform of public works in Japan and the
U.S. The gray areas are where change is needed.
Generally a level of public’s trust towards the government is low in the U.S. The public
client is required to reduce the opportunity costs by promoting the bidding competition
from the public. Achieving the low opportunity costs and accounting it to the public are
important means to restore and maintain the client’s trustworthiness.
Limiting the client’s discretion is another measure to restore and maintain the trust;
however, this had left a possibility for an untrustworthy contractor with poor past
performance to be selected, which might have increased the social uncertainty.
The U.S. competitive bidding rule, competition of the lowest price to fulfill the
requirement specified by the design documents given target profit and project staff
through productivity improvement, becomes the social intelligence. Practice of process
management such as employment of progress payment method and project management
systems also functions as the social intelligence.
Framework for public procurement system reform under “Glocalization” 119
However, lack of trust among project parties becomes a fundamental reason for cost
overrun, project delay, and quality deterioration. The partnering scheme to cultivate
senses of trust and unity among project parties are being introduced for not only public
construction projects but also defense and private construction projects. Developing
senses of trust among parties is one of the most important issues in the U.S.
The Japanese public clients have been devoting themselves to reducing the social
uncertainty. This has been a source of their trustworthiness; however, their efforts to
reduce the opportunity costs have been limited. The key issue is how clearly the public
clients can be aware of importance of lowering the opportunity costs. The client
responsibility, which has been intensively discussed for the last several years, should be
steadily fulfilled.
A fundamental cause of the weakening of the assurance systems is that the conventional
Japanese competitive bidding rule does not work any more. This rule is defined as
selection of the contractor to minimize the transaction costs for the client to fulfill the
client’s requirement. Here the transaction costs include product specification costs,
contract selection costs, contract performance monitoring costs, and so on. But this rule
works only when a sufficient amount of works is available. Redevelopment of the social
intelligence is urgently needed.
In Japan, many practices with assurance have been observed. Attitude of all project
parties to give the first priority to project completion even when a conflict occurs among
parties and frequent information exchange between the public client and the contractor
are typical examples. It is questioned, however, whether these practices can be continued
while the construction investment is expected to decrease continuously.
A main component of the assurance systems is “receiving” and “sending” the bid price
information unilaterally from the public client through a prime contractor and
subcontractors to workers. This component works well when a sufficient amount of
works is available because each price can be kept high enough. But there has existed a
latent problem: each party in the private sector does not seem to have a sufficient ability
to develop its own price. When the volume of works decreases, thus, this lack of price
development custom or ability brings undesirable situations. Bid prices concentrate in the
vicinity of the lowest allowable price if there is any or go bottomless otherwise.
A lesson obtained from the U.S. systems is that the competitive bidding is actually a place
for the public and the private sector to “battle.” By introducing elements of the “battle”
game with respect to cost and technology, a new social intelligence should be developed
of accepting and appraising the contractor’s price and technical proposal.
In order to realize the “battle” game, at least three issues should be carefully discussed:
development of “foundations” for the private sector to battle, flexible development and
120 Watanabe
To secure payment for the subcontractor and worker, improvement of labor productivity
is needed. In order to achieve it, flexible development and application of construction
technology is needed.
There exists, however, one constraint to hinder it: auditing. Auditing often requires the
public client that the construction process should be exactly the same as conditions
described by the specification. This requirement often makes the public client respond
excessively to the auditing. A most typical example is the issue of “arbitrary temporary
works.” This works, which the contractor is entitled to do at his/her own discretion, are
often recognized as “specified temporary works.” This rigid auditing and client’s
excessive response hinders submission of a creative proposal from the contractor and,
thus, realization of the battle game between the client and contractor.
New systems should be redesigned and applied such that the client is encouraged to
enhance the knowledge on “hard construction technology” and managerial capability and
to “battle” with the private sector in these fields. This technological and managerial battle
for the client with the private sector is the key for systems reform consisting of restoring
his/her own trustworthiness, developing and applying new social intelligence, and
restoring assurance or developing a sense of mutual trust among project parties
CONCLUSIONS
Reduction in the both social uncertainty and opportunity costs is considered a “global”
goal in design and reform of competitive bidding systems. However, paths to this
“global” goal can be local, that is, different from country to country. General principles
for the public clients to achieve this goal are tentatively summarized as a) enhancing their
trustworthiness, b) developing the “social intelligence” to assess trustworthiness of
bidders, and c) dealing with bidders with trust and confidence. In reform of the Japanese
Framework for public procurement system reform under “Glocalization” 121
assurance systems, more encouragement of technological and managerial battle for the
client with the private sector becomes the key.
REFERENCES
ABSTRACT
INTRODUCTION
The bulky nature of the construction industry has made it essentially a local industry for
which the bulky materials used in the various constructed structures are locally sourced,
heavy equipment/plant locally arranged and labour locally recruited. The history of the
CI indicates that construction was a local enterprise in the pre-industrial ages and
different communities developed different construction methods and structures depending
on local conditions. However, during the middle ages, there were deliberate attempts by
different communities to learn the construction methods of one another through, for
example, the concept of journeyman as employed by master builders. Moreover, when a
community invaded and occupied another community, which was a common
phenomenon during this period, the supplantation of the construction methods of the
occupied community by those of the occupier usually ensued.
124 Ngowi, et. al
The advent of means of transporting bulky materials and movement of finances between
different regions of the world that was ushered in by the industrial revolution enabled
construction services to be exported from one region to another. This marked the early
phase of the globalization of the construction industry. With the introduction of easy
means of communications, which is the hallmark of the current information society,
coupled with deliberate protocols such as the World Trade Organisation (WTO) that
encourage cross-border transactions, the globalization of the construction industry has
entered a new phase that affect the CIs of all countries in one way or another. In the new
phase of the globalization of the CI, the barriers that once protected “local” industries
from competition are no longer valid. Whether a construction firm likes it or not, it has to
develop competitive strategies because the platform for competition is now as close as to
its own backyard. Once a firm develops a competitive strategy, its platform of operations
is no longer “local”. The global market becomes the target of such a firm and the firm
becomes a “global firm”. As noted by [Rhine-smith, 1993, pg 2] “…there is little doubt
that to be viable during the next century, all organizations, whether international or
domestic, will need to be more global in their outlook, if not in their operations”. In
principle, competition has several advantages, amongst which are the growth of the firm
and value for money to those who receive services resulting from the process.
One of the most important requirements for a firm to survive in the global competitive
environment is a sound strategy. The competitive strategy that a firm develops to enter
the international market is strongly influenced by the home environment [Porter, 1990].
Using a “diamond” model, [Porter, 1990] found that four attributes of the home country
environment shape the context which allows firms to gain and sustain competitive
advantage: factor conditions, demand conditions, related and supporting industries, and
context for firm strategy and rivalry. Each of these attributes has strong influence on the
firm strategy and contributes substantially towards a firm’s competitive advantage. For
instance, regarding “factor conditions” two distinctions are defined: first, basic (e.g.
natural resources, climate and location) and advanced (e.g. modern digital data
communications infrastructure and highly educated personnel); second, specialized
factors, most of which are relevant to a limited range or even to just a single industry
[Porter, 1990]. Regarding the strategies and structures of firms as well as the nature of
domestic rivalry, [Porter’ 1990] believes that there should be a good fit between an
industry’s sources of competitive advantage plus its structure; and strategies, structures
and practices favoured by the national environment. The existence of intense domestic
rivalry, on the other hand, is of special importance since, for instance, it encourages firms
in the industry to break dependence on basic factor advantages. The roles played by the
government and chance in the competitive development of an industry are important but
indirect, mainly through influencing the four major determinants of competitive
advantage [Porter, 1990].
Against this background, this paper reviews the initiatives that have been taken to
harmonise the CIs of the SADC states and proposes a new initiative to establish a
regional construction block as a strategy for global competition.
Global competitive strategy in construction 125
Prahalad and Hamel [1990] explain that competitive advantage is the consequence of
holding and combining unique resources and capabilities and creating a strategic
architecture that can apply the resulting core capabilities across product/ service and
business lines. Firms can gain sustained competitive advantage in the global marketplace
by basing their strategies on building and leveraging their unique internal capabilities.
The “dynamic capabilities” perspective presents an explicit argument for the importance
of sustainable competitive advantage of both exploiting current capabilities and
developing new capabilities” [Teece et al.,1997]. Applied to the activities of global
firms, this perspective considers the different ways in which international market
expansion and global integration of operations work to enhance long-term performance.
It also reveals why global firms might not be successful in all cases, as various
combinations of capabilities and environments might require particular strategies and
organizations for success.
Capability-based and related frameworks suggest that the competitive advantage of firms
results from their possession of unique internal resources and capabilities and their ability
to apply these resources in the marketplace and earn superior profits. From this
perspective, the global firm gains advantage internationally if it possesses unique
resources that can be leveraged in foreign markets. Further, the firm will sustain its
competitive advantage only if it can continue to develop new capabilities in the face of
changing environments and evolving competition. Two general types of resource-related
capabilities in global firms are particularly relevant to internationalization of strategy:
business level component capabilities and corporate-level architectural capabilities
[Tallman and Fladmoe-Lindquist, 2002]. The former relates to the competitive advantage
of the firm in its business area or areas and includes its ability to produce better products/
services, device superior processes and generate more effective marketing. These have
been described as competencies, capabilities, or skills, depending on the level of
specificity [Sanchez et al., 1996]. The components of a business’s knowledge involve the
various complex but identifiable skills and activities needed to operate business and
constitute the bundles of strategic resources and capabilities that are unique to the firm
[Chi, 1994]. Component capabilities go beyond the realm of pure knowledge to include
the broader set of actions and structures that are critical to competitive advantage.
The SADC region is comprised of fourteen states namely: Angola, Botswana, Democratic
Republic of Congo (DRC), Lesotho, Malawi, Mauritius, Mozambique, Namibia,
Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. Seychelles has
indicated its intention to withdraw its membership, while Madagascar has initiated the
process of membership accession. SADC has a total population of 209 million people, a
combined Gross Domestic Product (GDP) of US$163 million and a combined land area
of 9.4 million Km2. The various states differ in size ranging from the smallest
(Seychelles-455.5 Km2) to the largest (DRC – 2 435 409 Km2) as shown on Table 1. The
economies of the SADC states are mainly based on natural resources, except in South
Africa where wealth from natural resources has been used to establish a buoyant
industrial base with the accompanying well developed and modern infrastructure.
The history of SADC member states as that of most states in Africa is characterized by
the influence of outside powers in their national affairs either as colonies or protectorates.
About five European states that include Belgium, Britain, France, Germany and Portugal
have had influence in the region, the result of which construction standards and
procedures in the countries that were dominated by each of these states were modeled
after the latter’s standards/procedures. During the period of occupation (colonization)
these construction standards and procedures were directly linked to those of the
occupying powers. Although all SADC states currently enjoy political independence, the
colonial legacy had three main impacts on the construction industries of these states:
Given the heterogeneity in the construction standards/ procedures there has been very
little interaction among the stakeholders of the construction industries of SADC states,
each of which has continued to collaborate with their former colonial masters. Except of
a few firms that have taken it upon themselves to operate across their national borders, the
prevailing situation is completely against the SADC spirit of integration that has
witnessed successful integration of most of the other economic sectors.
SACII was initiated in 1993 through coordination by the Ministry of Works and
Construction of the Kingdom of Swaziland on behalf of ten countries in the Southern
African region. The objectives of this initiative as set out in the Mbabane regional
seminar in May 1993 were to:
A second regional SACII seminar held in 1996 recommended the formation of Southern
African Regional Construction Industry Council (SARCIC), which in turn held two
meetings in Midrand, South Africa and Lusaka, Zambia respectively. Specific policy
reforms that were agreed upon at these meetings included:
• Simplification and standardization of contract forms/ documents
• Establishment of construction development boards in each member country
• Targeted procurement procedures for the development of local/ indigenous
contractors and consultants.
Table 2 shows the issues that were solicited from the participants of these meetings
through a questionnaire in which eight countries participated. It was also resolved that
each country representative would urge his/her country’s government, stakeholders and
128 Ngowi, et. al
donor agencies to develop a common will and resources to implement the agreed upon
policy reforms.
Against the background of the deliberations at the SACII and SARCIC meetings, the
Department of Public Works, South Africa hosted a regional CI conference within its role
in CI development and the South African Government’s commitment to African
Renaissance.
The findings of the three days of deliberations at which representatives from nine SADC
states (Angola, Botswana, Malawi, Mozambique, Namibia, Seychelles, Swaziland, South
Africa, Tanzania, and Zambia) were each requested to present a brief overview of their
respective country’s construction industry are summarized below. Although Namibia and
Swaziland participated at the conference, they did not present their country’s reports. The
atmosphere at the conference venue enabled maximum interactions among the
participants. The conference coincided with the launching of the Construction Industry
Development Board (CIDB), South Africa that was inaugurated by the Deputy President
of South Africa and attended by key ministers and Government officials.
All participating countries indicated that they have one form of board or another for
contractor registration. Most of the countries register contractors in their National
(Central) Tender Boards. Exceptions are South Africa, Tanzania and Mozambique that
have developed specific boards for the registration of contractors. All participating
countries indicated that they conduct various forms of training as both formal and
informal programmes, which cover management, technical and craft skills.
130 Ngowi, et. al
The wide differences among SADC states make the identification of CI capabilities at a
regional level almost impossible. However, in the SADC spirit of integration, a
capability that is resident in any of the member states is taken to be a regional capability.
Although such capabilities may reside in only a few member states, their identification
might spark a move to develop or adopt them in each member state for eventual
leveraging.
To get an idea of capabilities that exist in the region, interviews were held with five
Botswana-based key stakeholders of the construction industry regarding what they
consider to be CI capabilities in the region. The interviews which took about half an hour
each were carried out in the atmosphere of informality, either in the interviewees’ offices
or other appointed venues and centred on an open-ended question “What do you consider
to be the construction industry capabilities in the SADC region?” There was no attempt
of getting a representative sample as this was considered to be a pilot study that would be
improved upon and applied at the regional level. However, the selected interviewees
were the chief executives of organizations that financially supported the CIB-TG 29
Conference on Developing Countries that was held in Gaborone, Botswana in November,
2000 and have continued their support for the CI development in Botswana.
minimum processing. Although these materials are mainly natural resources, most SADC
states have the capability for extracting and processing them into construction materials.
5) Regional integration
The SADC states have entered into various protocols that give them access to the various
global markets. It is the opinion of the respondents that the integration of the various
states into a regional block is a valuable capability that could be used to form similar
integration for mutual benefit.
DISCUSSION
While Porter’s (1990) diamond framework identifies four attributes of the home country
environment that shape the context which allows firms to gain and sustain competitive
advantage, Prahalad and Hamel (1990) point out that competitive advantage is the
consequence of holding and combining unique resources and capabilities and creating a
strategic architecture that can apply the resulting core capabilities across product/ service
lines. Although the SADC region is not a single country environment, the integration
efforts by the member states are aimed at achieving regional environment that is similar
to a country one. For this reason the capabilities of institutional framework, research and
consultancy that were identified to be resident in the region would auger well with these
views if they could be adequately developed and coordinated at the regional level.
For the attribute of “factor conditions” of the diamond framework to give a competitive
advantage it needs to be raised from basic and generalized factors that are either inherited
or easy to create, to advanced and specialized types that are more decisive and a
sustainable basis for competitive advantage. The capability of SADC states to extract and
process construction material happens to be operating at the basic level as most of the
extracted materials are exported for further processing into finer and more valuable
products. At a regional level SADC needs to establish the capability of advanced
processing of construction materials instead of exporting/ using them in the unprocessed
or semi-processed form.
Porter (1990) thinks that the existence of intense domestic rivalry encourages firms in the
industry to break the dependence on basic factor advantages. However, as the reports of
the various seminars and conferences indicated, the level of rivalry in the SADC region is
at two different levels: on the high level it is a few foreign firms that have a monopoly on
advanced construction/ consultancy works and at the lower level is among a large number
of local/ indigenous contractors and consultants. In most SADC countries the former
level constitutes about 70-80% of the market, while the latter constitutes only 20-30% of
the market value wise. It is clear that the playing field needs to be leveled so that the
132 Ngowi, et. al
local small and medium firms could benefit from the experiences of their larger
counterparts.
Although Porter (1990) believes that the roles played by the government and chance in
the competitive development of an industry are important but indirect, it appears the
governments of the various SADC states need to play active role in establishing policies
that will enable the local CIs to develop; and also in creating protocols that will lead to
the harmonization of the regional CIs and encourage cross-border cooperation for
competition on the wider global CI market.
CONCLUSION
This paper reviewed the initiatives that have been made to harmonise the CIs of the
SADC states and proposed a regional initiative as a competing strategy in the global
construction market. There have been several attempts to harmonise the CIs of SADC
states so as to benefit from the possible synergy, and although these initiatives were done
in good faith, it appears that they have not been fully carried through.
The early initiatives were geared towards establishing entities in the various SADC states
to mobilize and coordinate the activities of the CI stakeholders. This led to the formation
of Construction Industry Development Boards and similar entities in the region. Reports
on the status of CIs of the various states that were presented at the Pretoria conference in
2001 indicated that there are wide differences among the CIs of the various states and that
the resolutions that were agreed upon in earlier initiatives had not been implemented
fully. The situation has not significantly changed to date.
RECOMMENDATIONS
As this paper was based on the review of the initiatives that have taken place and the
opinion of country representatives of stakeholders of the CI in the SADC region, which
was a very small number, it is recommended to carry out a comprehensive study that shall
document the key stakeholders of each state, the structure of the CIs of the various SADC
states, the CI policies that are in place and the valuable CI capabilities that are resident in
each state. Having done this, a framework for the integration of the various facets of the
CI into a regional CI block should then be developed.
Global competitive strategy in construction 133
REFERENCES
ABSTRACT
Construction companies use technology to gain a competitive advantage and they are
expanding into developing countries as markets in developed countries become more
difficult. The developing countries allow this expansion as it enables them to ‘buy-in’ to
new technology. The workforces in the developing countries have different physical and
cultural characteristics and construction working practices vary considerably from those
in developed countries. The use of new technology by construction companies working in
the developing countries will have an effect on the health of the construction workers in
those countries. This paper describes a project aiming to establish the advantages and
disadvantages of the use of new technologies and to produce guidelines for effective and
safe implementation.
INTRODUCTION
This paper reports on the preliminary investigative work on a twelve month research
project funded by the United Kingdom (UK) Government through the Innovative
Manufacturing and Construction Research Centre (IMCRC).
The need for this work was established by the Safety, Health and Environment (SHE)
task force of the European Construction Institute (ECI). Many members of this task force
have corporate and projects responsibility for construction health and safety within global
organisations working largely in the petrochemical/power generation/infrastructure
sectors. These organisations take health and safety very seriously, with policies and
practices driving towards ‘zero incidents’ performance. However, the task force
recognises the challenge of realising these aspirations across the globe, particularly in
developing countries.
The European Construction Institute (ECI) was founded in 1990 to build and champion a
culture motivated to raising the performance standards of the construction industry across
Europe. It is financed primarily by its members who comprise around 70 of the world's
largest client and contractor organisations who have bases in Europe.
136 Bust, Gibb and Pasquire
ECI is dedicated to helping its members work together in a spirit of mutual co-operation
to research, develop and apply best practice across the industry. The members believe that
there should be no difference in the health and safety approach to work wherever the
work is carried out.
Our research to date has identified work relating to the transfer of new technology as
developing countries encourage foreign contractors to carryout infrastructure projects
(Raftery et al. 1998) and the cultural and physical differences of construction workers in
developing countries compared to those in the developed world (Peckitt, Glendon &
Booth 2002). However, we have been unable to find specific research into the impact of
the technology in the form of innovative construction practices, materials and equipment
on the health and safety of the workers.
Using an ergonomics approach with interviews, focus groups and observation and
analysis of working practices it is intended to examine the physical and cultural
differences of the workers in developing countries compared to workers in developed
world and their interaction with the use of innovative construction practices, materials
and equipment (ICPME).
The research team will identify and collate good practice, to facilitate inter organisational
knowledge and expertise transfer, with the ultimate deliverance being a guidance
document for organisations managing these large projects in developing countries.
This paper presents the argument for the work and introduces the research methods. In
particular it covers the globalisation of construction and the physical and cultural
differences between workers in different countries.
GLOBALISATION OF CONSTRUCTION
Globalisation of the construction industry could result in fewer companies dealing with a
greater proportion of the total world product.
Construction companies in developed countries are aware that construction projects are
becoming more complex and requiring more sophisticated technologies and of the need to
compete with each other in this area to obtain work in developed countries.
Innovation is an essential element of this.
The focus of global construction work is now on the developing countries, British
companies were reported to be looking at increasing their overseas’ turnover in the new
millennium with bias shifting from developed to developing countries (Crosthwaite
1998). With the stiff competition among the major construction companies the use of
ICPME is expected to increase in these countries.
Health and safety on global projects in developing countries 137
One of the drivers for the use of foreign contractors in developing countries is the benefits
to the importing country as it gains access to technology or products which could not be
produced locally (Raftery et al. 1998). In China about 30% of construction equipment
was reported as being deemed old and out of date but still being used because the
enterprises lacked resources to acquire new equipment (Chen 1998).
Physical characteristics include body measurements which vary as a function of age, sex
and for different ethnic populations (Sanders and McCormick 1993). For example,
(Ashby 1979) claimed that if a piece of equipment was designed to fit 90% of the U.S.
male population it would fit 45% Japanese, 25% Thais and 10% Vietnamese Continued
use by a Vietnamese construction worker of equipment designed for use by a U.S.
construction worker would exacerbate any risks inherent with that particular task due to
lack of fit. The design of construction equipment is more likely to accommodate the
anthropometric characteristics of a worker population from a country where the
equipment will be more readily bought.
Societal cultural biases can have a significant impact upon safety. For example, despite
the common occurrence of unprotected drops in the Caribbean, mediating cultural factors
reduce the potential for falls. The relatively slow pace of work, worker agility, sense of
locus of control over safety are cultural factors which help explain why falling accidents
in the Caribbean appear to be less of a problem compared with the UK (Peckitt, Glendon
& Booth 2002).
Not only will there be societal cultural differences there will also be construction cultural
ones. These will be evident in the practices that are commonly used in construction
projects in developing countries. The labour force in developing countries is
acknowledged as being less skilled than the workforce that contractors would use in
developed countries. They are not used to regulations as these are not enforced to the
same degree as in developed countries with the use of informal working practices (Mlinga
and Lema 2000) which can be used for the construction of anything up to five storey
buildings.
There are low levels of training of the workforce in many developing countries and this
poses a problem when dealing with the handling of hazardous materials as the workers
may be less likely to be aware of the potential health risks.
Projects carried out in developing countries tend to be very labour intensive so the
workforce is not used to using construction equipment and therefore at risk with using
unfamiliar equipment.
Enno Koehn reported (Koehn, Ahmed & Jayanti 2000) that statistical data has shown that
there are 8 to 9 times as many fatalities and accidents on construction sites in developing
countries than in industrialized developed regions. Koehn carried out a thorough review
138 Bust, Gibb and Pasquire
He also reported that there can be 3 to 5 times more workers on a construction site in a
typical developing country compared to that of a developed region increasing the number
of workers exposed to health hazards.
The companies that provide consultancy and contracting services worldwide place health
and safety high on the agenda when carrying out construction production. However, the
ICPME they use has often been developed in their home countries or countries with a
workforce that has physical and cultural similarities to their own and has therefore the
potential to cause accidents or have ill effects on the workers in developing countries.
Research is therefore required so that the potential benefits or disadvantages of the use of
ICPME in developing countries could be identified and strategies formulated for use by
companies when undertaking projects overseas.
STUDY PROPOSALS
Interviews
Recent research work at Loughborough University has included the development of a site
health handbook (Pendlebury et al. 2004) which provides practical advice on recognising
the health risks that may be met within the construction industry and the best way to
minimise them and the production of a toolkit which facilitates early design decisions by
comparing the health and safety risks and issues of pre-assembled methods against their
traditional equivalents(McKay et al. 2002).
Using this recent work on risks to health of UK construction workers as a base, interviews
of project managers, who have worked on or are working on projects in developing
countries, are to be carried out. These are to be used to identify areas of concern where
physical , cultural and religious differences of the workers impact on the health and
safety of the workers on these projects.
Health and safety on global projects in developing countries 139
Observation
Industry partners will provide projects in developing countries to visit and to observe
working practices and record (digital video and image) for analysis and use in workshops.
Task analysis and postural analysis methods will be used to identify health hazards within
the observed operations.
Tasks can be analysed by breaking them down into their various components and sub-
components in a structured way to reveal the behaviour required of the human and the
context in which the behaviour takes place in the work system. Task analysis provides a
system specific context for the application of the fundamental ergonomics principals
(Bridger 1995).
Postural analysis can be a powerful technique for assessing work activities. The risk of
musculoskeletal injury associated with the recorded posture(s), in the context of a full
ergonomic workplace assessment, can be a major factor for implementing change
(Hignett and Mcatamney 2000).
Equipment assessments
It is generally believed that the anthropometric differences between European (or North
American) user populations are sufficiently different that a product or item of equipment
designed for one population will be unsuitable for another. The same may well be true of
some developing countries (Pheasant 1998).
Focus Groups
Focus groups with project managers, procurement managers, equipment suppliers and
designers will be used to identify if allowances have been made for differences in worker
populations in the use and design of ICPME and whether barriers exist to these
developments.
Questionnaire
A questionnaire is to be used to test the results from the project based interviews on a
larger sample, than the interviews, of construction project managers regarding the use of
ICPME, problems encountered and solutions adopted.
140 Bust, Gibb and Pasquire
CONCLUSION
The use of innovative construction practices, materials and equipment (ICPME) may
provide benefits to these workers but it is likely that there will be a number of different
new hazards produced through their use. These new hazards need to be managed
effectively.
From our early investigations, there is no sign that account is being taken for the many
physical and cultural differences between workers from the developed world and the
developing countries. These will be covered in this research project.
The industry requires research to continue to achieve high standards of health and safety
as new situations, such as these, arise. It is therefore intended to adopt an ergonomics
approach with interviews, focus groups and observation and analysis of working practices
to identify any hazards associated with the use of ICPME.
The gathering of good practice from a number of global projects in various developing
countries should assist with the inter organisational learning between the ECI member
companies and provide projects management guidance for others involved in similar
projects.
REFERENCES
Ashby, P. (1979) Ergonomics Handbook 1: Body Size and Strength., SA Design Institute,
Pretoria.
Chen, J.J. (1998) "Characteristics and current status of China's construction industry",
Construction Management and Economics, vol. 16, no. 6, pp. 711-719.
Hignett, S., Mcatamney, L. (2000) "Rapid Entire Body Assessment (REBA)", Applied
Ergonomics, vol. 31, pp. 201-205.
Koehn, E., Ahmed, S.A. & Jayanti, S. (2000) "Variation in construction productivity:
Developing countries", AACE International Transactions, , pp. I4A.
McKay, L.J., Gibb, A.G., Haslam, R.A. & Pendlebury, M.C. (2002) "Implications for the
effect of standardisation and pre-assembly on health, safety and accident causality –
preliminary results.", vol. 16.
Health and safety on global projects in developing countries 141
Peckitt, S.J., Glendon, A.I. & Booth, R.T. (2002) "Societal influences on safety culture in
the construction industry", Implementation of safety and health on construction sites;
Construction safety management systems, ed. S.M. Rowlinson, London:; Spon,;
2004, , pp. 17.
Pendlebury, M., Brace, C., Gibb, A.G. & Gyi, D. (2004) Site Health Handbook, CIRIA,
London.
Raftery, J., Pasadilla, B., Chiang, Y.H., Hui, E.C.M. & Tang, B. (1998) "Globalization
and construction industry development: implications of recent developments in the
construction sector in Asia", Construction Management and Economics, vol. 16, pp.
729-737.
Sanders, M.S. & McCormick, E.J. (1993) Human Factors in Engineering and Design,
Seventh edn, McGraw-Hill, New York.
142 Bust, Gibb and Pasquire
ESTABLISH LEARNING ORGANIZATIONS OF CHINESE BUILDING DESIGN
PROFESSION TO MEET THE CHALLENGE OF ENTERING WTO
ZHANG WEI
Teaching & Researching Office of Concrete Structures, School of Civil Engineering,
Wuhan University, Wuhan, P. R. China, Postal code: 430072; Email:
zhang_wei666@yahoo.com.cn
ABSTRACT
The building design profession is a profession where intellectuals are assembled and a
rich body of knowledge exists. Knowledge is its core asset. The ability of building
design organizations to create, absorb, share, apply knowledge, and organizational
learning ability directly affects the quality of organizational outputs, design duration and
cost, organizational competitive capacity, returns on construction investments and safety
of lives and assets. In this time of knowledge economy, economic globalization and
China’s accession to the World Trade Organization (WTO), the capacity of creating,
absorbing and spreading knowledge, (i.e., learning capacity) in the profession appears to
be extremely important for organizations to maintain competitive edge.
This article explores and analyzes, in details, the learning situation of Wuhan building
design profession at each level and distinguished the main obstacles to the learning.
According to the present learning situation of the building design profession, this article
has put forward measures to improve organizational learning, and suggestions and ideas
such as enriching design job content, forming knowledge alliances, learner-managed
learning, life-long learning, concern with external environment of organizational learning,
mindset alteration of managers, personnel recruitment, creation of learning organizations
and organizational culture facilitating learning and knowledge management.
INTRODUCTION
more and more intensive global competitions on the other hand. To grasp the chances,
adapt to rapidly changing environment, survive the competition, building design
organizations have to learn continuously and improve their core competitive abilities. As
Shell’s Dagger said, enterprises’ only competitive advantage may be the ability to learn
more quickly than their rivals [Wang Yun-liang, et al (2001)].
The building design profession is a profession where intellectuals are assembled and a
rich body of knowledge exists. Knowledge is its core asset. The ability for building
design organizations to create, absorb, share, apply knowledge, and organizational
learning ability directly affects the quality of organizational outputs, design duration and
cost, organizational competitive capacity, returns on construction investments and safety
of lives and assets. In this time of knowledge economy, the capacity of creating,
absorbing and spreading knowledge, (i.e., learning capacity) in the profession appears
extremely important to organizational competitive edge.
This article is based on a research that has explored and analyzed, in details, the learning
situation of Wuhan building design professionals at each level and distinguished the main
obstacles to learning. According to the present learning situation of the building design
profession, it has put forward measures, suggestions and ideas to improve organizational
learning.
There are two types of research paradigms - the normative and the interpretive paradigms.
While the normative paradigm researchers use quantitative methods, the interpretive
paradigm researchers use qualitative methods [Fensel, (1989)]. The research on which
this article is based belongs to the interpretive paradigm, and should use qualitative
methods.
Miles and Huberman presented the following tips of qualitative research which are
applied in this research:
z Qualitative researchers usually work with small samples of people.
z Qualitative samples tend to be purposive, rather than random.
z The most useful generalizations from qualitative studies are analytic, not "sample-to-
population".
z Work from the outside into the core of a setting [Miles and Huberman, (1994)].
Wuhan telephone directory listed the phone numbers and addresses of lots of design
organizations. Design organizations were first selected by chance, called, visited, and
briefly surveyed in terms of how many employees they had, how many designers among
total employees, their technical job titles, their parent organizations, what projects they
could do, how much value of projects they finished each year, and so on to get a
'snapshot' impression. These impressions were the basis of a final selection of three
organizations: one high level, one middle, another low level in terms of size, design
capacity, projects value finished, and reputation in the field. The designers were selected
to include: both genders; ages varying from twenties to fifties; professional background in
Learning organizations to meet the challenge of entering WTO 147
Four groups comprising forty-one concrete questions were designed ahead, concerning
individual learning, team learning, organizational learning, and organizational managers,
to get an all-round view of the learning situation in these organizations from different
levels and points of view. This article is to analyze the learning situation in Wuhan
design profession according to the five component technologies of learning organizations
by Peter Senge [Senge, (1990)].
Personal Mastery
z Given the choice of a project similar to what interviewees had done and a different
project, all interviewees selected a different one to learn more.
z All interviewees, except two, admitted that they would be active in preparation for
the registry exams; one of the two said that he was too old; the other had realized all
the possible goals of the national registry exams.
z Two thirds wanted to be "well known".
z About three quarters interviewees said they didn't admire anyone in their institutes,
while the rest admired the ablest one. It showed designers had distinct characters and
advocated personal mastery.
z The interviewees admitted their co-workers had influences on their working attitudes
and the profoundness of their drawings. Two-thirds of the interviewees declared they
were independent in characteristics and could not be negatively influenced by their
co-workers.
z All interviewees expected newcomers suited their jobs or took a short time to do so;
this must improve the newcomers’ learning.
z The interviewees showed that designers' attitudes to personal mastery were positive,
most of them had high creative tension and were active in learning.
z Though the research showed that designers’ attitudes to personal mastery were
positive, their organizations’ were very negative.
z More than three quarters interviewees confessed that they had no interesting projects.
z Most interviewees admitted that they had no opportunity to work on large projects,
no opportunity to learn (especially, literature materials not enough, time not enough,
or institutes not attaching importance to auxiliary specialties).
z The interviewees who had worked for longer time thought projects did not match
their abilities.
z Most interviewees told that their institutes had no plans to promote designers'
professional job titles or records of formal schooling, or the institutes had plans but
no implementation.
z Most interviewees revealed that their institutes had no support for designers' theses.
z The institutes’ attitudes to improving the exchange of information and knowledge
were inactive.
148 Learning organizations to meet the challenge of entering WTO
z Though most interviewees had ambitions to be well known in the profession, more
than half thought they had no chance to be well known; being limited by objective
factors such as no opportunity to work on large projects.
z No institute had clear vision on improving designers' technology, professional job
titles, and records of formal schooling.
Mental Models
We can find from following that there were some useful ingredients of mental models
existing among individual designers, but management failed to exploit, share and improve
them.
z Two-thirds of the interviewees said that they had no written mental model.
z All interviewees expected newcomers to be suited to their jobs or to take a short time
to do so.
z Able designers were respected.
z The managers of the institutes regarded their main role was to manage or designers
obeying managers as a prerequisite.
Shared visions
z No interviewee said his institute had clear vision on improving designers' technology,
professional job titles, and records of formal schooling, let alone a shared one.
z All interviewees admitted there were conflicts among their organizational divisions.
z The interviewees had some dissatisfaction regarding their institutes, such as too many
projects to do, the managers' corruption, not much resources to get projects, lack of
facilities and talents, few complicated projects, absence of strong management, no
accumulation at end of each year, too many staff members, poor residences and
salaries.
All these proved that the organizations lack harmony, cohesion and shared vision.
Team learning
There existed team learning to some extent. Individual designers had active performances
in team learning, but the institutes performed very passively.
z The interviewees said they could learn from cooperation.
z All interviewees gave basically positive answers to the flow of their information and
knowledge, but their organizations did little in this respect.
z About three quarters of the interviewees said they didn't admire anyone in their
institutes, while the rest admired the ablest one. This was helpful for designers'
conformance only to truth in team learning.
Learning organizations to meet the challenge of entering WTO 149
System thinking
The managers of the institutes regarded their main role was to manage or designers
obeying leaders as a prerequisite. These were from traditional management notions
which emphasized organization, management, and obedience, while modern management
emphasizes more on persuasion and communication to make everyone have shared
vision, values and purpose, more on facilitating employees in fulfilling their visions.
Modern management thinks shared visions, values and purposes are much more powerful
than organization, management and obedience of traditional management. From the
managers' management notions we cannot justify that they have imbibed the concept of
learning organizations.
We can find from all above that individual designers were active in their personal
mastery, but the institutes did very few things for designers in this regard; some institutes
lacked shared visions, and in some important aspects this kind of situation even appeared
very severe. Most institutes had no written mental models or if they have they do not
implement; management failed to exploit designers' useful mental models and
management themselves had some backward mental models. While individual designers
performed well in team learning, the institutes acted passively; many institutes lacked
system thinking. The managers lacked understanding of the concept of learning
organizations. Consequently, learning in Chinese design institutes is only traditional, no
apparent learning organizations there except some ingredients of learning organizations in
some institutes.
The building design market system is not mature; technology and learning have not
become the most powerful competitive advantages. The government should implement
further reforms to lead to fair competition in the construction profession, such as fair bids
150 Learning organizations to meet the challenge of entering WTO
for projects. The government should execute the rule that only designers registered in
some class can do certain classes of projects accordingly.
It is necessary for the government to make designers flow easily from small institutes to
large institutes, and for institutes to enrich designers' jobs.
Larger institutes have much more chances to get larger, more complicated, and
challenging projects, that is why most interviewees considered designers could learn
more and faster there. The government can transfer some technology used in large
institutes to small institutes to facilitate the learning of designers in small institutes.
To take in persons with different talents, characters and experiences helps engender
diverse culture, helps employees learn from each other, and facilitate team learning and
organizational learning. What set the culture of learning of General Electric apart is "a
culture that uses this wide diversity as a limitless source of learning opportunities, a
storehouse of ideas whose richness is unmatched in world business." [Abernathy, (1999)].
Learning organizations to meet the challenge of entering WTO 151
The management should commit them to build learning organizations. Managers should
first be learners committing to their learning, and become their subordinates' models.
They should also commit to designers' personal mastery, and encourage designers to
commit to their own personal mastery, and to learn actively and efficiently. They should
make all employees highly honor personal mastery and learning, and build up shared
visions and common mental models. To do so, they should seriously listen to designers,
complex designers' opinions with theirs, discuss among designers and modify them again
until everyone really shares the visions and mental models, and commit to them.
Managers can utilize design crews for team learning. As designs proceed, crew members
meet sometimes as teams, in which everyone is same member, no one weigh more than
others, everyone freely expresses himself and challenges each other's opinions, not the
persons who give the opinions. The management can facilitate organization supported
action learning and encourage non-organization supported action learning. They can also
tap design crews for organization supported action learning. In the process of designs,
like setting of action learning, crews meet sometimes for crewmembers' problems, which
also benefits projects themselves. The management should advocate system thinking, i.e.,
to think and observe objects considering all affections and in a long enough time range.
This will facilitate the long-term benefit of institutes, and improve designers' cooperation.
Designers learn fastest as beginners and designers as beginners having mentors will
facilitate their learning a lot. Institutes are recommended to re-institute the relationship of
apprentices and mentors as Wuhan Design and Study Institute of Civil Engineering did.
Management by objective
Some concepts are also useful to help learning and improve learning.
z Learner managed learning: Learner managed learning encourages designers to learn
actively. Individual designers take the initiative, diagnose their learning needs,
152 Learning organizations to meet the challenge of entering WTO
formulate learning goals, identify human and material resources for learning, choose
and implement learning strategies, and evaluate learning outcomes [Long, (1990)].
z Life long learning: Life long learning argues that "the process of learning ought to
continue throughout an individual’s life, whether or not there is involvement with the
formal educational system” [Long, (1990)].
z Boundary less learning culture: Boundary less learning culture is to "bring people of
all ranks and functions - managers, secretaries, engineers, line workers, sometimes
customers and suppliers - together into a room to focus on a problem or an
opportunity and then to act rapidly and decisively on the best ideas developed,
regardless of their source" (Abernathy, 1999).
CONCLUSION
The building design profession concerns not only incomes of construction investments,
but also people’s safety of lives and properties, whose importance is obvious. However, it
is discovered through the research that the learning situation in Wuhan building design
profession is not so good. To face domestic and international competitions and
challenges after China’s entry into the WTO, the present situation must be changed as
quickly as possible. Otherwise, Chinese designers will not be able to compete well with
their foreign counterparts.
REFERENCES
ANITA LIU
Dept. of Real Estate and Construction, The University of Hong Kong, Hong Kong, China.
ammliu@hkucc.hku.hk
KE-WEI TANG
Dept. of Construction Management and Real Estate, Tongji University, Shanghai, China
ABSTRACT
INTRODUCTION
Project management devotes attention to both the formal (hard) system of rules and
procedures, and the potential informal (human) system of motivation and leadership in
order to maximize the probability of achieving a successful project. In essence, the
wielding of power in the project organisation is dependent on the informal system but
operable within the framework of the formal system based on the concept of
‘structuration’ [Giddens (1984), Barbalet, (1987)]. That is, the focus upon the notion of
power involves control over resources [Foa and Foa (1974)] – especially, finance – and a
typology of six types of resources, i.e., status, information, money, goods, love and
services, is present for transmission from one individual (social actor) to another. Thus,
the desires and needs to control behaviour (e.g. financial rewards is exercised to ensure
certain performance outcome) gives rise to considerations of structuring and exercise of
power.
This paper discusses the development and testing of a power-based model of project
management using the social network analysis (SNA) approach.
154 Liu and Tang
If leadership concerns the ability to influence the behaviour of others to (more) accord
with the desires of the leader and headship is identified to involve the imposition of such
behavioural modification, then it is apparent that both concern interpersonal relationships
and, therefore, regarding pursuit of goals, involve power. Progression in leadership
research essentially retains the bi-dimensional perspectives of people-orientation and
production-orientation [Likert, (1961), Misumi, (1985), Blake and McCanse, (1991)] and
the importance of leadership and power disposition in the project organisation is apparent
as the focus of people in project management comprises two elements. First, their being
the driver of activities through having needs made effective in different ways, most
usually through conversion into demand. Second, their being the only active resource,
whether as decision makers (mental activity) or as operatives (functional decision
executors; physical activity). Callon, [Law and Rip (1986)] suggest that power structures
can be mapped from determining how agents translate phenomena into resources and,
thence, into organizational networks of control, alliance, coalition, antagonism, interest
and structure – i.e., both negative (need to be controlled) and positive components of
power.
Persons in strong power positions may choose to persuade to influence the actions of
others rather than command. Indeed, the manner in which a person behaves may be of
greater impact on the outcome than the formal attributes of that person’s position in an
organization. Hence, leaders motivate, not merely instruct. [House, (1971)] developed a
motivation oriented contingency theory of leadership as a path-goal approach. Path-goal
motivation asserts that people perceive that increased effort produces increased output for
which rewards will be given which the people desire. Such expectancy theory variables
are supplemented by situational factors (characteristics of followers and the work
environment) and leader behaviour (categorised as supportive, participative, instrumental
[or directive], achievement-oriented). As the formal leader of the team, the project leader
is legitimately conferred with the formal power concomitant with his/her occupation of
the managerial position—positional power [French and Raven, (1959), Mintzberg,
(1983)]. However, [Rudolph and Peluchette, (1993)] believe that, as a project becomes
Power-based project leadership approach 155
increasingly complex, both project leader and project members may feel pervasively more
powerless (see also Conger 1989) as a result of a widening gap between the amount of
power granted by the position and that actually required to get the job done. The project
leader may have to proactively bridge the power gap through power
sharing/empowerment and power amassing.
In fig. 1, the S-O-R cycle operates as a result of the stimuli (S) exerted by environmental
factors on the members of an organization (O) who then make a response (R). The
consequences of the acts are fed back to the individuals and the environment in the form
of new stimuli. The important point is that each organism follows the S-O-R paradigm
with its own feedback loop, and the responses of one organism form part of the stimuli
for the other.
enhancing performance). The project organisation and the project leader within it are
interrelated while both are active entities in their own right. They are two interacting
systems and influence each other dynamically. ‘Both show the S-O-R pattern, but the
responses of the environment are a major component of the stimuli of the individual, and
the responses of the individuals are a component of the stimuli of the organisation’
[Naylor et al (1980:25)].
Project organizations are usually more complex compared with other kinds of
organizations. According to [Cheng (1997)], the complexities shown in the following
aspects:
1. Contract-based temporary organizations or shifting multi-goal coalitions called by
Newcombe (1994). Project participants include clients, consultants, project managers,
designers, contractors, subcontractors, and material suppliers; and construction
project organizations are formed based on the contracts between these participants.
After a construction project is completed, the life of the organization for this project
is also ended.
2. Multi-discipline. There are numerous disciplines that are involved in construction,
such as management, architecture, structural engineering, electrical engineering,
quantity surveying.
3. Closely environment-related. Many external forces such as economic and political
forces may significantly affect construction projects [Walker, (2002)] and sometimes
a key external factor even determines whether a project can be made successful.
Power may also be seen as potential in that it need not be exercised by the agent (power
holder) explicitly; however, like potential energy, the power exists and only awaits
realization through being acted upon by targets. What is quite clear is that power is a
combination of inter-personal and (organisational) structural factors and so both need to
be examined in order to gain an appreciation of the power distribution. Thus, it is likely
that political activities are important in power distributions and the exercising of such
power – through forming (temporary) coalitions etc. Thus, ‘organisations may be seen as
a plurality of power holders’ [Arslan, (2001)].
Power-based project leadership approach 157
Sources of power have been examined by many researchers, e.g. [French and Raven,
(1959)] but the dichotomous classification of position power (derived from the person’s
post in the organisation) and personal power (determined by the individual’s personal
attributes) [Bass, (1960), [Yukl and Falbe, (1991), Bass and Avolio (1994)] is more
appropriate for project organisations. Position power is determined by organisational
structure and how that structure is made active by delegation. If decision-making is
delegated, then so is (position) power; but if authority to follow routines is delegated, the
position power of the agent and of the target remain unaltered [Barnes, (1986)].
The empowering leaders share a strong underlying belief in their subordinates’ abilities,
as supported in the Theory Y argument [see McGregor, (1960)]. Since bureaucratic
environments are known to create conditions of powerlessness (Block 1987) and
authoritarian management styles can strip away subordinates’ discretion and, in turn, a
sense of power [Conger, (1989)], certain leadership styles (which tend towards headship)
have a stronger bearing on the subordinates’ sense of powerlessness. The dichotomy
posited in performance- and maintenance-oriented leadership implies that the former is
the function which contributes towards goal achievement or problem solving, and the
latter is that of promoting a group’s self preservation or of maintaining and strengthening
the group process itself. Any leader will possess a combination of performance- and
maintenance-oriented qualities [Misumi, (1985)] but the relationship (maintenance)-
orientation, rather than the performance-orientation, aspect of leadership may have more
effect on a leaders’ readiness to empower.
Since powerlessness equates to low self-esteem and a diminished sense of autonomy and
responsibility, to enhance individuals’ belief in their self-efficacy, leaders must satisfy
their needs, including need for power and self-actualisation. An individual’s sense of
mastery through actual experience is the most effective means of increasing self efficacy
(Bandura 1986). Initial success experiences will make them feel more capable and, in turn,
empowered. Whetton and [Cameron, (1984)] regard empowerment as the process of
motivation through enhancement of self-efficacy, the power to produce effects.
Hence, it is postulated that certain leadership styles (of the project leaders)
increase/decrease the sense of powerlessness (of project team members) and
negatively/positively affect performance via decrease/increase in motivation.
158 Liu and Tang
Research Rationale
The dichotomous classification of power is examined by [Bass, (1960)] and Yukl and
[Falbe, (1991)]. One is position power that is derived from the person’s post in the
organization and the other is personal power that is determined by the individual’s
personal attributes such as expertise and status. An alternative perspective from [Daft,
(2000)] is that sources of power can be examined from two aspects: vertical and
horizontal. Vertical sources of power include formal position, resources, control of
decision premises, and network centrality. Horizontal sources of power include
dependency, financial resources, centrality, non-substitutability, and coping with
uncertainty.
In order to further investigate the effects of the project manager’s exercising of power
exertion behaviours on the responses of project team members, it is proposed that
network model for project organisations are developed from the social network analysis
(SNA) approach.
Proposed methodology
Social networks are a way of describing systems, which are, composed of related multiple
elements [Scott, (2000)]. Each element, sometimes called node or actor, may have a
relationship (or tie) with the other elements. Social networks can describe relationships
between individuals, groups, organizations, computers and other information/knowledge
processing entities [Wasserman and Faust, (1994)]. Social network analysis (SNA) is the
Power-based project leadership approach 159
set of techniques used to observe social networks and for the mapping and measuring of
relationships between elements.
A number of important insights about power have been contributed by SNA. Because
power is a consequence of patterns of relations, the amount of power and its distribution
in social structures can vary. Power is both a systemic (macro) and relational (micro)
property. For measuring power, the concept of centrality is usually used [Brass, (1992)].
The idea of the centrality of individuals and organizations in the social networks is one of
the earliest to be pursued by social network analysts, e.g. [Bavelas, (1948, 1950)]. Up to
now, a number of competing concepts and measures of centrality have been proposed.
The three most widely used centrality measures are degree, closeness, and betweenness
[Freeman, (1979)].
The degree measure of centrality is defined as the number of direct links to or from an
actor [Scott, (2000)]. Actors who have more ties to other actors may be advantaged
positions and have more power than others. The degree measure is sometimes broken
down into in-degree (number of direct ties in which the actor is the object of the relation)
and out-degree (number of direct ties from the actor to others). If an actor receives many
ties, this may indicate the actor’s importance as many other actors seek to direct ties to it.
If an actor has unusually high out-degree, this shows that the actor is able to exchange
with many others, or make many others aware of their views. Actors who display high
out-degree centrality are often said to be influential actors.
According to [Freeman, (1979)] and [Wasserman and Faust, (1994)], the closeness
centrality indicates how “close” an actor is to all other actors in the network or in other
word, the extent to which an actor can avoid the control of others. It is calculated on the
basis of farness, which is the sum of the shortest (geodesic) distances from an actor to all
others. Farness can be converted into closeness by taking the reciprocal (that is one
divided by the farness) and normalizing it relative to the most central actor. Conceptually,
the closeness measure has been interpreted as efficiency (extent to which an actor can
reach all other actors in the shortest number of steps) and independence (being close to all
other actors, a person is less dependent on intermediaries).
Betweenness centrality measures the extent to which an actor falls between pairs of other
actors on the shortest paths (geodesics) connecting them. [Freeman, (1979)]
conceptualizes this measure as potential control over others. For example, if two actors A
and C are connected only through actor B, B would fall “between” A and C and would
mediate the flow of any resources between A and C. Using the computer, it is quite easy
to locate the geodesic paths between all pairs of actors, and to count up how frequently
each actor falls in each of these pathways. The betweenness measure can be normalized
by expressing it as a percentage of the maximum possible betweenness that an actor could
have had. Whereas the closeness measure represents avoiding dependence on others, the
betweenness measure represents controlling or increasing the dependence of others.
In terms of current Construction Law in Mainland China, for almost all construction
projects, an independent outside project management company must be employed by a
client. Each main player in a construction project sets up its own team for the project;
those being client project team, design project team, contractor project team, and project
management team. Moreover, there are other participants such as subcontractors,
160 Liu and Tang
CONCLUSION
Culture often dictates how people behave – including the exercising of power. Research
indicates that cultural differences exist at the corporate level [Zhang, (2004)] in Chinese
construction companies and that Chinese national culture, characterized by Confucianism,
nurtured by decades of highly unified political ideology, and centralized planned
economy, has great influence at the corporate level. However, China’s recent open and
reform policy has been exerting impact on its current culture, which can be reflected from
some of the individual cultural traits in a pilot study on organizational cultural profiles
involving five enterprises from various regions in China. The enterprise in Shantou in the
south of China that is more exposed to western market influence adopts a market-oriented
culture in contrast to the other four which are predominantly clan- or hierarchy-oriented.
Such differences imply that corporations have undergone cultural changes which affect
employees’ behaviors as a response to the changing environment and enhance the
importance of the need to understand how the patterns of power exercising are operating
and/or being affected in different organizational environments of multi-relational
dependencies.
[Walker (1989: 143)] quotes Lao-tse, ‘to lead people, walk behind them,’ and continues,
‘As for the best leaders, the people do not notice their existence. The next best, the
people honour and praise. The next, the people fear; and the next, the people hate….
When the best leader’s work is done, the people say, “we did it ourselves”.’ (p144).
Walker’s extract from ancient Chinese Taoist philosophy confirms the motivational
function of good leadership but also impliedly, the leader’s realization and manipulation
of the power gap. That holistic approach of the Chinese yin – yang dichotomy is
Power-based project leadership approach 161
ACKNOWLEDGEMENT
This paper is partially supported by the Hong Kong RGC competitive earmarked research
grant, project no. HKU 7011/98E
REFERENCES
Whetton D.A., Cameron K.S. (1984), Developing management skills. Glenview, IL: Scott,
Foresman.
Yukl, G., Falbe, C. M. (1991) The importance of different power sources in downward
and lateral relations, Journal of Applied Psychology, 76, 416-423
Zhang, S. (2004), An organizational cultural analysis of the effectiveness of Chinese
construction enterprises. PhD Thesis. Dept. of Real Estate and Construction,
University of Hong Kong. Unpublished.
164 Liu and Tang
Educating for sustainable built environment or just educating? 179
P. M. D. RWELAMILA
Graduate School of Business Leadership, University of South Africa (UNISA), P O Box
392, Unisa 0003, Pretoria , South Africa. rwelapmd@unisa.ac.za
ABSTRACT
Built environment clients across the world have been demanding for improvement in a
number of issues, which are fundamental to the sustainable functioning of the built
environment and their businesses. Most of the early reports on built environment
improvement were inspired by client concerns about the impact on their commercial
performance of the inefficiency and waste in construction, and all contained remarkably
similar messages. Furthermore, the road to identifying solutions to client demands, have
been affected by a number of forces facing the built environment across the world. This
paper looks at a cross-section of client demands and the forces, which have affected their
dynamics. The paper reports on a survey of built environment professional training
curricula at higher learning institutions within the Southern Africa Development
Community (SADC) countries, using South Africa, Botswana and Tanzania as case
studies. Based on the contents of built environment professional training curricula, the
paper identifies the following: curricula designers seem to ignore clients cries and
construction industry challenges; most of the curricula designers do not seem to be
interested to know what is happening within construction industries; and almost all
programmes surveyed are outdated. Finally the paper recommends necessary measures,
which should be taken to bridge the gaps in built environment professional training
curricula.
Keywords: education, client concerns, forces facing the built environment, built
environmental professionals, curricula content, sustainable built environment.
INTRODUCTION
Imagine watching graduates in any built environment degree/or diploma receiving their
certificates at any graduation ceremony. The two questions, which linger in the minds of
those who are following the built environment turbulent state [Turin, (1973), Wells,
1986], World < biblio >) are – Are these graduates going to provide a solution to their
customers’ demand for improvement? Do they have necessary knowledge to face the
forces affecting organisations within the construction industry?
When you meet these graduates at the coalface you start wondering whether they are
aware of the frustrations facing the clients across the world. You wonder if they
understand what is going on in the minds of those who spend their money on
166 Rwelamila
infrastructure and always regret on what they get from those who claim a good number of
years of experience.
The fact that the majority of graduates join their role models in practice and continue to
‘romance the stone’ (remain dealing with what they know and only what they know) to
the annoyance of the clients, suggest that there is a need to question whether they have
been trained for today or for the future? The answer to this question is as complicated as
climbing 20 Mount Kilimanjaro on top of each other.
The complication as to what the answer should be comes from the fact that while a
number of reports, conferences, task teams have dealt with the issue, the solution still
looks to be far away from the coalface of various construction projects and client
organisations.
Writing from the United Kingdom (UK), [Cain, (2003)] refers to ‘Seventy years of
customers demand’. He further highlights similar demands (among others), advanced by
the 1995 report by the USA Construction and Building Sub-committee of the Committee
on Civilian Industrial Technology (CCIT), the Construction 21 report, which was
produced for the Singapore Ministry of Manpower in 1999, the 1994 Latham Report –
Constructing the team, the 1998 Egan Report – Rethinking Construction. Other cries for
improvement have come from: East Africa (Mbatha, (1986), Talukhaba, (1988), Kivaa,
(1999)]; Southern Africa: [Rwelamila, (1996), Lema and Price, (1998), Msita, (1998),
Department of Public Works (DPW), (1999), DPW, (1999), Rwelamila, Talukhaba and
Ngowi, (1999), and Rwelamila, Talukhaba and Ngowi, (2000)], just to mention a few.
First, the paper focuses on built environment clients demands for improvement and uses
the findings of the above research results to pose questions and answers to all
stakeholders involved in training current and future professionals. Secondly, the paper
reflects on the forces facing the construction industry. It advances a number of questions
and answers to all stakeholders responsible for training current and future professionals
on the appropriate training strategies towards dealing with the impacts of these forces.
The questions and answers are advanced in order to establish the trends towards
addressing client requirements and the way forward towards dealing with the forces
identified. Furthermore, the paper presents the research findings on what is being lectured
to students at higher learning institutions in South Africa, Botswana, Kenya, Uganda and
Tanzania with respect to built environment clients demands for improvement.
According to [Cain, (2003)], most of the early reports on improvement were inspired by
client concerns about the impact on their commercial performance of the inefficiency and
waste in the construction industry, and all contained remarkably similar messages. These
reports described the construction industry as fragmented, inefficient and adversarial,
which damaged the commercial effectiveness of its end user clients by being guilty of
Educating for sustainable built environment or just educating? 167
passing on unnecessarily high capital costs and poor functionality. No significant impact
to the construction industry was realised.
[Cain (2003)] argues that the reason why the numerous reports [say between (1929 –
1994)] failed to have any impact on the performance of the construction industry is that
the industry continues to be blind to its failings. He further argues that it was also
unwilling to measure its performance, particularly the impact of fragmentation and
adversarial attitude on the effective utilisation of labour and materials and the lack of
effective pre-planning of construction activities. Clients continued to reinforce
fragmentation and adversarial attitudes by insisting on using a sequential procurement
process (traditional procurement system), the situation was made worse. Subsequently, it
became impossible to harness the skills and knowledge of the specialist suppliers into
design development because they were not involved until after the constructor was
appointed and the design was complete. Consequently, it was impossible for them to
inject constructability and ‘right first time’ or greater standardisation of components into
the developing design.
Taking stock of what is happening today, seems little different from that described in the
1994 Latham Report – Constructing the team, the 1998 Egan Report – Rethinking
Construction and the Singapore Ministry of Manpower report in 1999, the Eastern
Africa studies [Mbatha, (1986), Talukhaba, (1988), Kivaa, (1999)]; and the Southern
Africa studies: [Lema and Price, (1998), Department of Public Works (DPW), 1999,
Msita, (1998), DPW, (1999), Rwelamila, Talukhaba and Ngowi, (1999), Rwelamila,
(1996), and Rwelamila, Talukhaba and Ngowi, (2000)].
The demand from clients in the English Commonwealth countries for radical
improvements in the performance of the construction industry is a demand that
stakeholders involved in training present and future professionals can not ignore. This is
exemplified well in a number of documents that have been published and non-published
ones across institutions and countries.
This report compared the situation in Singapore with that in Australia, Japan, Hong Kong,
the UK and the USA, and examined developments elsewhere, such as in the Netherlands
and in Denmark. It argued that the current state of affairs in the construction industry
could not be sustained and that the industry must align its performance and practices with
the other sectors of the economy.
The report called for paradigm shifts in the performance and perceptions of the Singapore
construction industry (CI), namely:
Change from being perceived as dirty, demanding and dangerous to being perceived as
professional, productive and progressive; Become a knowledge industry which compares
well with other technologically advanced industries; Adopt a distributed manufacturing
approach where construction products can be manufactured off-site and brought together
on-site for assembly; Adopt an integrated approach to design, construction and
maintenance where there is close co-operation and collaboration between consultants,
168 Rwelamila
The white paper provides refined results of a broad South Africa public policy making
process. It provides an enabling framework within which the construction industry can
play a strategic role in social development and economic growth.
The white paper advances three key principle goals of the CI development policy as:
In studies conducted in East Africa, the following problems have been found to
negatively characterise project performance in East African construction industries:
Poor project time and cost performance [Mbatha, (1986), Talukhaba, (1988), Kivaa,
1999)]; Late nomination of subcontractors and poor workmanship as some of the factors
contributing to project delays, inaccurate estimates of clients project financing, efficient
site management lacking, and Delay in payment of contractors, variations issued without
regards to original budget – affecting project cash flow, and lack of thorough briefs,
skilful designs and specifications [Talukhaba, (1999)]; Strong resistance for change to
other forms of project procurement by some members of the design team [Mbatha,
(1993)]; The culture to plan meticulously and commitment to controlling the project has
not entrenched itself in the construction industry in Kenya [Mbatha, (1986)]; Occurrence
of variations – considered to be a reflection of incompetence in design, lack of application
of constructability and poor project planning and control [Talukhaba, (1988)]; Public
clients build more costly projects, which at the same time take a long to design and
construct [Mbatha, (1986), Talukhaba, (1988)].
Poor quality of constructed work and low levels of productivity [Lema and Price, (1998)],
Department of Public Works (DPW), (1999); Uncoordinated built-environment
professionals [Msita, (1998), DPW, (1999)]; While purporting to use the typical
Educating for sustainable built environment or just educating? 169
traditional project delivery system (TPDS), designs are normally incomplete before
preparing tender documents [Rwelamila, Talukhaba and Ngowi, (1999)]; Undue haste in
making a physical start on site seem to characterise the construction process in 8 SADC
countries, and project managers do not have appropriate management structures to
balance cost, quality, schedule and utility requirements [Rwelamila, Talukhaba and
Ngowi, (1999)]; Costly project delays due to division between design and construction
[DPW, (1999)]; Project documents are quite often late to arrive on site, they are
incomplete and contain large sections of irrelevant material [Rwelamila, (1996)]; A
considerable amount of unacceptable quality work arises due to lack of organisation and
co-ordination between trades, which affects location, accuracy, finish, sequence, damage,
etc., lack of skilled labour and poor site supervision are two major problems influencing
quality, in some projects the people to be closely involved in managing the project do not
become familiar with the project until it has actually started [Rwelamila, (1996)]; and the
architect appointed by the client is inadequately experienced to cope with the co-
ordination of the design team, to lead the design effort and to co-ordinate the interface
between design and fabrication [Rwelamila, Talukhaba and Ngowi, (2000)]; and a project
contract form used is not normally negotiated in order to ensure a fair and familiar
distribution of risk [Rwelamila, Talukhaba and Ngowi, (2000)].
These three reports seem to have similar non-technical barriers, which include:
There are strong indications to suggest that the future promises an increase in the
importance and the role of projects in contributing to the strategic direction of
construction companies and consulting organisations [Gray and Larson, (2000), Roe and
Elton, (1998) and Milosevic, (1999)]. [Cleland, (1997)] argues that this is the dawning of
the “Age of Project Management.” There are a number of arguments, which support this
point of view, when you look at the business environment across the world. These
reasons are briefly discussed below.
Global competition
The transformation from national or regional economies to one global economy during
the 1970s has not only led to dramatic technological innovations but has also created
tremendous pressures on quality improvement and cost containment. The open market
demands both cheaper products and services and better products and services. This has
led to the emergence of the quality movement across the world with ISO 9000
certification a requirement for doing business. These standards cover design,
procurement, quality assurance, and delivery processes. Individuals are being assigned
170 Rwelamila
The demand for project management has partly been due to the shortening of the product
life cycle. According to [Gray and Larson, (2000)], instantaneous, worldwide flows of
information have reduced the competitive advantage of new products, which are more
easily imitated. Computer-aided design (CAD) and manufacturing (CAM) have also
forced radical changes in the product life cycle. For example, today in high-tech
industries the product life cycle is averaging 1.5 to 3 years. Only 30 years ago, life cycles
of 10 to 15 years were not uncommon. Given the much shorter life cycle, it is imperative
that firms keep a constant chain of new products in the pipeline and get each product to
market before their competitors. A common rule of thumb in the world of high-tech
product development is that a six-month project delay can result in a 33 percent loss in
product revenue share. Time to market for new products with short life cycles has
become increasingly important to all product organisations because of the velocity with
which technology is changing. Speed is becoming a competitive advantage; more and
more organisations are relying on cross-functional project teams and project
management methods to get new products and services to the market as quickly as
possible.
Knowledge explosion
The majority of projects are becoming more and more complex. This is primarily a result
of the growth in new technologies, as projects are encompassing these latest advances.
For example, constructing an office building 25 years ago was somewhat simple process.
Today, each area has increased in complexity, including materials, specifications,
aesthetics, vertical transportation, and required specialists. Not only has basic project
work become more complex, requiring greater degrees of co-ordination, but existing
products and services are also more technologically complex. In today’s digital,
electronic age it is becoming hard to find a new product that does not contain at least one
microchip. The complexity of products has increased the need to integrate divergent
technologies. Project Management has emerged as an important discipline for achieving
this task.
Customers no longer simply settle for generic products and services. They want
customised products and services that cater to their specific needs. This mandate requires
a much closer working relationship between the provider and the receiver. Project
management is critical both to development of customised products and services and to
sustaining lucrative relationships with customers.
Educating for sustainable built environment or just educating? 171
Corporate downsizing
The last decade has seen a dramatic restructuring of organisational life. Downsizing (or
rightsizing if you are still employed!) and sticking to core competencies have become
necessary for survival for many firms. Middle management is becoming a mere skeleton
of the past. In today’s flatter and leaner organisations, where change is a constant, project
management is replacing middle management as a way of ensuring that things get done.
Corporate downsizing has led to a change in the way organisations approach projects. It is
rare today to find any major project performed totally in-house. Companies outsource
significant segments of project work, and project managers have to manage not only their
own people but also their counterparts in different organisations.
The collapse of apartheid and the Soviet Empire and the gradual opening up of Asian
communist countries have created an explosion in pent-up demand within these societies
for all kinds of consumer goods and infrastructure development. These changes have
created a tremendous market for core project work in the areas of heavy construction,
mining, and telecommunications as these countries strive to revitalise their inefficient
industries and decrepit infrastructures. According to [Milosevic, (1999)], to reduce some
of the risk and maximise individual talents, more and more firms are entering into joint
ventures with indigenous firms to complete large and small-scale foreign projects.
[Milosevic, (1999)] argues that these foreign ventures have placed a premium on the
adaptive capacity of project management personnel to work in foreign cultures with
vastly different values, work habits and orientations.
According to [Gray and Larson, (2000)], the velocity of change required to remain
competitive or simply keep up, has created an organisational climate in which hundreds
of projects are implemented concurrently. This climate has created a multi-project
environment and a plethora of new problems. Sharing and prioritising resources across a
portfolio of projects is a major challenge for senior management. A key question becomes
one of how to create an organisational environment that supports multi-project
management. A process is needed to prioritise and develop a portfolio of small projects
that supports the mission of the organisation.
What is the meaning of “educating for a sustainable built environment?” (same meaning
as “educating for life”). In order to design research instruments an answer (definition)
was formulated for this question as indicated in Table 1.
The seven fundamental areas of ‘educating for a sustainable built environment’ indicated
in Table 1 above were used as a basis for formulating the assessment scale and curricula
survey questions described later.
Research Objectives
The findings presented in this paper were conducted as a preliminary study to establish
what is taught at higher learning institutions within SADC and East Africa. The primary
focus of the research was to establish if higher learning construction professions training
curricula is influenced by client demands and other forces facing the built environment
(BE).
The SADC and one country in East Africa were used as a case study.
The objectives were met through scrutinising course contents and interviewing (semi-
structured) randomly selected lecturers and students. Six universities were randomly
selected. These are University of Cape Town, University of Witwatersrand, University of
Kwazulu Natal (former University of Natal and University of Westville), University of
Educating for sustainable built environment or just educating? 173
University programmes
Technikon programmes:
National Diploma in Civil engineering [Identified as (1)], National Diploma in
Architecture/Architectural Technology [Identified as (2)], National Diploma/ Bachelor of
Technology Degree Building Science [Identified as (3)].
Through a review of literature on customer demand for improvement and forces facing
Construction Industries, seventeen questions were constructed reflecting the salient issues
around the theme of this paper. These questions are listed in Table 3 below.
Question (QI): To what extent are the students being prepared to use whole-life costing
in the value-for-money assessment of landed properties?
Question (QII): To what extent are the students being prepared to understand the
importance of integrating design and construction, particularly when attention is paid to
the full costs of landed property over its whole lifetime?
Question (QIII):To what extent are the students being prepared to understand and
appreciate the importance of functional performance of landed facilities?
Question (QIV): To what extent are the students being prepared to understand and
appreciate the importance of reducing worker illnesses and injuries?
Question (QV): To what extent are the students being prepared to understand the
importance of reducing waste and pollution in constructed facilities and during the
construction process?
Question (QVI): To what extent are the students being prepared to understand
procurement systems and their associated dynamics?
Question (QVII): To what extent are the students aware of the characteristics of a
modern contract?
Question (QVIII): To what extent are the students being prepared to understand and
appreciate the importance of ADR over arbitration?
Question (QIX): To what extent are the students being prepared to understand the
process of linking project risks with an appropriate contract?
Question (QX): To what extent are the students being prepared to understand and
appreciate the importance of having knowledge, skills, techniques and ability of using/or
interpreting what is created from various tools as pre-requisites of becoming a
construction manager or a construction project manager?
Question (QXI): To what extent are the students being prepared to work n matrix
organisation structures?
Educating for sustainable built environment or just educating? 175
Question (QXII): To what extent are the students being prepared to balance technical
and sociocultural issues of projects?
Question (QXIII): To what extent are the students being prepared to understand the link
between projects and mission and visions of organisations?
Question (QXIV): To what extent are the students being prepared to understand
dynamics of teams – as team members, project managers or programme managers?
Question (QXV): To what extent are the students being prepared to understand that tools
will help them if and only if they have adequate knowledge, skills and techniques in their
professional specialties?
Question (QXVI): To what extent are the students being prepared to appreciate and
understand the dynamics of project teams?
Question (QXVII): To what extent are the students being prepared to understand
strategic alliances and to understand that alliances are projects?
Based on the questions listed in Table 3, every curriculum of the programmes described
above was scrutinised to establish if the areas addressed by these questions were covered
by each of these curricula. The results of this process are shown in Table 4 and
176 Rwelamila
Table 4. Survey Results – Universities (South Africa, Botswana, Kenya, Tanzania and Uganda)
Question
UNIV1(1) UNIV1(2) UNIV1(3) UNIV1(4) UNIV2(1) UNIV2(2) UNIV2(3) UNIV2(4)
UNIV3(1) UNIV3(2) UNIV3(3) UNIV3(4) UNIV4(1) UNIV4(2) UNIV5(1) UNIV5(2)
QI C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C3
QII C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C3
QIII C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C3
QIV C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C4
QV C1 C2 C1 C3 C1 C2 C1 C3 C1 C2 C1 C3 C2 C3 C2 C4
QVI C1 C2 C1 C3 C1 C2 C1 C3 C1 C2 C1 C3 C2 C3 C2 C3
QVII C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C3
QVIII C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C3
QIX C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C2
QX C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C2
QXI C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C2
QXII C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C2
QXIII C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C2
QXIV C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C2
QXV C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C2
QXVI C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C2
QXVII C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C1 C2 C2 C2 C2 C2
UNIV6(1) UNIV6(2) UNIV6(3) UNIV6(4) UNIV7(1) UNIV7(2) UNIV8(1) UNIV8(2)
UNIV9(1) UNIV9(2) UNIV(10)(1)
QI C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C4
QII C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C4
QIII C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C1
QIV C1 C2 C1 C2 C4 C4 C1 C1 C2 C4 C1
QV C1 C2 C1 C3 C3 C4 C1 C1 C2 C3 C1
QVI C1 C2 C1 C3 C1 C2 C1 C1 C2 C2 C1
Educating for sustainable built environment or just educating? 177
QVII C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C1
QVIII C1 C2 C1 C2 C1 C4 C1 C1 C2 C2 C1
QIX C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C1
QX C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C1
QXI C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C1
QXII C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C1
QXIII C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C1
QXIV C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C1
QXV C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C1
QXVI C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C1
QXVII C1 C2 C1 C2 C1 C2 C1 C1 C2 C2 C1
QXIV C1 C1 C2 C1 C2 C2 C1 C1 C1 C2 C2 C1 C2 C2
QXV C1 C1 C2 C1 C2 C2 C1 C1 C1 C2 C2 C1 C2 C2
QXVI C1 C1 C2 C1 C2 C2 C1 C1 C1 C2 C2 C1 C2 C2
QXVII C1 C1 C2 C1 C2 C2 C1 C1 C1 C2 C2 C1 C2 C2
Educating for sustainable built environment or just educating? 179
Moving away from equating cost with price (treating lowest cost as best value) – It will
be important to focus on achieving better value over the whole lifetime of the landed
property.
Question: To what extent are the students being prepared to use whole-life costing in the
value-for-money assessment of landed properties? The survey clearly indicates that the
majority of programmes do not seem to address this issue adequately (C1 and C2 are
dominant).
Moving away from valuing capital costs as more important than whole life cost – It will
be important to appoint integrated teams focusing on the whole-life impact and
performance of a development. Question: To what extent are the students being prepared
to understand the importance of integrating design and construction, particularly when
attention is paid to the full costs of landed property over its whole lifetime? The survey
suggests that the majority of programmes are not covering this aspect to required levels of
details (C1 and C2 are dominant).
Moving away from regarding good design as an optional extra –Well designed landed
properties will enhance the quality of life for the end users – e.g., best designed schools
will encourage children to learn and best-designed hospitals will help patients to recover
their spirits and their health. Question: To what extent are the students being prepared to
understand and appreciate the importance of functional performance of landed facilities?
The evidence from the survey suggest that this issue is not well considered in the
programmes surveyed (C1 and C2 are dominant).
Moving away from construction work illness and injuries – It will be important for the
cost of injuries and diseases among construction workers to be reduced. Construction
workers death as a result of work-related trauma will have to be reduced significantly.
Construction workers will have to experience lower incidences of non-fatal injuries than
workers in other industries do.
Question: To what extent are the students being prepared to understand and appreciate
the importance of reducing worker illnesses and injuries? There is no positive evidence
to suggest that this fundamental issue is positively covered in the programmes surveyed
(throughout the assessment C1 and C2 scales seem to dominate).
Become a knowledge industry, which compares well with other technologically advanced
industries – It will be important to have the knowledge and skills to look closely at the
procurement process that delivers landed properties and able to compare it with
manufacturing or retail processes.
Question: To what extent are the students being prepared to understand procurement
systems and their associated dynamics? The findings on this issue are alarming.
Procurement systems are not well covered in most of the programmes (C1 and C2
assessments are dominant).
Question: To what extent are the students aware of the characteristics of a modern
contract? Contracts are still taught based on traditional approach, where standard
contracts are treated as ‘holy documents’ (C1 and C2 assessments are dominant).
Question: To what extent are the students being prepared to understand and appreciate
the importance of ADR over arbitration? Arbitration and litigation are still considered as
appropriate routes of dispute resolution, and ADR is considered as a peripheral method
(C1 and C2 are dominant scales).
Question: To what extent are the students being prepared to understand the process of
linking project risks with an appropriate contract? Contracts seem to be covered on the
basis of focusing on various standard clauses and not primarily on looking at a typical
project risk profile and its linkage to contractual arrangements (C1 and C2 are dominant
scales).
Question: To what extent are the students being prepared to understand and appreciate
the importance of having knowledge, skills, techniques and ability of using/or interpreting
what is created from various tools as pre-requisites of becoming a construction manager
or a construction project manager? Very little is exposed on this issue. There seems to be
a number of software, which are being introduced to students but very little emphasis on
the importance of knowledge, skills, techniques in order to use tools appropriately (C1
and C2 scales dominate this question).
Matrix organisational design will be institutionalised - The use of project teams within a
matrix organisational structure will be accepted as simply “the way we do things around
here.” Dedicated project teams will coexist alongside part-time project teams, with
project work. Question: To what extent are the students being prepared to work in matrix
organisation structures? The dominant belief is that this aspect need to be covered at
postgraduate level (C1 and C2 are dominant scales).
Cross-border, cross-cultural projects will increase - This new millennium and into the
future will compel PMs to develop a global perspective. The resultant restructuring of
firms and public organisations will force PMs to work with their counterparts in different
countries and to manage global teams Question: To what extent are the students being
prepared to balance technical and sociocultural issues of projects? There is very little
exposure on both sides of the project ‘coin’. There is a bit of exposure on technical issues
but very little or nothing at all on sociocultural issues (C1 and C2 scales are dominant).
Educating for sustainable built environment or just educating? 181
Systematic project selection and priority systems will be established- In future projects
will be strongly linked to strategic need. The connection between strategic goals and a
project will be transparent to all members of the organisation. Question: To what extent
are the students being prepared to understand the link between projects and mission and
visions of organisations? This area is considered to be inappropriate for undergraduate
programmes, hence very little exposure is provided in the programmes surveyed (C1 and
C2 are dominant).
Evaluation and reward systems will support effective project management - Reward and
evaluation systems will be aligned to support successful project management. These
systems will combine team incentives with individual assessments. Peer performance
reviews and 360-degree reviews will become the norm in this environment. Question: To
what extent are the students being prepared to appreciate and understand the dynamics
of project teams? This issue is covered in a superficial way. Students are not accorded
sufficient time to get exposure to group dynamics studies and team building exercise (C1
and C2 scales seem to be dominant across all programmes).
CONCLUSIONS
Curricula designers seem to ignore client’s cries and construction industry challenges.
Most of the lecturers do not seem to be interested to know what is happening within
construction industries.
Most of the issues facing construction industries are common research findings across
the world and more specifically in various conferences across the world. Most
academics involved in the programmes surveyed do not seem to be involved in any
research projects where these issues are dealt with and debated.
182 Rwelamila
Almost all programmes surveyed are outdated. The questions listed in Table 3 could
form the basis of reviewing various curricula aimed at future construction industry
experts.
In the spirit of [Kanter’s (2000)] words, that we need new symbols for the global
information era and she nominates the kaleidoscope – a symbol of ever-changing
patterns
and endless new possibilities, powered by human imagination. The kaleidoscope era
is
the era of training for life. During this era, not only will there be an increased
demand for multi-skilled graduates, but organizations will be interested to employ
graduates with certificates, which have no expiring dates on them. The African
construction industry can’t afford dogma to dominate the minds of our current and
future professionals. Durable qualifications of CI professionals and technicians will
be critical to business growth and survival and the definition of what constitute
“educating for a sustainable built environment” as indicated in Table 1 should form a
good starting point in reflecting on what is taught at higher learning institutions.
REFERENCES
Cain, C. T. (2003) Building Down Barriers – A guide to construction best practice. Spon
Press, London, UK.
Department of Public Works (DPW) (1999) White Paper: Creating an enabling
environment for reconstruction, growth and development in the construction
industry. Policy produced in collaboration with Departments of Transport, Water
Affairs and Forestry, Housing and Constitutional Development, Government
Gazette No. 20095, Vol. 407, May, Pretoria.
Gray, C. F. and Larson, E. W. (2000) Project Management- the managerial Approach.
McGraw-Hill (International Editions), Singapore.
Kanter, R. M. (2000) Kaleidoscope Thinking. In Management 21C, Subir Chowdhury
(Ed.), Prentice Hall, London, pp. 250-261.
Kivaa, T. P. (1999) Developing a model for estimating construction period – a survey of
building projects in Nairobi. Unpublished Report.
Lema, N. M. and Price, A. D. F. (1998) An analysis of the Tanzanian construction
industry macro-economic performance trends over 25-year period: 1969 – 1993.
Proceedings of the First Meeting of CIB Task Group 29 (TG 29): Construction in
developing countries, Arusha, September,Tanzania, 62-86.
Mbatha, C. M. (1986) Building contract performance: a case study of government
projects in Kenya. Unpublished M. A. Thesis, Department of Building Economics
and Management, University of Nairobi.
Mbatha, C. M. (1993) The management of building projects, analysis of building
procurement systems, features, and conception of an appropriate project
management system for Kenya, Unpublished PhD Thesis, Wuppertal University,
Germany.
Milosevic, D. (1999) Echoes of the Silent Language of Project Management. Project
Management Journal, 30(1), March, pp. 27- 39.
Msita, K. M. I. M. (1998) Managing construction industry development – the case of
Tanzania. Proceedings of the First Meeting of CIB Task Group 29 (TG 29):
Construction in developing countries, Arusha, September, Tanzania, 62-86.
Educating for sustainable built environment or just educating? 183
ABSTRACT
Female resource represents about half of Nigeria’s human resources. For optimal
utilization of resources, gender equality and equity, it was considered that women should
be adequately represented in the construction industry which is the largest employer of
labor in the country. A survey was therefore undertaken to know the level of participation
of women in some selected categories of workforce in the industry. The survey revealed
that only 16.3% of the construction industry workforce are women. Approximately 50%
of these women are employed as laborers, 37.5% as administrative staff, 10% as
management staff and 2.5% as craftsmen. ANOVA test performed on the male/female
numerical strength showed that women are not adequately represented in the industry. It
was recommended that construction companies should concede as many positions as
practicable to women in the area of indoor construction processes since they express
dislike for staying too long in the enervating sun and expending physical energy.
INTRODUCTION
Since the launching of the United Nation’s Decade for Women (1975-1985), the last three
decades have witnessed tremendous focus on gender equality and equity and
empowerment of women as means of increasing productivity and enhancing the socio-
economic status of a nation. The need for unbiased utilization of human resources has
given research impetus to gender participation in various economic endeavors in both the
developed and the developing countries. As part of the strategies to address human
settlement problems better, the United Nations directed members’ nations to:
1) Integrate women in the formation of policies, programmes and projects for the
provision of basic shelter and infrastructure. To this end, the enrolment of women in
Architectural, Engineering and related fields should be encouraged and qualified
women graduates in the fields should be assigned to professional policy – making and
decision-making positions. The shelter and infrastructural needs of woman should be
assessed and specifically incorporated in Housing, Community Development and
Slum and Squatters Projects.
186 Adeyemi et. al
One of the highly focused area of research worldwide and most especially in the
developed countries since this directive is gender inequality and inequity in housing
allocation [Brailey (1985), Kelly (1986), Woods (1994), Gilroy (1994), Hoods and
Woods (1994)]. All these research efforts have brought to the fore a number of economic
and cultural constraints facing women in the housing market. These constraints range
from outright discrimination against women on housing allocation policies draft mainly
by men, to a general lack of education and training in housing production.
In Nigeria, gender scholars have attributed the constraints facing women in the housing
market to a number of socio-cultural factors prevailing among ethnic groups in the
country. Some of these factors are:
1 One man many wives syndrome – a polygamous system that treat women as
subordinates to men.
2 Preference for male child – a situation that excluded women from formal
education and training right from infancy and a general belief in low level of
female intelligence
3 Non recognition of unmarried women; and castigation of some economic
activities as exclusively belonging to men. [Orubuloye (1987), Oruwari (1992);
Okewole (1997); Asiyanbola (1997)].
Construction activities fall into the categories of economic endeavors in which women
have been prejudiced as lacking the wherewithal to make a successful career.
The construction industry in Nigeria is the largest employer of labor. Over three million
people work in the industry in various capacities as professionals (architects, engineers,
planners, quantity surveyors, land surveyors, estate surveyors and accountants),
administrative and technical staff, and as operatives and laborers on construction sites.
The construction industry is the core of Nigeria’s economy and a major indicator of her
wealth in economic and social terms. The industry is responsible for about 70% of the
country’s gross fixed capital formation and 3% contribution to the gross domestic product
(GDP) Construction output are investment goods and hence all economic activities
revolved around it.
The national census of 1991 put the population of Nigeria at 88.5 million people; half of
whom are females. The high numerical strength of women in the society demand that
they are adequately represented in all phacets of economic activities of the country most
especially the construction industry which is the prime motivator of the country’s
economy. Unfortunately research into women participation in construction has
concentrated mainly on the housing sector with diffused information and lack of
empirical data on the broad areas of construction. The objective of this paper was to
report some preliminary findings of the on-going research efforts into the utilization of
Women in the construction industry in Nigeria 187
female resource in an industry that employs the largest number of labor in Nigeria – the
construction industry.
RESEARCH METHODOLOGY
This research was designed on the basis that there is need for quantitative data on women
participation in the construction industry in Nigeria. Empirical data are required to
validate the assumption that women are under-represented in the construction industry in
Nigeria. Such data tend to assist in decision-making and policy formulation in relation to
female resource utilization. Data were therefore collected mainly from primary sources
using questionnaires, interview and visits to construction sites.
To test the statistical adequacy of the number of females employed in the construction
industry, a null hypothesis was formulated that there is no significant difference between
the mean of the women staff strength in the construction industry and the mean of the
men staff strength. Acceptance of the null hypothesis implies that women are adequately
represented in the construction industry. The statistical tool used for this analysis was
one way analysis of variance (ANOVA).
A total of 44 questionnaires were properly filled and returned by the management staff of
the construction companies while the female professionals returned 70 properly filled
questionnaires. The percentage of questionnaires returned were thus 63% for the
construction companies and 70% for the female workers. The construction companies
were asked to indicate the numerical strength of their male and female staff. Further they
were asked to classify the role of each sex in the company under management staff,
administrative staff, laborer and crafts-persons. The comparative staff strength on gender
basis and classification of role are shown in Table 1. The table shows that while a total of
4,417 personnel were employed by the 44 constructive companies, 720 of them were
women. This implies that only about 16.30% of the total workforce in permanent
employment in the industry is women as against 83.70% men. This result bear
resemblances to the findings in the Thai construction industry where only 167 (17%) out
of a total of 992 regular employees of 6 major construction companies in Bangkok were
women [Ogunlana et al., (1993)]. Further comparative analysis of men versus women
staff strength indicated that 71 women personnel were employed into the management
188 Adeyemi et. al
cadre while the figure for men was 367. This also gave a proportion of 16.21% women to
83.79% male management staff.
Since a large proportion of the construction companies are small in size, management
staff is classified to include the company executive(s), heads of administration, project
managers, site managers, and other professionals such as architects, engineers, builders,
quantity surveyors, planners and accountants.
40 9 2 11 6 4 1 2 0 26 9
41 2 1 2 1 2 0 4 0 10 2
42 3 0 2 0 2 0 3 0 10 0
43 2 1 2 2 4 0 2 0 10 3
44 3 1 6 3 8 3 5 1 22 8
Total 367 71 434 267 1915 364 981 18 3697 720
Mean 8.34 1.6 9.86 6.07 43.52 8.27 22.30 0.541 83.70 16.30
The proportion of female administrative staff was 38% to 62% for male. This is the only
category of workers where the male-female ratio is remarkably bridged. It can be
interpreted that for every five administrative staff employed in the construction industry
in Nigeria, two of them are likely to be women. Women show strong numerical strength
as laborers than any other category of workers. The survey showed that 364 workers
were employed as salaried laborers. This figure represents 50.56% of the total women
employed in all the categories of workers. In the construction industry, there are two
categories of laborers namely: those on permanent employment and casual laborers.
Construction activities are usually labor intensive in Nigeria unlike in the developed
countries where a number of processes are automated. This is the reason why laborers
constitute 51.60% of the permanent workforce in this survey. And due to the one-off
nature of construction projects, the practice of recruiting construction personnel most
especially laborers on ad-hoc basis and dispersed at the end of the project prevails in the
industry. The number of these casual laborers often outstrips their counterparts on paid
employment. It is usually very difficult to know the numerical strength of casual laborers
since their population often vary with the size of project a construction company is
handling. For this reason, women on casual labor in the construction industry are not
included in this survey. However, site visits revealed the presence of a proportionate
number of women casual laborers transporting construction materials (sand, gravel and
fresh-concrete) with head-pan but their statistical strength in relation to their male
counterpart was difficult to reconcile.
Proof of Hypothesis
The hypothesis put forward was to determine the adequacy of women representation in
the construction industry and was stated as follows:
Ho: There is no significant difference between the mean of the numerical strength of
women in the construction industry and the mean of the numerical strength of men in the
industry. µ1 = µ2
H1: There is significant difference between the mean of the two populations. µ1 ≠ µ2
Table 2 shows the result of the ANOVA test. The table indicates that F = 7.843. but an F
– distribution with 1 and 86 degrees of freedom, for 95% level of significance is F0.95 =
3.965. Since F = 7.843 > F0.95, > 3.965, H0 is rejected and H1 accepted. Therefore it was
concluded that there is significant difference between the numerical strength of women in
the construction industry and the numerical strength of men in the industry. This implies
that women are statistically inadequately represented in the construction industry in
Nigeria.
In order to explore the factors behind the preference of male to female in the construction
industry the companies were asked to rank eight factors in their recruitment policy on
eight point Likert – type scale in order of priority. Work experience ranked first with 344
points followed by potential for high productivity (311 points). Academic and
professional qualifications (257 points) and physical strength (215 points) ranked third
and fourth respectively. Age (175 points), ability to supervise (139 points), decision
making skill (86 points) and marital status (57 points) ranked in the fifth, sixth, seventh
and eighth positions respectively. The maximum point a recruitment factor can score is
352 points, giving an average of 176 points. Therefore, recruitment factors such as age,
ability to supervise, decision making skill and marital status rank below the average mark.
Interviews conducted revealed that the recruitment factors which ranked above average,
that is, work experience, potential for high productivity, academic qualifications and
physical strength do not often favor women when pitched against men during recruitment.
At recruitment point, men usually outnumber women and due to age long tradition, men
have better work experience and are naturally more productive on site most especially in
the enervating sun of the tropical region. While women may have the same qualifications
as men, the number of men having the same qualifications often outstrips that of women.
Therefore when the other factors mentioned previously are added, women are placed at a
disadvantage. Major aspects of construction works are site based. Therefore it is required
that certain cadres of workers (site mangers project supervisors, foremen, craftsmen and
Women in the construction industry in Nigeria 191
laborers) are physically fit to withstand rugged site conditions pervaded by noise, dust
and vibrations. This is in addition to lifting heavy objects, climbing, fixing components
and operating plants and equipment. Men are considered to be more physically fit for site
conditions and the accompanying tasks, risk and health hazards.
The four factors which ranked below average are not quite unfavorable to women. The
same age criteria are used for men and women at entry points. Ability to supervise and
decision making skill depend on past experience and the category of workers being
employed. Marital status is least used for recruitment of male or female workers.
However, some married women were reportedly reluctant to relocate to new sites far
away from the headquarter.
Table 3 – Ranking of the Suitability of Some Selected Construction Tasks for Women
Construction tasks Extremely Some what Some what Suitable Very Score Rank
unsuitable unsuitable suitable suitable
(0) (1) (2) (3) (4)
Project supervision 0 0 8 45 17 219 5
Estimating & tendering 0 0 4 15 51 257 2
Administration 0 0 14 56 266 1
Preparation of working
drawings 0 0 2 47 21 229 3
Block laying 25 29 16 0 0 61 10
Reinforcement placing 46 23 1 25 14
Concreting 16 21 33 0 0 87 8
Excavation 48 22 0 0 0 22 16
Operating equipment 27 20 23 0 0 86 9
Demolition 46 24 0 0 0 24 15
Carpentry 39 31 0 0 0 31 13
Plumbing 42 23 5 0 0 33 12
Electrical works 25 34 11 0 0 56 11
Site Reconnaissance 0 3 36 25 6 178 7
Setting out 0 0 10 43 17 217 6
Construction progress
evaluation 0 0 2 53 15 223 4
Further explorations were made to explain the low level of women participation in the
construction industry by asking women professionals to rate the suitability of women for
some selected construction tasks. The response of seventy female construction workers
professionals are shown in Table 3. The table shows that administration (266 points)
estimating and tendering (257 points) and preparation of working drawings (229 points)
are considered most suitable for women. These are tasks that are office related, require
less energy and devoid of lifting heavy materials. Although tasks like construction
progress evaluation, project supervision, setting out and site reconnaissance are less
physically exerting and hence ranked next to indoor tasks, they still involve staying in the
enervating sun for hours; a situation which many women professionals express inability
to cope with as much as their male counterparts for biological reasons.
Table 3 also shows that crafts jobs such as reinforcement placing (25 points), carpentry
(31 points), plumbing (33 points), and electrical works (56 points) are not suitable for
women. This could be the reason why only 18 out of 999 crafts-persons employed in 44
192 Adeyemi et. al
Attempts have been made to determine the level of women participation in the
construction industry which is the largest employer of labor in Nigeria. The following
conclusions were reached from the empirical analysis of data:
4. The productivity of women can compare favorably with that of men in office
related construction activities such as administration, estimating and tendering and
preparation of working drawings, which involves less physical energy.
Gender issues should be adequately addressed in the National Construction Policy. The
[May, (1991)] edition of the policy is gender neutral and this could be one of the
reasons why skilled women are inadequately represented in construction activities that are
less strenuous and in which their productivity can compete favorably with that of men.
The Federation of the Construction Industry (FOCI) the umbrella body under which
construction contracting companies in Nigeria registers should establish a career
counseling and monitoring unit for women. This is with a view to guiding female
Women in the construction industry in Nigeria 193
graduates willing to take up career in the construction industry. Such unit should in
addition float a publication to disseminate news about the impact of women in the
construction industry both within and abroad. Further, the body should assist in forming
women labor pool from where construction companies can recruit female personnel. Such
pool will be required to maintain comprehensive data on female resource in various
aspects of construction. A comprehensive data must include but not limited is bio-data,
academic and professional qualifications and work experience.
The pool could even be used as a strategy to make women a dominant force in sustainable
mass housing delivery system through direct labor being suggested elsewhere [Adeyemi
et al, (2004)]. Mass housing production is characteristically simple with little or no use of
heavy equipment, repetitive and requires larger number of unskilled labor. It is an area of
construction where female professionals can be easily integrated into decision-making
with respect to design, project planning and materials procurement. Female unskilled
labor force naturally often outnumber male on labor-intensive construction sites in
Nigeria. Mass housing production therefore, could be an avenue for providing
employment to more female work force thereby alleviating poverty.
The apprenticeship programs of government and the private sector need to be designed to
ensure that the prospective female crafts-persons fits physically into the profession she
aspires to train in addition to mental capacity. At admission point, female trainee in block
laying and concreting for example should be those who can place 225 x225 x 450mm
block with ease, must be able to lift at least half bag (25kg) of cement and be able to
climb a reasonable height without fear.
REFERENCES
Brailey, M (1985) Women’s Access to Council Housing, Occasional Paper No. 25, The
Planning Exchange , Glasgow.
Hood, M and Woods R (1994) Women and Participation, In Gilroy, R and Hoods, R
(eds.), Housing Women, Routledge, London.
194 Adeyemi et. al
Gilroy, R (1994), Women and Owner Occupation in Britain: First the Prince and then the
Palace, in Gilroy, R and Woods, R (eds.), Housing Women, Routledge, London.
Kelly, E (1986) What Makes Woman Feel Safe?, Housing Review, Vol. 35, No. 6, pp.
198-200.
Orubuloye, O (1987), Values and Costs of Daughters and Sons to Yoruba Mothers and
Fathers. In Oppong, C (ed.), Sex Roles, Population and Development in West
Africa, Heineman Educational Books Inc. Portsmouth, pp. 86 – 90.
United Nations (1985) Report of World Conference to Review and Appraise the
Achievements of the United Nations Decade for Women: Equality, Development
and Peace, UN Publication, Nairobi, Kenya.
Oruwari, Y (1992) The Role of Women in Housing Finance: A Case Study of Port-
Harcourt, Nigeria, Fifth International Research Conference on Housing,
Montreal, Canada.
ANDI
Department of Civil Engineering, Petra Christian University,
Jalan Siwalankerto 121-131, Surabaya 60236, Indonesia. a_sunyoto@yahoo.com
ABSTRACT
INTRODUCTION
The recruitment process is usually done by the supervisor based on their person-to-person
relationship without considering necessary skill factor required. Since the construction
workers are not totally skillful, there is the need to establish proper management
technique in order to keep the workers productive. Understanding how the workers
motivated with their work is one key to this end [Hazeltine, (1976)]. A worker that is
motivated will give his best effort to accomplish the job, and subsequently will bring
benefit to the company. Therefore, a manager is responsible to generate such an
environment that is able to naturally motivate the workers.
196 Andi
The paper aims to investigate construction workers’ motivation, based on their needs, and
factors motivating and demotivating in Surabaya, Indonesia. The paper then compares the
workers’ and their supervisors’ perceptions toward these needs and factors. Throughout
the paper, differences in perceptions are discussed and solutions to increase workers’
motivation are proposed.
Motivation is a concept used to explain the action on and in an organism to initiate and to
direct the behavior [Petri, (1981)]. The motivation concept is also used in the distinctions
of behavior intensity. Behavior with a greater intensity is considered as the result of a
higher motivation. Such a motivation is realized in an action to gain a so-called
satisfaction of needs [Maloney, (1981)].
Based on the general definition of motivation above, some approaches concerning the
work motivation have been developed since early 1900. In its definition, work motivation
theory has no much difference with other motivation theories in general. However, it is
necessary to realize one basic distinction that work motivation has more specific focus on
the behavior related to the ‘work’ in a certain institution or organization. Work
motivation theories attempt to explain the things related to work problems [Asnawi,
(2002)].
Theories of work motivation can be categorized into three, i.e. content theories, process
theories and contemporary theories [Luthans, (1995)]. Most researches on work
motivation concerning the construction workers to date used the content theories and just
started to progress with the process theories. Within the content theories, Maslow’s
hierarchy of needs and Herzberg theories are the two most prominent ones used by
construction researchers. Due to their comprehensiveness, this paper will also apply the
two theories to accomplish its objectives. The following paragraphs will briefly describe
the theories.
Maslow’s Theory
Herzberg’s Theory
The first factor, called hygiene, defines the environment where people work and has the
main objective to avoid job dissatisfaction. It is also defined as maintenance because the
factors are never fully satisfied, and require maintenance. Manager needs to pay attention
to this factor so that the workers keep working at their normal condition. Examples of
hygiene factor are policies and administration, supervision, and working conditions
[Hersey et al., (1996)]. On the other hand, Herzberg called the second factor as the
motivator since it seems to be very effective in motivating a person to a better action. The
factor is more related to the job itself and can include achievement, recognition for
accomplishment and challenging work [Hersey et al., (1996)]. Herzberg had an idea that
if a factor is a motivator, it surely leads to job satisfaction. This paper employed the
Herzberg theory as the basis to investigate factors motivating and demotivating the
workers’ motivation.
RESEARCH METHODOLOGY
The research collected the required data from workers and supervisors through
questionnaire survey. The questionnaire contained general questions of the respondents
and a list of factors motivating and demotivating workers, i.e. motivator and demotivator,
respectively. The factors were gathered from previous researches [Borcherding and
Oglesby, (1974, 1975), Mansfield and Odeh, (1989), and [Ogunlana and Chang, (1998)].
The final questionnaire covered sixteen motivators and seventeen demotivators. To
accommodate the Maslow’s theory, the motivators were grouped into six categories, i.e.
physiological needs, safety needs, social needs, the need for esteem, self-actualization,
and other groups (managerial factors). Both respondents were asked to rate the same list
of factors using a four-point scale, ranging from 1 (not important) to 4 (very important).
Ten construction projects were approached to distribute the questionnaires, but only six
gave positive response. The project types were ranging from educational and office
buildings to shop-houses construction. Considering the level of knowledge, the researcher
had to explain and wait when the workers filled out the questionnaire. Misunderstanding
and incorrect responses could therefore be avoided. A total of 263 questionnaires finally
could be collected from the workers. Meanwhile, 12 supervisors of the projects answered
the questionnaire.
Following the research by [Ogunlana and Chang, (1998)], the respondents’ ratings to each
factor were then transformed into relative index (RI), which was then used to rank the
198 Andi
factors. The RI was obtained by dividing total rating score from all respondents by four
times sample size. In order to compare the workers’ and supervisors’ perceptions, the
study employed spearman rank correlation and Mann-Whitney tests.
Workers’ Needs
Table 1 portrays the perceptions of workers and supervisors toward the ranking of
workers’ needs. Good pay was ranked first by the workers. During the survey, it was
found that the average basic wage of the workers was 30,000 to 35,000 rupiahs per day
(less than US$ 4). The workers expressed that their salary was often imbalance with their
daily spending for basic needs. In the mean time, the supervisors placed this need only
fourth in the list.
Instead of increasing the basic pay, it was, the supervisors considered, more effective to
give additional bonuses and fringe benefits in order to motivate the workers. The need
was ranked first by the supervisors and fifth by the workers.
The second most important need according to the workers was safety program. It seems
that the supervisors fairly agreed, in which they ranked the need to be third. This finding
is quite surprising and contradictory to the actual conditions found on site. It can be
argued that workers in this country are in general not yet aware of safety culture. Not
Motivation perceptions of construction workers and their supervisors 199
wearing protective equipments (such as safety hat and shoes) and standing on high,
dangerous area without safety belt are few examples for such unsafe culture. The
contractors themselves rarely pay serious attention to safety on site either. For an
example, in one recent visit to a prestigious construction project, the author observed that
many safety signs were posted on site by the contractor. However, the author could gauge
directly that such safety signs were merely ‘slogan,’ without concrete actions by either the
contractor or the workers. The engineer manager of the foreign contractor mentioned that
one possible reason for this was because the owner enforced no sanction for the
contractors’ unsafe conducts.
Having good relationship with workmates was regarded to be an essential need for
motivation by the supervisors (second) and the workers (third). This is especially
important as the workers working in a project usually come from the same place (village).
Having the same local culture and tradition is one key point for the workers to work in a
happy work environment.
The supervisors perceived recognition on the job (esteem related need) to be the third
most important, meanwhile the workers ranked it low (twelfth). Supervisors considered
that the workers would be more motivated by giving them more recognition. Conversely,
the workers accepted the recognition as the supervisor’s mean to give tighter control to
them, thus reducing their free will in the work environment. This reasoning can further be
strengthened by the position of good orientation program (social related need), in which
the supervisors’ rank (seventh) was fairly higher than that of the workers (eleventh).
Rather than receiving more supervision, the workers preferred to have more orientation
for their works. The good orientation program before starting the work gave more
certainty, and consequently reduced changes and rework during construction.
Workers’ Motivators
The workers’ and supervisors’ perceptions toward the motivator are displayed in Figure
1. Five main influencing motivators according to the workers, as denoted in the figure,
are good pay, good safety program, good relationship with workmates, good orientation
program, and bonuses and fringe benefits. Meanwhile, the supervisors believed bonuses
and fringe benefits, good relationship with workmates, recognition on the job, good safety
program, and good pay as the five factors most motivating the workers. These most
important factors have been explained above. The result of spearman rank correlation test
signifies that there was no significant correlation between the workers’ and the
supervisors’ rank, with a correlation coefficient, σs, of 0.36 (P-value = 0.171).
Table 2 demonstrates the results, in which five factors were found to be statistically
different at α = 5%. They are: good pay, overtime, good training program, good safety
program, adequate material supply, and recognition on the job. As shown, the workers
possessed higher RI for the first four motivators, which were in general related to the
lower order needs [Robbins, (2001)].
Good pay
O vertime
Good training program
Good orientation program
Good job
Clear w ork goals
Bonuses and f ringe benef it
Good superv is ion
Proper w ork s cheduling
Good ac commodation
Challenging tas k
A dequate material s upply
Rec ognition on the job
0.400 0.600 0.800 1.000
Worker RI
Supervis or
Workers’ Demotivators
Similar to the above analyses, Figure 2 presents the respondents’ perceptions toward the
workers’ demotivators. The workers perceived bad treatment by the supervisors, material
unavailability, lack of communication, changing workmates, and rework to be five most
important demotivators. Meanwhile, the most important demotivators the supervisors
considered were bad treatment by the supervisors, unsafe work condition, lack of
cooperation, unavailability of material, rework, and little accomplishment. A significant
correlation was found between the two perceptions (σs = 0.526; P-value = 0.003).
Changing w orkmates
Lack of communication
Overcrow ded w ork areas
Underutilization of skill
Bad treatment by the
Lack of recognition of effort
Material unavailability
Incompetence of w orkmates
Demotivators
Crew interfacing
Lack of participation in decision making
Rew ork
Tool unavailability
Lack of supervision
Poor inspection
Little accomplishment
Lack of cooperation
Unsafe w ork conditions
0.400 0.600 0.800 1.000
Worker
RI
Supervisor
Table 3 offers the mann-whitney test result, in which only one demotivator was found to
be statistically significant different, i.e. changing on workmates. Interestingly, as can be
seen in Figure 2, the workers rated almost all demotivators higher than the supervisors
did. This thus may indicate that supervisors pay less attention to the demotivators.
Herzberg, however, has stated that paying attention to only the motivators is not
sufficient. Such effort to increase workers’ motivation has to be accompanied with the
reduction of the demotivators.
202 Andi
Concurrent with the previous result, workmate is a key factor that can motivate or
demotivate workers. The workers considered that it was not easy to change mates
working in a project and such a change can greatly degrade their motivation (RI = 0.772).
They needed more time to socialize, communicate, and adapt with the new workmates,
especially those that did not come from the same place. On the other hand, the
supervisors surprisingly placed this demotivator as the lowest important one, with RI of
0.542.
As for the unavailability of material, a previous research [Andi et al., (2003)] has
observed this factor as having significant influence to the time performance of shop-
houses constructions. Waiting and idling are just two bad effects due to this factor, which
ultimately will lower the workers’ productivity and motivation.
Both respondents agreed that rework was bringing detrimental effect to workers’
motivation. A further analysis conducted by the author reveals that the rework is mostly
generated by design related problems (such as design errors, unconstructable design and
uncoordinated designs) and unstable client requirements. It is not unexpected to have a
client asking change of her/his design for more than five times, especially in private
projects.
CONCLUSIONS
According to the workers, their most important needs were good pay, good safety
program, good relationship with workmates, and good orientation program. The workers’
Motivation perceptions of construction workers and their supervisors 203
and supervisors’ ranks of the needs were fairly similar, except that the supervisors ranked
the need of recognition on the job much higher than the workers did. The author argues
that the possible alternatives to improve the work motivation in the current condition
should be emphasized on the lower order needs on the Maslow hierarchy, such as money
and financial incentives.
It was found that the rank perception of the workers and the supervisors toward the
demotivator was significantly correlated. However, as shown in Figure 2, the supervisors’
ratings of the demotivators were mostly lower compared to those of the workers. It could
be said therefore that the supervisors pay less important to the demotivators.
Beside the financial incentives, in order to improve work motivation, contractors need to
apply and improve a good safety program. In addition, they need to improve the
management aspects of the construction project, such as giving proper work instruction to
the workers, improving material supply, and making better communication flow between
the workers and the foreman. In short, this all is done in an effort to introduce the
motivators and at the same time to diminish the demotivators.
REFFERENCES
JANE ENGLISH
Professional Communication Studies, Faculty of Engineering and the Built Environment,
University of Cape Town, Rondebosch, 7700, South Africa
JAMES SOMMERVILLE
School of the Built and Natural Environment, Glasgow Caledonian University, Glasgow
G4 0BA, Scotland
ABSTRACT
In the South African national strategic objective of promoting skills development in the
Construction Industry the gender dimension needs to be promoted. However, in the
matter of development of women in construction, the problem of women being poorly
presented in managerial, craft and labour level remains. Enquiries by the author indicate
that of those companies employing women in their workforce there is less than 9%
representation. In Africa, ironically, women were once the architects and builders of
homes. A recent study of construction workers in the Western Cape that covered a
comprehensive economic range of 65 did not reveal one woman on-site. Where
opportunities have been given them, however, women in disadvantaged communities
have proved their worth. Justification for this study, further to providing employment, is
its relevance to the current training directives. The current Construction Industry Status
Report identifies shortage of skilled artisans, supervisory staff and site management as a
key constraint to production and concludes that there is little evidence of training at any
of these levels.
To bring women into the industry, the image of construction and level of self-awareness
of employability in construction held by women and by protagonists in the Construction
Industry needs to be changed. Arising from this, the initiatives to be installed and barriers
to be dissembled in order to achieve the entry of women into the Construction Industry
workforce either as employees or as entrepreneurs must be established. Specific
occupations in which women would more easily gain employment and the potential
working conditions (e.g. levels of education, work histories, patterns of skill acquisition,
work conditions) must be defined.
INTRODUCTION
It is the premise of this paper that the Construction Industry in South Africa has the
potential to improve on its minor role as an employer of women in its workforce. The
206 English and Sommerville
Construction Industry not only provides the infrastructure which is fundamental to the
country’s development and to the lives of its peoples, but an increasing amount of the
development of this infrastructure is happening within disadvantaged communities
[DPW, 2004]. The Construction Industry could provide employment for women in these
communities. Promoting women in construction is worldwide and in first world countries
mainly concerns professions and crafts. In developing countries, however, promoting
women concerns the need to employ women to alleviate poverty [Wells, (1990)].
“Education and training must empower the individual, improve quality of life, and
contribute towards development targets in the national economic plan through a national
qualification” [Nel, (1997)]
For these objectives to be achieved the current problems need to be identified and
addressed. Cconditions in South African construction in both the formal (businesses that
are registered for tax purposes, and which have a VAT number) and informal sectors
(businesses that are not registered for tax purposes, and do not have a VAT number, are
generally small in nature, and are seldom run from business premises [Statistics SA,
(1999)]) have changed since the demise of Apartheid. One of the positive developments
of this is that there is no differentiation in opportunities of training and employment based
on racial group. Another is that the RDP is committed to redress previous imbalances in
education and employment [DPW, (1998)]. Prior to 1990 there was little research
internationally on gender issues in the industry [Gale, (1994)].
Publications by the ILO indicate the start of research into gender in construction and
reflect concern with the inequality in treatment and working conditions for those women
employed in construction, as well as the lack of access for women to be employed in
construction [Wells, (1990)]. Subsequent research reflects a universal situation whereby
women are sidelined in the industry through various practices: for example, recruitment
practices can be prejudicial and once in employment, options for advancement limited
[Dainty and Bagilhole, (2000)].
The construction sector consists of industries that, in most countries, are characterized by
dangerous work environments, poor working conditions and a high accident rate [Wells,
2000]. It is also an environment where it is estimated that in South Africa more than 50%
of the workforce are either casual, temporary or fixed-term workers [van Huysteen and
Chege, 2001]. A reason for a low profile of women in the Construction Industry, thus, is
Enhancing the employment of skilled women in SA 207
its reputed working practices: it is considered to have one of the most negative public
images of all industries [Dainty and Bagilhole, (2000)]. The negative factors in its
working environment are considered particularly unsuitable for women, and, for example,
in the UK the industry is devoid of female labourers, even though many facets of the job
are not dependent on manual strength or are supported by machines [Fielden and
Davidson, (2000)]. Strong stereotypes of women’s choices for their careers have been
found to held by employers and are reflected in recruitment biases [Dainty, Neale and
Baglihole, (1999)]. In addition, the recruitment literature of the Construction Industry is
gender based, offers no career advice to women, and the industry generally is
unaccommodating of women entering [Wall, (1997)]. Research has also indicated that
discreet or overt discrimination against women in the workplace results in women leaving
their jobs [Morley, (1994)]. This is also true of other occupations which are male
dominated: whilst performance in the job of women as equaled that of male colleagues,
the environment has been too hostile for them to remain [Bullock, (1994)]. And as most
of these women are working in the formal sector, the options for their position being
changed are reduced.
A well-researched fact is that a greater portion of the poor is women. This is particularly
true of South Africa where African women head the majority of households, yet are
disadvantaged in many respects [Budlender, (2002)]. African women (38%) are less
represented in the formal sector than their male counterparts (65%) and earn statistically
less. As heads of families, women desperately need employment. In the developing
world they often provide their own housing, particularly in indigenous settings. Yet
research indicates they play virtually no part in the formal sector [Wells, (1990)]. It has
been suggested that they do not do so because of both active discrimination against their
entering it, and their consequent reaction to the barriers which reinforces their feelings of
alienation [Dainty and Bagilhole, (2000)]. An aspect of discrimination that continues to
be perpetuated is the image of women as minor wage earners. This and the perception of
their being less competent in skilled work than men contribute to their being given and
accepting lower wages [Bullock, (1994)]. An active example of this is of women in
India who, whilst accounting for over 28% of the workforce in the Construction Industry,
work predominantly in unskilled occupations such as headload carriers or cleaners and
are offered no opportunity to develop skills [Vaid, (1999)]. Overall women in
construction are in services rather than in production – as many as two thirds in Africa
[Bullock, (1999)].
Worldwide poverty is a major concern as more than half the world’s population lives
below the poverty line. Housing for the poor is a vital issue. Women in most income
groups, and particularly amongst the poorer, are the core providers as they are
increasingly responsible not only for raising children and managing the house, but also
for providing economic support. Through providing women with training and
employment in both the informal sector and the formal economy of the Construction
Industry, sustainable livelihoods can be created, the living standards of disadvantaged
peoples raised and poverty alleviated.
208 English and Sommerville
In Africa, ironically, women were once the architects and builders of homes. [Kalambu
(2001)] describes research into women from different parts of Africa undertaking various
physical building tasks such as mixing and moulding bricks, building walls, cutting and
setting up roofing poles and thatching. With Western influences on African societies,
gender roles have become more Eurocentric than African and women cease to play a
pivotal role in creation of housing [Kalabamu, (2001)]. A recent study of construction
workers in the Western Cape that covered a comprehensive economic range of 65 did not
reveal one woman on a site [English, (2002)]. All of the sample of 200 workers selected
through random stratified sampling was male.
An appallingly high number of African women in South Africa are without employment
and are still, functionally, a disadvantaged group. They require skills in order to gain
employment – indeed, acquisition of skills and training is the route to economic
upgrading for women in developing countries [Vaid, (1999)]. Recent projects assisting
them to gain these skills have proved worthwhile. A proportion of disadvantaged women
have acquired some building skills through self-help housing skills [Marshall, (2002);
Kalabamu, (2001); Korpivaara, (2001)]. A woman bricklayer in Botswana, whilst having
met with resistance from employers, described her working experience in overall positive
terms:
I do not experience any problems as a female bricklayer – both male and female
colleagues respect me. It is not difficult to get work as a bricklayer. [Rantshadi, (2004)]
There should be the motivation for women who have been through such schemes to form
SMMEs (small, medium or micro enterprises [Statistics SA, (1999)]), provide skills to the
Industry, become employers and train others. That the skills acquired through such
schemes should be harnessed and used for subsequent employment is a concept that has
been in existence a long time:
Skills required by the industry on-site are not only building [English, (2002)]. A couple
of responses reflected employers’ awareness that there are skills other than technical that
are valuable. Some of the respondents’ comments were:
Employers were asked what skills they would like to see enhanced in their workers. Not
surprisingly, skills related to construction were identified as most in need of
enhancement: shortage of skills in the industry was a recurring theme amongst employers.
In answering this question, most expressed a need for training.
The concern, locally and internationally, is the skills shortages within the industry which
current initiatives have not been able to address and yet construction companies continue
to show reluctance to employ women. It would seem from models in Europe that
political good will to encourage employment of women is insufficient to elicit change and
that only when equal opportunity actions that targeted women were implemented was
there a change (Michielsens, (2004)]. Reluctance to employ women is more detrimental
to the industry’s development than many factors traditionally held responsible. This
sentiment has been echoed by findings that female craft workers have been found to be
more reliable, produce better quality work and practise sobriety [Boiko, (1994)]. In a
study in Botswana, contractors and foremen who had employed women out of a skills’
shortage necessity, stated that most female workers were more committed to their work
than male counterparts, being absent less and not requesting daily wages [Kalambu,
(2004)].
210 English and Sommerville
The departments of Public Works and of Housing, and the Construction Industry Training
Authority (CETA) are committed to goals for increasing the number of women
participating in the industry [CETA, (2000)]. To achieve these goals, however, it is
necessary to understand the barriers to women entering construction at all the levels, or
having entered the industry, staying in it [Dainty and Bagilhole, (2000)]. As said above,
the problem is not endemic to developing countries: the greatest under-representation of
women in the UK is in the crafts or skills section even though training is available
[Fielden and Davidson, (2000)]. A major problem, as cited in research conducted in
Australia [Department of Employment, Education and Training, (1993)] is the lack of
effective communication between industry and girls / women.
Thus the issues surrounding women in the construction workforce need to be explored
with employers, to assess the procedures for successful implementation of current
proposals and to suggest modification if any should be required. These questions need to
be answered:
1. What are the attitudes inherent in the Construction Industry regarding women in the
workforce in positions other than administrative, clerical and professional, in skilled
crafts and as workers on site?
2. What barriers need to be dissembled in order to achieve the entry of women into the
Construction Industry workforce either as employees or as entrepreneurs?
3. What answers and initiatives can the study provide that can be used to stimulate the
employment of women in the Construction Industry?
4. In which specific occupations and sub-sectors or areas will women more readily gain
employment or generate an income?
5. What training is available – and what training should be available - to women by the
South African Construction Industry?
6. Who are the employers who would be willing to employ or sub-contract work to
women?
The South African Construction Industry Status Report [2004] describes women as
representing 8% of the Building and Construction management profile in the formal
sector. However, in the informal sector, a more positive reflection of female involvement
exists with South African Women in Construction (SAWIC) reporting a membership of
about 600 building enterprises owned by women [DPW, 2004]. Women in South Africa
need the opportunity to develop employment opportunities. Women have a lower level of
education and this increases the possibility for them of unemployment with the provincial
workforces being dominated by men [Statistics South Africa, (1999)].
Given the CIDB mandate to provide strategic leadership in the growth of the industry,
there is consensus that one of the most urgent interventions required is at the level of
skills development both in the formal and informal sectors [Shakantu et al., (2002);
Mselle and Kgaupe, (2002)]. The specialist on-site skills are in chronic short supply – a
factor noted by unskilled workers who perceive training in a craft or skills to be their best
Enhancing the employment of skilled women in SA 211
hope for a better future [English, (2002)]. Trained supervisors and artisans are in demand
but apprenticeships and learnerships are insufficient to sustain the industry’s current or
projected growth. The majority of the respondents thought that the employer should bear
the costs of the training or that it should be funded by the industry. A minority felt the
Government should be responsible and one respondent stated [English, (2002)]:
It is a duty of the government to give people skill. The government (should) open training
centres for the people, hire good people to train, educate these guys. I told them if a
person is looking for a job, he is coming with his skill and I pay for the skill. I am not
here to give training to anyone. I don’t have time for that.
The majority of the respondents (50%) had acquired their construction skills through
practical experience on site, either by watching or by being actively trained by their
fellow workers. A further 8% said they were trained by friends or relatives and 8% by
previous employers. Technikons, colleges and training centres were the main formal
sources of skills for 23% of the respondents. Industry organisations had trained only 8%
of the respondents and only 2% had been trained through apprenticeship. The problem of
skills being held by an ageing craft population [DPW, 2004] was aptly remarked on by a
foreman interviewed:
“Skills are dying due to empowerment. Black labourers have to be taught on the job.”
[English, (2002)]
Studies elsewhere reflect the same problem with providing training – a factor which
exacerbates barriers against women entering the industry. The fragmentation and
casualisation of the building industry means that few skilled workers are employed
directly by companies that are large enough to have the capacity to train. Thus it is up to
the small SMME employer who has few resources, to train workers [Susman, (2000)].
However, research shows the tendency for women to behave like men in order to gain
entry and to develop in male dominated areas [Bennett et al., (1999)].
The current Construction Industry Status Report identifies shortage of skilled artisans,
supervisory staff and site management as a key constraint to production and concludes
that there is little evidence of training at any of these levels. Ironically, for all the need
for skills, the fall off in training since the 1980s is attributed to the closure of industry
training institutions since the 1990s. Furthermore, it reports that the situation is
exacerbated as only approximately 70% of the remaining capacity for training is being
used [DPW, (2004)].
It is well documented that African women have strong social networks and community
groups. As cornerstones in their communities African women often manage the social
and financial institutions (e.g. stokvels), networks and local protest groups. One study of
226 women in Gauteng indicated that 61% of women interviewed said they made the
important decisions in a household, whilst nearly 60% said that their salaries were the
main source of income [Marshall, (2002)]. The attributes these activities develop would
be beneficial to the Construction Industry. Seeking ways to incorporate women into the
workforce would bring these strong community elements onto sites. Community spirit
enables a supportive environment to develop which is an important element in effective
training models. The latter aspect is not peculiar to Africa: in a UK study one employer
made the comment:
“Men like to work with people they know from past experience, they don’t want to work
with some men either, women need to be able to join the informal networks” [Susman,
(2001)].
In one study women cited the following tasks as being ones they could easily manage in
building: clearing the site 82%, painting the house 88%, stock control 91% and book
keeping 92% [Marshall, (2002)]. Some described activities they had been involved in the
construction of their own homes: preparing the site and shifting the shack to
accommodate the house to be built, digging foundations, mixing cement and concrete,
packing and carrying bricks, collecting materials by wheelbarrow, fetching sand and
concrete, and passing bricks [Marshall, (2002)].
In the USA women for some time have been in trades in construction (for example, as
electricians) but are still poorly represented in the Industry [Eisenberg, (2001)]. The
model that this study could develop would see women with needs and abilities being
given access to training and employment and working in activities in construction that do
not necessarily require physical strength. For example, in Belgium, women are well
represented as house painters [Susman, (2003)]. A study in India described suitable areas
of skill for women as tiling, flooring, painting, plastering, finishing and such trades
[Chitale, (1999)]. Whilst the inclusion of women is positive, it is only so if they are
recognised in the role and can develop. The true statistics of women are hidden in India
where most women are noted as assistants and are not listed in their own right, are paid
less than their male counterparts and do not receive their wages directly but have their
wages added to that of their spouse or other family member [Wells, (2004)]. An example
cited is the statistic of a 14.6% increase in women employed in construction in five Asian
Enhancing the employment of skilled women in SA 213
countries, whilst the statistic for women in production work is in fact 66% [Wells,
(2004)].
CONCLUSION
The Construction Industry is short of skills. Providing able skilled labour through the
employment of women on sites will contribute to the eradication of poverty, as it would
facilitate an improved rate of construction and quality of building. Research must
contribute to the alleviation of inequitable development, improvement of housing for the
poor and the creation of employment, thus meeting the needs of gender and poverty
research and homelessness, housing and shelter within service provision and
management. However, the warning bells ring clear for Africa from Asia: women must
be trained in skills. As unskilled labour their presence is more easily disguised and as the
industry becomes more mechanised, their jobs diminish [Wells, (2004)].
For individuals and communities, the research could also contribute to the understanding
of the nature of building and development. Communities could learn to balance gender
inequalities in other areas after observing the productivity of women in a traditionally
male working environment. Women could use acquired skills to establish small-scale
housing development enterprises. As studies show, women have excellent community
acceptance, are often the breadwinners, and are a better credit risk for the public and
private sector as they have a better chance of achieving success [Korpivaara, (2001)].
Thus, it is clear that tools are needed for incorporating women into the Construction
Industry and to initiate skills training of women. This is particularly relevant as new
legislation set by CETA, the construction arm of SETA (Sector Education Training
Authority), is firming up on a levy which has to be paid by employers and which
contributes to training. Employers who have a turnover of R250 000 or more per year
need to contribute 0.5% of their income [CETA, (2000)]. Enhanced skills in an industry
lead to economic growth. Through an improved economy, the critical national issues of
unemployment and poverty can continue to be allayed and employment created. The
Construction Industry of South Africa needs gender sensitisation and development and
the improvement of skills in the industry through the dissemination of research to the
relevant players. There is the potential to change lives and to assist the industry in
counteracting diminishing numbers of skilled workers. The research outcomes, therefore,
have the potential to have a positive economic and social impact.
REFERENCES
Bullock, S (1994) Women, Work and Development, Women and Work, United Nations
Non-Government Liason Service, London: Zed Books.
Chitale, M (1999) Critical Issues in Training Women in Construction, Women in
Construction edited by Vaid, K., Mumbai: Nicmar, www.nicmar.org
Construction Industry Training Authority (2004) Sector Skills Plan, Online, Available
http://www.ceta.org.za/, 25th October .
Dainty, A and Bagilhole, B M (2000) A Grounded Theory of Women’s Career Under-
Achievement in Large UK Construction Companies, Construction Management
and Economics, Vol.18, No.2.
Dainty, A, Neale, R. and Baglihole, B M (1999) Women’s Careers in Large Construction
Companies Fulfilled, Career Development International, Vol. 4, No.7, pp.354
Department of Public Works (2004) Construction Industry Status Report, Pretoria
www.cidb.org.za/resource/report.pdf, 6 June .
Department of Public Works (1998) White Paper, Public Works Towards the 21st
Century, Department of Public Works, notice 90 of 1998 in Government Gazette,
Vol. 391, No.18616, SA Government Printer .
Department of Employment, Education and Training (1993) Different Futures: A Study of
the Critical Factors encouraging Women’s Access to Non-Traditional Entry-Level
Training, Australia.
Eisenberg, S (2001) We’ll Call You if We Need You: Experiences of Women Working in
Construction, paper delivered at Tripartite Meeting on the Construction Industry
in the Twenty-first Century: Its Image, Employment Prospects and Skill
Requirements, Geneva, 10-14 December.
English, P J (2000) Education in, and Management of, Cultural Differences in a
Developing Country in order to Improve Industrial Efficiency, proceedings for
CIB TG29 on Challenges Facing the Construction Industry in Developing
Countries, Botswana, November, pp. 51-60.
English, J (2002) The Construction Labour Force in South Africa: a Study of Informal
Labour in the Western Cape, Sectoral Activities Working Paper, International
Labour Office, Geneva.
Fielden, S L and Davidson, M J (2000) Women in Construction: the Untapped Response,
Construction Management and Economics, Vol.18, No.1.
Gale, A W (1994) Women in Non-Traditional Occupations: the Construction Industry,
Women in Management Review, Vol. 9, No.2, pp. 3-14.
Humphries, M and Grice, S (1995) Equal Employment Opportunity and the Management
of Diversity, Journal of Organisational Change Management, Vol.8, No.5, pp.17-
32.
Kalabamu, F T (2001) Westernisation of Gender Roles in House Construction in
Botswana, Third World Planning Review
Kalabamu, F T (2004) Changing Gender Roles in House Construction in East and
southern Africa: the case for Botswana, Women in Construction, edited by Linda
Clarke et al., Construction Labour Research Studies, London: CLR/Reed Business
Information, pp. 50-64.
Korpivaara, A (2001) Building the New South Africa: One House, One Dream at a Time
– The Story of Nurcha, New York: Open Society Institute.
Marshall, S (2002) Gender and Development: an Investigation into Housing Delivery in
Gauteng, M.Phil thesis, University of Cape Town.
Michielsens, E, Frydendal Pedersen, E and Susman, B (2004) The European Social
Partners for Construction: force for exclusion or inclusion?, Women in
Enhancing the employment of skilled women in SA 215
BENJAMIN O. UWAKWEH
Construction Innovation center, University of Cincinnati, 2220 Victory Pkwy, Cincinnati,
OH 45206, USA. uwakwehbo@email.uc.edu
ABSTRACT
INTRODUCTION
The construction industry is of great importance to the functioning of the economy of any
country. The industry is of particular importance in the developing countries where there
is acute shortage of houses and dire need for infrastructure. Although, the developing
countries have need for the development of infrastructure, they are characterized with
large population and higher unemployment rate. Nigeria is no different in this instance.
Nigeria is one of the largest countries in Africa with an area of about 365,000 sq. miles.
Its population is estimated at about 120 million. English is commonly spoken and all
education is in English. The country gained its independence from Great Britain in 1960.
It has 36 states and a Federal Capital Tertiary (FCT) in Abuja. Although, it has 36 states,
the country is divided into six geopolitical regions for political expediency.
About 69% of Nigeria’s fixed capital formation is produced by the construction industry
[FOS, 1998]. In essence, the industry represents nearly 70% of the capital base of the
218 Uwakweh
national economy and is an indication of the significance of the industry within the
economy. Although construction has significant position within the economy, its
contribution to Nigeria’s Gross Domestic Product (GDP) has been around 2% for the past
15 years [FOS, (1997)]. Similarly its contribution to employment has also staged around
1.0% [FOS, (1998)].
The construction industry in Nigeria is not well organized. There is an umbrella labor
union called National Labor Congress (NLC) but most of the construction workers
employed by contractors are not card carrying members. On the other hand, their
counterparts in manufacturing, public sector and other mature industries like health and
banking belong to a union that is affiliated with NLC. There are so many contractors in
Nigeria because entry requirements are not strict. These contractors can hire craft
workers easily either by word of mouth, referrals or by posting signs on their sites.
Although, there are some firms that have labor for hire, it is not a common practice.
Our primary objective for this study was to conduct a pilot study of craft workers in a
major south eastern town in Nigeria. Our goal was to find out the applicability of the
expectancy theory in Nigeria. Specifically, we are interested in identifying if construction
workers’ needs are satisfied.
The expectancy theory is based on a number of specific assumptions about the causes of
behavior. The first assumption is that behavior is determined by a combination of forces
in the individual and forces in the environment. In essence, neither the individual nor the
environment alone determines behavior. This is because individuals come to firms with
certain experiences which give them unique sets of needs and expectations of how the
organization will treat them. These experiences influence the way individuals respond to
their work environment. The work environment provides structures such as pay system,
supervisor and others like work rules. These also influence the behavior of workers.
Different environments tend to produce different behavior in similar people.
The second is that workers make decisions about their own behavior in their firm.
Although, there are constraints on the behavior of workers in their organizations, most of
the behaviors that have been observed are, as a result of the individual worker’s conscious
actions. Generally, the decisions that workers make can be classified into two categories.
Workers make decisions about membership behavior such as coming to work, staying at
work, or other ways of being effective. The other category is the decision on effort
expended on performing their jobs. These include how hard to work, the quantity to
produce and the quality of work.
The third is that different workers have different needs, desires or goals. The
consequence of this is that workers differ because of the kinds of outcomes (rewards) they
desire. The differences are not random as they can be classified in a system that can
make it manageable. As an example, medical benefits can be broken down into, dental,
eye, surgery, and pre-natal care. The fourth is that workers make behavioral decisions
Motivating craft workers 219
based on their perceptions of the likelihood that it will lead to the desired outcome.
Simply stated, people will do those things which they see as leading to rewards
(outcomes) they desire. Similarly, they will avoid those things that lead to outcomes that
are not desirable to them.
Generally, the approach presented here views people as knowing their needs and having
mental maps of the environment. They use these maps to guide their decisions and
behave in those ways which they believe will lead to receipt of the desired outcomes in
the hope that it will satisfy their needs. Based on these assumptions the expectancy
theory makes several propositions about the process by which people make decisions
about their behavior in organizational settings.
Ability
Outcomes
Motivation Effort Performance (Rewards)
[Know-how]
Three concepts are at the core of the expectancy theory. They are effort-performance
(E→P) expectancy, performance-outcome (P→O) Instrumentality, and Valence (V).
These have been discussed in details in [Uwakweh, (2003)]. The summary of these three
concepts are that:
Motivation is greatest when:
The worker believes that he/she is able to perform at the desired level (effort-
performance)
The worker believes that the behavior will lead to desired outcomes (performance-
outcome), Instrumentality
The worker believes that the outcomes have positive value for him/her (valence)
DATA COLLECTION
This study was conducted in one of the major cities in the south east geopolitical zone.
Four mid sized firms working on governmental contracts to build schools were randomly
selected to distribute the questionnaire. 25 questionnaires were handed out to each firm.
A questionnaire was adopted from previous studies and modified where necessary. The
first section of the questionnaire contains the demographic variables while the second
contains pair of forced-choice statements. There are sixteen questions in this section and
the responses were intended to measure worker orientation. In each term, one of the
220 Uwakweh
statements indicates external orientation, while the others indicate internal orientation.
An example of such pair is:
When I make plans, I am almost certain that I can make them work.
It is not always wise to plan ahead because many things turn out to be a matter of
good or bad fortune anyhow. (Externally orientated)
The third section contains questions that are used in measuring job satisfaction. Because
we were not certain of the educational level, we used simple instrument that can be easily
understood. Only four aspects of work, satisfaction with supervision, work itself, pay,
and co-workers were investigated. The workers were asked if they agree or disagree with
the given description of that aspect. For example, some of the terms used in describing
work are: routine, boring, fascinating, and simple.
The fourth section of the instrument covers questions on worker motivation. The
measures of expectancy, instrumentality and valence are based on the work done by
Maloney and McFillen. To measure expectancy for example, the workers were asked
how likely it is that the first factor will lead to the second in their work such as “Working
hard lead to high productivity”. The last section contains questions on workers’ needs
and their satisfaction with corresponding needs.
ANALYSIS
Demographics
Out of 100 questionnaires distributed, 77 were found usable. This accounts for 77%
return and since this was a pilot study, we found that to be acceptable and statistically
significant. Figure 1 represents the distribution of sample by age group. It can be
observed that the 56.6% of the sample age group lies between 21-30 years. This implies
that the workers surveyed are relatively younger when compared to the United States of
America workforce where the average age of worker is above 50 years. With this young
workforce, the potential exists for developing the various skills that are needed in the
industry. It further supports our notion that the country is characterized with a large pool
of young workers.
60.0 56.6
50.0
40.0
Percent
27.6
30.0 Percent
20.0
9.2
10.0 3.9 2.6
0.0
< 20 21-30 31-40 41-50 Missing
Age group
Motivating craft workers 221
Figure 2 shows the distribution of workforce with respect to the number of years in
construction industry. It can be observed that 48.7% of the sample has 6-10 years of
experience in the industry. Another observation is that the construction workers in the
study are not associated with a specific trade. This is probably due to the fact that these
workers can do multi-tasking and also because of the lack of job jurisdiction. Also, there
tend to be a significant number of on-the-job training and many workers working with
different trades as the need arises. We observed that there was more informal labor
structure.
60.0
48.7
50.0
40.0 35.5
Percent
30.0 Percent
20.0
10.5
10.0
2.6 2.6
0.0
1-5 6-10 11-15 16-20 Missing
Number of years in construction industry
Identifying the needs is one thing and determining if the workers are satisfied is another.
In this paper, we take the view that an individual is satisfied when the perceived value of
the need is equal to the actual value. Therefore, if the value to which a worker attaches to
222 Uwakweh
a particular need, like pay is met, then the worker is satisfied with that need. For example
in the United States most construction workers are likely to be satisfied with pay but may
not be with medical benefits. This is partly because they may be forced to use some of
their high wages to pay for some medical benefits. On the other hand, their counterpart in
Nigeria and most developing countries may not be satisfied with their pay because,
relatively it is still low.
Workers were asked to indicate from a list of 14 items related to their needs about how
important these items were to them. They had to choose from a five point linker scale,
where 1 is “not important” and 5 is “extremely important”. The mean response for each
item tapping the workers needs were calculated and were rank-ordered. The mean values
of the need factors are shown in a descending order in table 1.
Expectancy
Workers were asked if they believe that increased effort could lead to good performance,
to high productivity and doing a job well. Worker responses ranged on a five point likert
scale with 1 being “unlikely” and 5 being “always”. The expectancy score was calculated
by taking the mean response for the three items. The mean value is found to be 4.21 with
a standard deviation of 0.61. This high score on expectancy suggests that the workers
believe that if they exert effort, they can perform.
The differences in expectancy scores were analyzed by tenure in the industry, age group,
ability to read blue prints and whether or not they attended technical school. The mean
value of the expectancy scores for each category is shown in Table 3.
The reason that illiterate workers had high expectancy than the literate workers might be
due to the nature of the work that they perform. The illiterate workers may not need
know-how and hence, increased effort is more likely to lead to doing a job well, good
performance and high productivity. Workers with more experience measured by number
of years in trade (16-20) or by age group (41-50) had high mean of 4.333 than any other
group. The possible explanation of this is that they have more experience and thus, have
better perceptions of means of successful performance.
Motivational score
The Valance-Instrumentality (V-I) score of each worker was found by multiplying the
instrumentality item response (I) by the response of the valance for the same item (V).
Thus, a new variable is created for each set of matching items in both sections. To find
the motivational score for each worker, the mean of the V-I score is multiplied by the
expectancy score (E) found earlier.
n
Motivational Score = E × ∑ ( I × V ) / n ,
i =1
Where, n is the number of matched items of instrumentality and valance items (such as
the first item in both sections of the questionnaire). The resulting motivational score
varies between 1 and 125 with 1 being very poorly motivated worker and 125 a very
motivated worker. The actual data ranges from 15.33 to 76.92 with a mean of 39.35 and
standard deviation of 15.06.
The difference in motivational scores were analyzed by age group, tenure in the industry
ability to read blue print and whether or not the attended technical school. The mean
value of the motivational scores for each category is shown in Table 4. We can observe
that the overall motivational score is very low and there is a lot of score for improvement.
Locus of control
The questions on locus of control indicate the measure of internal or external orientation
of workers. A worker who is internally oriented believes in himself whereas the one who
Motivating craft workers 225
is externally oriented believes he has no control over the things. The resulting score
varies between 1 and 5, with 1 being internally oriented worker and 5 being externally
oriented worker. The actual data ranges from 1.50 to 5.00 with a mean of 2.81 and
standard deviation of 0.572. The general observation is that the workers are slightly
externally oriented.
IMPLEMENTATION OF STUDY
There is evidence from the workers that they have clear understanding of their needs. For
example of the top needs identified in the study, Enough food for me and my family
(4.64); Good pay for work (4.54); Making full use of my abilities at work (4.53); Saving
money (4.51); and Better living conditions (4.40); management can influence most of
them. A careful review of these five top needs can be met by paying these workers
adequately and even linking pay to performance. They desire to utilize their skills, and
all management needs to do is provide them with the opportunity and reward them
contingent on their performance. One result of paying them adequately is that they can
improve their living conditions. In summary, this study has helped in identifying some of
the fundamental needs of the workers and it is now the responsibility of management to
develop mechanisms to ensure that workers are satisfied.
The workers in this study are externally oriented. That is, they believe in external
rewards although slightly. Management should capitalize on this and provide extrinsic
motivation such as bonus for a job well done or praise. Another interesting observation
of this study is that the workers believe that they have the ability to perform. Now
management must capitalize on this factor and build on it.
This is just a pilot study that was conducted in one of the geopolitical regions of Nigeria.
What needs to be done is to conduct this study in detail to include the major cities within
the six geopolitical regions in Nigeria. Such a study will help constructors, owners
(public and private) who are interested in developing the much needed infrastructure in
the country. Further, it will improve the contribution of construction in the country’s
GDP.
REFERENCES
Federal Office of Statistics (FOS) (1998) Review of the Nigeria Economy 1997, Federal
Office of Statistics, Abuja, Nigeria
Federal Office of Statistics (FOS) (1997) National Accounts of Nigeria 1981-1996,
Abuja,
Nigeria
Industry Profile, Construction industry, U.S. Bureau of Economic Analysis (2001)
Nadler, David, and Lawler III, E. E. (1982) “Motivation: A Diagnostic Approach” in
Nadler,
Tushman, and Hartany (Ed). Managing organization, Little Brown and Company
Uwakweh, B O (2003) “Motivating craft workers: A case study with Syrian workers”, in
Knowledge Construction, Proceedings of the Joint International Symposium of
CIB working commissions w55, w65 and w107, Singapore, Octo. 22-24
Maloney, W F, and McFillen, J. M. (1984) “Unionized construction workers and their
work
environment”, Technical report 1, Center for Construction and Management,
University of Michigan, Ann Arbor, MI
Maslow, A H (1970) Motivation and Personality, 2nd Ed, Harper & Row, New York
INVESTIGATING ‘UNSAFE ACTS’ AND ‘DECISION TO ERR’ FACTORS OF
THAI CONSTRUCTION WORKERS
ABSTRACT
Unsafe acts of workers in construction industry are the major fundamental reasons behind
accidents and these unsafe acts are significantly influenced by workers’ decision to err.
These unsafe acts, however, were not adequately researched to explore possible
influential factors, which are crucial for explaining why unsafe acts happened. This article
discusses the results of studying unsafe acts of 214 Thai construction workers: (i) major
unsafe acts; and (ii) decision to err, factors contributing to the unsafe acts. The results
demonstrated that ignoring to wear Personal Protective Equipment (PPE), improperly
lifting or handling materials and leaving sharp objects in a dangerous condition were the
major unsafe acts frequently occurring. The study also identified the various reasons
behind the workers’ decision to err causing major unsafe acts, which are mainly related to
personal, job, management and workgroup factors. In addition, detail of this factors were
also investigated.
INTRODUCTION
[Abdelhamid et al, (2000)] mentioned that human error is the main cause of accidents and
can be explained by behavior and human factor approach. Behavior approach pictured
workers as being the main cause of accidents and revealed that workers make errors under
various situations and environmental conditions. Similar to behavioral approach, human
factors approach also holds that human is the main accidents’ causation however the
blame does not fall on human unsafe characteristics alone but this approach covers the
designs of the workplace and tasks. Since both approaches confirmed that human unsafe
acts are major contribution to accidents hence this study was initiated for investigating
template of workers’ unsafe acts and decisions influencing them to commit unsafe acts.
The result of study will provide management with systematic guidelines to determine
effective measures for preventing accidents.
Accident Causation
In 1959, Heinrich developed the domino theory (model) of accident causation, in which
an accident is presented as one of five logical factors (dominoes) in a sequence that
results in an injury. The behavior of the factors involved was similar to the toppling of
dominoes when disrupted. When a domino falls (occurs), so do the succeeding dominoes.
In the case of removing the 3rd domino (representing unsafe acts and conditions), an
accident can be prevented by eliminating unsafe acts and conditions. Among these two,
unsafe acts contribute 80% of total accidents. [Haupt, (2001)] mentioned that two
studies conducted by the National Safety Council (NSC) and the Du Pont Company
[Human Performance Technologies, (1998)] revealed that unsafe act was the major cause
of accidents. The results of both studies showed that 88% and 96% of accidents causing
by unsafe acts of workers while only 10% and 4% causing by unsafe condition.
Unsafe Acts
Some researchers [Petersen (1984), King and Magid (1980), Stranks (1994),
Simachokdee (1994), Abdelhamid et al, (2000), Holt (2001)] have noted numbers of
practices of unsafe acts: a) Working without authority on the job, which may lead to an
accident due to lack of skills or familiarity with the process; b) Failure to warn or secure
members of danger is considered as unsafe act because an accident may occur due to
ignoring to warn or secure other members when they are working under high probability
to get an accident; c) Working at improper speed, exceeding improper prescribed limit
speed or unsafe speed of action, for example, the workers who are quickly handling
objects may get slip. d) Improper lifting, handling, moving objects may cause back
injuries for example incorrect manner for manual lifting, lifting heavy object without
force-saving equipment. e) Improper placing and stacking objects and material in a
dangerous condition can contribute to unpredicted accident. f) Incorrect use of tools and
equipment, hand tools, power tools, and machinery, for instance, the workers may climb
228
Investigating “Unsafe Acts” and “Decision to Err” 229
or stand on rebars because they are lazy to get a ladder. g) Using defective equipment and
tools to perform the job such as using poor condition ladder may cause falling accidents.
h) Annoyance and horseplay in the workplace such as teenage workers roughly play
around the workplace may get an unexpected accident. i) Ignoring to wear personal
protective equipment may increase chance to get head injury from falling object. j)
Removing safety guards from workplace or equipment may raise the chance to get
accidents. k) Smoking, creating naked flame or spark in area where flammable material
are stored may lead to the explosions. l) Leaving nail or other sharp objects protruding
from timber may cause injury to workers who do not wear safety shoes. m) Throwing or
accidentally dropping object from height may contribute to head injury to others. n)
Working under effect of alcohol and other drugs may increase unawareness of users that
can lead to an accident. o) Improper position for tasks can also lead to an accident for
example, the workers who are working on high level may get falling accident. p)
Improper posture for tasks such as climbing or jumping from height in stead of using
provided ladder q) Servicing equipment in operation for example perform maintenance
the machine without turn off the engine. r) Working with inattentive action, for instance,
the workers are talking with others while they are performing the job. s) Working with
poor physical condition such as fatigue, stressful, exhausted, and sleepy.
In some situations it seems logical for workers to choose to act unsafely, as [Petersen,
(1984)] mentioned in his study that decision to err could lead to human error which can
contribute occurrence of accidents. Likewise, [LaDou, (1994)] stated that human error
can stem from decisions made by a worker. For example, if a supervisor pressures
workers to increase production rate, the workers might choose an unsafe approach rather
than a safe approach to save time and get the job done, e.g. because of time pressure, one
worked in unstable platform where one should have used a ladder. As a preliminary study
of this research, several causes of decision to err were compiled from reviewing
literatures and interviewing 10 workers from construction industry. According to the
findings, the preliminary study revealed 20 factors contributing to decision to err; and
these factors can be grouped into four: personal, job, management and workgroup (see
Table 1).
RESEARCH METHODOLOGY
1
The mean values for unsafe act variables range from 3.09 to 4.00 in a 4-scale (1 to 4) Linkert and standard
deviation range form 0.29 to 0.88 for unsafe acts variables, while the mean values range from 2.71 to 3.36
and standard deviation range from 0.29 to 0.88 for decision to err factors.
230
Investigating “Unsafe Acts” and “Decision to Err” 231
In order to investigate the unsafe acts of the Thai construction workers, 150 workers were
asked to rate scores to indicate degree of frequency of unsafe acts that they performed in
the current project. The five points rating scale (i.e. 1= never, 2= rarely, 3= occasionally,
4= often, 5= usually) was used for measuring the degree of frequency of committing
unsafe acts. The statistical results were shown in Table 2 below.
operation
According to Table 2, ‘Ignoring to wear PPE’ was ranked as the most frequent unsafe act.
The results were similar to a study conducted by [Jaselskis and Suazo (1994)] who
reported that workers in Honduras rarely wore PPE. Only 5% of construction workers
were found wearing hardhat. Moreover, [Suraji et al, (2001)], who studied 500
construction accidents in The U.K., revealed that 29.80% of accidents caused by
inappropriate operative actions (unsafe acts) and the major contributor was improper or
inadequate use of PPE. The second rank of high frequency of unsafe act was improper
lifting, handling and moving objects and materials (average score = 3.25) which was
interpreted as occasional degree. Based on interviews, the workers usually carried heavy
objects without any lifting device. Moreover, they were unaware of the proper method of
handling the objects safely. Consequently, improper manners can cause serious injury to
workers. Leaving nails or sharp objects in a dangerous condition comes as the third rank
(average score = 2.67). This type of unsafe act can be interpreted as occasional degree.
One of the research objectives is to investigate what decision to err factors contributing to
unsafe acts. Due to time constraints of collecting data in construction sites, it is not
possible to ask respondents what are the decision to err factors related to each unsafe act
since there are total of 19 unsafe acts. Thus, the possible way to obtain the data within
available time was to ask respondents to rank the top two unsafe acts that they frequently
performed (i.e. a forced choice). Then, each respondent was asked to choose reasons for
doing these two unsafe acts and rate the degree of influence. The four rating scale (i.e. 1=
not influential, 2= little influential, 3= moderately influential, 4= strongly influential) was
used for measuring the degree. By applying this forced choice technique, the researcher
can finish an interview within 15 to 20 minutes, and thus more data were collected to
increase the reliability of the findings. However, due to this method, we can identify
decision to err factors for only some unsafe acts which were chosen by the respondents.
Furthermore, such available data from interview were used for hypothesis tests. The null
hypothesis and alternative hypothesis were employed as following:
H0 = the average score of each factor is not less than 2.51(µ0 ≥ 2.51, minimum value of
moderate degree)
H1 = the average score of each factor is less than 2.51 (µ0 < 2.51, minimum value of
moderate degree)
232
Investigating “Unsafe Acts” and “Decision to Err” 233
For testing the null hypothesis, the test value was set as 2.51 (minimum value of moderate
influential interval) because the interval of mean score were classified into four ranges
(1.00-1.50= not at all influential, 1.51-2.50= little influential, 2.51-3.50= moderate
influential, 3.51-4.00= strongly influential). The SPSS software was applied to compute
the value for hypothesis testing by using one sample t-test method. The output value was
asymptotic significance (1-tailed). The final value was compared with significant level
(α)), which was set as 0.05. Note that if the asymptotic significance (1-taied) value was
less than α, and t value was also less than 0 then the null hypothesis was rejected. The
statistical results were shown in Table 3 below.
PF-01 Laziness 1.84 -7.00 0.000* 1.43 -9.13 0.000* 3.62 7.91 0.000
PF-02 Past 2.97 4.40 0.000 2.55 0.237 0.813 3.18 3.49 0.001
experience
PF-03 Being in hurry 1.51 12.41 0.000* 1.97 -3.42 0.001* 3.03 2.35 0.025
PF-04 Showing off 1.00 - - 1.03 -61.05 0.000* 1.12 -15.11 0.000*
PF-05 Being angry 1.00 - - 1.03 -42.79 0.000* 1.24 -10.64 0.000*
PF-06 Being 3.01 4.43 0.000 1.00 - - 1.00 - -
uncomfortable
PF-07 Effect from
using drugs and 1.00 - - 1.00 - - 1.00 - -
alcohol
PF-08 Supervisor’ s 1.00 - - 1.57 -7.79 0.000* 1.09 -16.11 0.000*
acceptance
PF-09 Co-worker’s 1.02
-
0.000* 1.62 -6.51 0.000* 1.00 - -
acceptance 69.47
PF-10 3.01 4.72 0.000 3.05 3.55 0.001 3.44 6.91 0.000
Overconfidence
JF-01 Too much 1.00 - - 1.47 -8.81 0.000* 1.50 -6.13 0.000*
work
JF-02 Too little work 1.00 - - 1.00 - - 1.00 - -
-
JF-03 Time pressure 1.19
23.01
0.000* 2.05 -2.57 0.013* 2.85 1.39 0.174
Note: P-values with * denote that null hypothesis is rejected when meet both criteria p-value < 0.05 and t <
0. The value of t-test cannot be computed because the standard deviation is 0.
According to Table 5, there are five factors were considered higher than 2.51 or higher
than minimum value of moderate degree for contributing to failure to wear PPE. These
five factors are summarized as follows:
Lack of management support (MF-02): The mean score of this factor is 3.26. According
to the interviews, workers blamed management for not providing PPE. However, they
realized on their safety matter and willingly to wear PPE if provided by the management.
The fact revealed that some of the construction sites required workers to bring their own
safety helmet. Some project sites provided safety helmet to workers, however the sites
charged the workers higher than the market price. Coincidentally, the result of this study
is similar to the study of [Jaselski and Suazo, (1994)] in Honduras which revealed that
management did not provide PPE was the common reason for not wearing PPE. Group
norms (WF-01): The mean score for this factor is 3.14. The workers normally ignored to
wear if they saw other workers not wearing it. They said, “Every one did it that way”.
They indicated that the group was important and they were loyal to it otherwise one will
be expelled by the group. Overconfidence (PF-10): The mean score for this factor is 3.01.
Each worker simply perceived that the possibility of getting an accident was low or if it
should happen it would not be so serious. Being uncomfortable (PF-06): The mean score
is 3.01 for this factor. The workers commonly complained many reasons such as
headache, heavy weight, hot, annoying and unfamiliar because uncomfortable to wear
PPE while working. Past experience (PF-02): The mean score for this factor is 2.97. The
workers did not use any PPE since they had started working in construction industry.
Thus, such experience became a habit and they are reluctant to change.
Table 5 indicates four factors which are higher than 2.51 or higher than minimum value
of moderate degree for contributing to improper lifting, handling and moving objects and
materials. These five factors are discussed as follows: Group norms (WF-01): The mean
score for this factor is 3.48. The workers mentioned that they did not use tools for lifting
heavy objects because their co-workers also did not use, likewise. The workers explained
that they saw co-worker repeating this habits over period of time, thus it became their
norm. Overconfidence (PF-10): The mean score for this factor is 3.05. The interview
revealed that workers were overconfident on low possibility of getting an accident. The
workers mentioned “accident would not happen to them”. Similar to [Hirsch, (1998)] who
stated that overconfidence could lead to improper procedures. For example, they did not
know the correct manual procedure for lifting. They just did what they had ever done
before and accident never happened to them. Management pressure (MF-01): The mean
score for this factor is 2.76. The workers complained that their supervisor pressured them,
which can influence them to work under unsafe manner in order to complete the job. For
example supervisors asked them to lift heavy objects without providing any safety device.
Past experience (PF- 02): The mean score for this factor is 2.55. The workers stated that
234
Investigating “Unsafe Acts” and “Decision to Err” 235
“I have been doing it this way for years since I have started my jobs”. Similar to [Stranks,
(1994)] who supported that most of people are conservative in their views and become
resistant to change. They have done tasks on the basis of past experience, using working
experience that they have practiced over the years.
According to Table 5, there are seven factors were considered higher than 2.51 or higher
than minimum value of moderate degree for contributing to leaving nail or other sharp
objects in a dangerous condition. These seven factors are discussed as follows: Group
norms (WF-01): The mean score for this factor is 3.71. The workers mentioned that they
followed their co-workers for not properly keeping and removing nails or sharp objects.
Laziness (PF-01): The mean score for this factor is 3.62. Because of boredom and
repletion of tasks, workers decided to forsake safety matters. They mentioned that they
felt troublesome to keep and remove nails from the site. Overconfidence (PF-10): The
mean score for this factor is 3.44. They were confident that accidents would not occur to
anybody even to himself or herself. Past experience (PF-02): The mean score for this
factor is 3.18. The workers said that they performed this unsafe act for years and did not
experience any accident. Being in hurry (PF-03): The mean score for this factor is 3.03.
The workers revealed that they wanted to get the job done as quickly as possible;
therefore they did not want to do this supportive task. Time pressure (JF-03): The mean
score for this factor is 2.85. The workers mentioned that under limited time given for
completing their jobs, they have no time to put such sharp objects in provided garbage.
Supervision (MF-03): The mean score for this factor is 2.47. The workers mentioned that
their supervisors never complained them when they left such objects improperly.
CONCLUSION
Unsafe acts practices and decision to err factors influencing the unsafe acts on
construction industry in Thailand have been explored in this study. A survey was
conducted on 214 workers from 20 medium and large construction projects. The results
demonstrated that there are several kinds of unsafe acts occurring in the construction sites
in Thailand. Based on this study, the most frequent unsafe acts committed by construction
workers comprise are (i) the workers rarely wore PPE for doing their jobs, (ii) they
improperly lifted or handled objects or materials and (iii) they left nails and other sharp
objects in dangerous conditions. In order to provide preventive safety program for
reducing and eliminating the unsafe acts, the decision to err factors (the reasons for why
the workers commit to unsafe acts) were also explored. The survey provided a template of
four major factors (personal, job, management and workgroup) that contributing to
workers’ decision to err. By applying forced choice technique, there are three types of
unsafe act committed by more than 30 workers. The first unsafe act was rated by 140
workers is failure to use Personal Protective Equipment. This unsafe act is mainly
influenced by five factors: management support, group norms, overconfidence, being
uncomfortable and past experience. The second unsafe act was rated by 58 workers is
improper lifting, handling and moving objects. This unsafe act of workers is largely
influenced by four major factor group norms, overconfidence, management pressure, past
experience. The third is leaving nail or other sharp objects in dangerous condition. This
236 Aksorn and Hadikusumo
unsafe act of workers is influenced by seven factors composed of group norms, laziness,
and overconfidence, past experience, being in hurry, time pressure and supervision.
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Investigating “Unsafe Acts” and “Decision to Err” 237
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238 Aksorn and Hadikusumo
238
RELATIONAL CONTRACTING; CULTURE AND GLOBALIZATION
STEVE ROWLINSON
Department of Real Estate and Construction, The University of Hong Kong, Hong Kong,
steverowlinson@hku.hk
FIONA Y. K. CHEUNG
School of Construction Management and Property, Queensland University of
Technology, Queensland, Australia, f.cheung@construction-innovation.info
ABSTRACT
INTRODUCTION
Construction project teams are unique entities, created through a complex interaction of
factors, with inter-disciplinary players from many countries, varying roles,
responsibilities, goals and objectives (Goodman and Chinowsky, 1996). Collaboration
and teamwork are therefore crucial since sharing up-to-date information between
participants’ leads to minimisation of errors, reduction of time delays and breaking the
widespread rework cycle, and the formalisation of these issues through partnering
240 Rowlinson and Cheung
Partnering has been defined in many ways. It can be considered as an individual project
mechanism or can be considered as a long term strategy. Alliancing is normally assumed
to be a long term business strategy linking together client, contractor and supply chain.
Relational contracting goes further than this and brings in the whole philosophy of the
value chain and the linking of the interdependent parts within the construction project as a
key business objective.
A recent survey was conducted with a public sector department in Queensland Australia.
The department has recently adopted a relationship management approach in most of their
projects. Relational contracting is multilayered and has been discussed and reviewed in A
Review of the Concepts and Definitions of the Various Forms of Relational Contracting
(2002-022-A-01). A basic, working definition has been adopted (CRC CI, 2002):
In Australia it has been identified that there are three levels, namely the Inspector,
Engineer and the Project Manager levels, at which relational contracting needs to operate
and that each level has its own issues.
From Table 1 it can be seen that the relationships within the team are focused on
completely different issues at these three different levels. It is anticipated in the literature
that the concepts of relational contracting will operate in a smooth and seamless manner
throughout the length and breadth of a project but in fact the objectives of the various
participants are completely different. Because of this, the work of many writers on
partnering can be seen to miss crucial issues,: the different levels at which relational
contracting takes place being an extremely important one. This has come about because
much of the literature is focused purely on the client’s objectives and takes little account
of the reality of the situation on site where the Inspectors and Foremen, Engineers from
client and Contractor and the Contractor’s Project Manager and Principal all interact at
their own levels and across levels on a day to day basis.
However, throughout the course of this research there is one underlying and obvious point
which has surfaced: the Australian culture suits the Relational Contracting culture very
well. The Australian professional is not afraid of confrontation and is relatively frank and
honest, essential prerequisites for successful relational contracting. This approach may
not readily suit other cultures, so the approach must be adapted in each domain to suit
local culture and sensibilities. Hence, the opportunity is available for Australia to
determine its own, distinctive path and appears to be doing so in Queensland.
RELATIONAL CONTRACTING
During the course of case studies and interviews the following general issues became
apparent:
• Many participants are not used to or familiar with the system in practice;
• A fallacy has become apparent; contractor may mistakenly conceive relational
contracting as leading to a “mates rates” approach;
• Relational contracting stimulates communication and breaks down barriers;
• A long-term marketing tool.
With Australian clients having moved from a strong emphasis on hard dollar, traditional
contracts to relational contracting, the learning curve for staff has been steep and the
number of people exposed first-hand to the experience has been limited. This points to a
need for education and training, for the department staff, contractor staff and consultant
staff.
In some instances the authors came across an attitude embodied in the phrase – “you are
my mate, you should give me the variation”; this is a misconception of the nature of
partnering as a relational contracting strategy. The hard dollar contract still underlies the
partnering approach but the role of relational contracting is to proactively manage the
project in order to maximise progress (and quality) whilst minimising disputes amongst
project team members due to the existence of “us and them” attitudes: partnering seeks to
build team relationships whilst tacitly accepting that the tendered contract may inevitably
lead to a claim. There appears to be an industry wide issue of education here and the
reinforcement of recognition that there are a number forms of relational contracting,
242 Rowlinson and Cheung
partnering and aliening for example, which operate under different parameters and which
are appropriate for different circumstances.
The role of the facilitator is crucial in this process; by facilitating at the outset the
establishment of an atmosphere that promotes open communication, willing cooperation
and a brainstorming approach to problem solving a value engineering approach can be
brought to bear on project issues and solutions, traditional or innovative, can be invoked.
These “channels” need to be kept open and the use of partnering workshops throughout
the life of a project are an important mechanism to maintain these changed, non-
adversarial attitudes.
The senior managers on both sides tend to carry out relational contracting in their own
way. They do this because they have seen different benefits coming from relational
contracting such as future job opportunities and benefits for the organisation. However
different levels in the project team see the principles and objectives of relational
contracting differently and this issue needs to be addressed.
Clients must be educated to recognise the benefits of relational contracting. They must be
weaned away from an expectation to let projects to the lowest tenderer. This may be best
promoted through an industry wide forum where all professions and sides of the industry
can be seen to support relational contracting.
Relationship contracting should not be seen as a one-off approach which can be switched
on and off as necessary. It is in fact an overriding philosophy and a sea-change in the
industry’s culture leading to changed attitudes and collaborative, proactive project
management. It is, in essence, what good project management is all about. Hence, there
is a need to promote the concept of relationship contracting as “business as usual” and
effectively drag the industry “kicking and screaming” into a new era. This is an issue that
needs to be addressed at an institutional and educational level i.e. it needs to be driven by
the involvement of construction industry clients as a group, contractors’ and suppliers’
associations, professional institutions and consultants associations. It also needs to be
underpinned by the education system, at trades and tertiary/professional levels and this
must be facilitated by the re-design of curricula for the built environment schools.
During the course of this research a series of benefits, to different people at different
levels, were identified to come about through the adoption of RM approaches. A major
advantage was identified in operating on a face-to-face basis. When the “protective
Relational Contracting, culture and Globalisation 243
By building a the level of trust and being convinced of the contractors competence and
trustworthiness, the department personnel can be freed from the chore of being on the
spot all the time in order to conduct supervision. When the situation arises, when the
department personnel can trust the Contractor to carry out the job correctly, not only is
work more enjoyable but time can be spent on more creative issues and more focus can be
given to creating an excellent project.
In a similar manner, the Contractor can usefully make savings also. The department is
capable of providing assistance on the technical and knowledge aspects of the project and
can, in a relational contracting approach, provide faster, better and more solutions to
construction problems. More harmonious working relationships allow both parties to
focus on work issues rather than other contractual issues. The department becomes more
proactive in helping the Contractor. The lower level of necessity to use formal channels
and documentation allows for more focus on project problem solving but this new regime
is dependant on trust being established. Undoubtedly, the sources of claims still need to
be documented but this is not the central focus of either party. When the situation arises
as “business as usual” when both sides are proactive in solving construction problems
then a new focus of attention can emerge. This is the use of ICT within the construction
project management process. By automating document handling and visualising the
construction project both sides of the team can more readily focus on Value Engineering
issues and the improvement of project quality.
However, from a critical point of view it has been pointed out that training and education
are key issues which can facilitate this move from adversarial to proactive relationships in
the project team. This training and education needs to be focused on the skills and
techniques and philosophy of relational contracting.
244 Rowlinson and Cheung
At a state level, relational contracting has the potential to deliver on government priorities
such as regional and industry development, empowerment, work life balance and a
sustainable industry (in terms of economics, environment and people). This being an
internal marketing issue should be fully realised and utilised by the department.
One of the most common observations while conducting this research is that not all
participants believe in the efficacy of relational contracting. In order to overcome this
barrier it is necessary to involve all staff at all levels, revisit the initial relational
contracting workshop and re-facilitate regularly and, finally, identify champions to drive
the process at all levels within the project organisation.
High turnover of personnel in the project team has always been a problem in the industry.
Where there is a high turnover of personnel from participating organisations, it is a
serious impediment to the relational contracting project. One solution to this may be to
invoke a stability clause in the conditions of contract under which the relational
contracting project is conducted. It is essential that the contractor buys into the continuity
of staff issue but the role of consultants in this respect must be addressed, as there is
evidence that consultants are a common source of problem. In order to address the issue
of releasing staff to attend facilitated and regular relational contracting meetings, the
client's organisation should consider building this into budgets as set at the outset of the
project.
PARTNERING FACILITATOR
Most participants felt that the facilitator should be a neutral party but the authors are
aware of situations where one or other party has supplied a facilitator and the process has
Relational Contracting, culture and Globalisation 245
been successful. Either employing a third party as facilitator or a Contractor supplying its
own facilitator are scenarios which can also work successfully.
Even with the right or good facilitator, whether relational contracting would work or not
also depends on the attitudes of senior management in both organisations – even on
different projects within the same organisation. It is not just the Contractor or the client
who needs training or has the wrong attitude: it is an industry wide issue involving
attitude change through education, training and experience.
The question now raised is how are these lessons to be communicated to the whole of the
organisation staff? As a starting point, the learning register needs to be used more
effectively throughout the organisation and relational contracting reinforced during the
course of the project. For example, on a project where an “Alliance Manager” is in place,
it has become apparent that the day-to-day management of the alliance or relational
contracting project is crucially important to success. Hence, there is a need for a part-
time role to fill this particular position in normal contracts. So, when we address the key
issues in relational contracting, we need to be able to clearly state our selection
procedures and protocols. In essence, this is a research objective or outcome and there is
a need for the project participants to draw these issues together from existing experience
and so consolidate this into a new protocol.
To achieve the new protocol is a matter which needs industry wide debate and
commitment but obvious areas which need attention are syllabus changes in learning
institutions so as to prepare graduates coming into the industry for relational contracting
projects, development of training courses so as to provide additional skills and develop
team building and preparation of information handouts as reinforcement for lessons
learned.
The following points can be considered received knowledge and pertinent questions for
selecting people to participate in a successful relational contracting system:
• Employ the right people. Believing in relational contracting being one of the
considerations in the recruitment process. What are the "right" criteria?
• Provision of training and development on relational contracting, company and
industry wide;
• A policy issue arises here – including relational contracting skills as one of the
recruitment criteria, not just possession of, say, an Engineering degree. This does
not happen very often at present and so raises the following questions:
o Is there a need to include this into formal graduate curricula and other
training courses?
o One cannot include relationship training if it is not taught. Who will
provide the training material?
o Should contractors be expected to, and how can contractors, train their
own staff?
246 Rowlinson and Cheung
• There must be a commitment from both sides to send ALL personnel along to the
relational contracting workshops and to maintain a stable project team throughout
the project.
In terms of answers to this question delivered during the research the following can be
considered to be received wisdom:
• It can be, even projects with a time frame of less than 6 months;
• Not necessarily a full scale partnering approach. Can be with a small workshop
(e.g. half day) with about 4-5 people and facilitated by an internal person, which
would help to get the communication going, set up partnering charter, set up 4-5
objectives and do the scoring each month;
• A short RM meeting which lasts for about 20-60 minutes can be held once a
month;
• It is beneficial to hold a pre-start (initial) workshop outlining the relationship
principles;
• Yet, again, in order for this to work, commitment is essential from both sides’
leaders.
CONCLUSION
Alliancing, partnering and relational contracting, all have a common theme, which is to
develop a long-term relationship for such to be applied successfully. Successful
sustainable relationships rely on relational forms of exchange, with high levels of trust
and open and frank communication. The Australian culture is found to suit the Relational
Contracting culture very well. The Australian professional is not afraid of confrontation
and adopts an open and frank communication approach. In Australia, it has been
identified the three levels, namely Inspector, Engineer and Project Manager, at which
relational contracting needs to operate. Also, the issues concerned in relationship at each
level are different. In order for relational contracting to be successful, realising and
understanding the different levels at which relational contracting takes place is an
extremely important issue.
Relational contracting brings about a more proactive and collaborative working approach.
People find work more rewarding and enjoyable. There is much less paperwork to deal
with and the traditional, contract specified route for problem resolution is circumvented.
During the process, a level of trust is built. Also, problem resolution on the technical and
knowledge aspects of the project is shared, providing faster, better and more solutions in a
relational contracting approach. Other than at the operation level, relational contracting,
at a state level, has the potential to deliver on government priorities such as regional and
industry development, empowerment, work life balance and a sustainable industry.
Relational Contracting, culture and Globalisation 247
Furthermore, major issues emerge in this research project which link to other research,
such as: choice of project delivery process; change of culture and development of real
teams; a sustainable approach to the industry in terms of people, environment and
economics; ICT as a facilitator for these changes.
REFERENCES
Bresnen, M., and Marshall, N. (2000) "Building Partnerships: Case Studies of Client-
Contractor Collaboration in the UK Construction Industry." Construction
Management and Economics, 18(7), 819-832.
CRC CI. (2002) "A Review of the Concepts and Definitions of the Various Forms of
Relational Contracting (2002-022-a)." Brisbane, Australia, Unpublished Report.
Walker, D., and Hampson, K. (2003). "Enterprise Networks, Partnering and Alliancing."
Procurement Strategies: A Relationship-Based Approach, D. Walker and K.
Hampson, eds., Blackwell Science Ltd., UK.
ABSTRACT
Globalisation implies that international competitive forces raise the degree of competition
in the local construction industry of a country. Given that the majority of projects in
Hong Kong are awarded on a competitive bid basis [the traditional procurement system],
the scope for main contractors to gain a competitive edge is very narrow. Costs of
materials and plant are the same or similar between competitors. The opportunity for cost
reduction lies with the management of labour cost. Hence, improvement in labour
productivity can provide the necessary competitive edge. Multiskilling can improve
productivity and thus be an appropriate response to globalisation. This research presents
the findings from survey and interviews conducted with various industry participants in
order to evaluate the potential benefits, impediments, limitations, and applicability of
multiskilling. Results indicate that benefits are likely to both the workers and projects.
However, contrary to earlier findings, quality and safety may not improve. In Hong Kong,
major impediments exist, such as worker resistance and high training costs. These can be
overcome in the long term through a process of continuing improvement, and so benefit
the industry image. Thus, Hong Kong does not match experience in other countries in
every respect, and this knowledge may be useful to other countries.
INTRODUCTION
relevant to other countries also facing competitive pressures from globalisation. In the
analysis of the data and discussion, the authors have considered the issues raised from the
point of view of the workers, the projects and the industry as a whole.
The paper briefly reviews previous studies, before describing the results of field work in
the Hong Kong context.
Much research has been performed to attempt to identify the potential benefits of
multiskilling. Statistically, previous research demonstrated the benefits of multiskilling
would be a potential 5-20% labour cost saving, a 35% reduction in required total hires, a
47% increase in average employment duration for workers per project, and an increase in
earning potential for multiskilled workers [Burleson, 1998]. Practically, the benefits can
be grouped into three levels: worker level, project level and industry level.
Worker Level
Previous research indicates that construction workers benefit from multiskilling labour
strategies. The majority of the findings show worker benefits come from construction
applications with multiskilled labour strategies.
Carmichael and [MacLeod, (1993)] pointed out the job security of a multiskilled worker
is higher than the single-skilled one. Besides, they can participate in many types of
project, thereby avoiding the necessity of relocating to different areas because they can
work at one location at a number of trades [Haas et al, (1998)].
In the long term, multiskilled workers gain benefits also. Job satisfaction and happiness
has been increased among the multiskilled workers as they can gain exposure to a wider
variety of craft and need not to face the same kind of job all the time [Haas et al, (1998)].
Another long-term benefit was found by [Burleson, (2002)]. She suggested that
multiskilling gives workers more possibilities to advance and develop a career path. They
can improve their opportunities of remaining steadily employed within the same
geographic region. Therefore, there would be an increase in average employment
duration of craft workers.
Multiskilling as a response to Globalisation 251
Combining the above benefits, multiskilling makes the workers more competitive and
marketable because workers stay longer on a project and a more flexible utilization is
possible.
Project level
The use of multiskilling strategies may reduce many of the problems associated with
traditional single skill employment strategies. One of the major benefits of using
multiskilling in construction is monetary savings [Haas et al., (1998); Tam et al., (2001)].
It was shown [Haas et al. (1998)] that multiskilling can lead to increased productivity as
multiskilling leads to more efficient use of time on construction sites, affects the attitude
of workers and increases the desire to perform. Carmichael and MacLeod [1993] also
demonstrated that there would be a significant savings in project labour costs after
implementing multiskilling. Related research has confirmed the positive impacts of
multiskilling on projects such as improved quality and safety together with the added
flexibility available to project managers in assigning tasks [Williamson, (1992)].
[Stewart (1999)] found that after implementing multiskilling, the tradesmen generally
improved their knowledge of work, leading to better understanding of integrated
construction activities. For example, a carpenter with experience of installing conduit
would be more sensitive to the impact of his work on an electrician.
Industry Level
Multiskilled labour utilization strategies may provide increased opportunities for the
development of process innovations and technology implementation [Tatum, (1989);
Nonaka, (1990); Ettlie and Rezo, (1992)]. This is important when the industry wants to
increase the marketability of local construction firms. The lack of innovation or advanced
technology would reduce the competitiveness of local firms. The implications are also
that multiskilling may have some other significant industry impacts. For example, the
industry would hold greater appeal to young workers because of the development of
career-type employment opportunities. It is particularly important to the construction
industry in the meantime, as it has hitherto encountered difficulty in attracting new blood
and in retaining those who have joined the workforce [Hong Kong (China), Construction
Industry Review Committee, (2001)].
METHODOLOGY
Three primary sources of information were used in this research: literature, questionnaire
survey and interviews. Full details of the method are given in Yuen (2003) and only a
brief account is given here.
The first stage of this research was a literature review based on previous studies of
multiskilling applications in the construction industry of other countries in order to
familiarize with the practical experience. Articles relating to multiskilling, human
resources management, and construction labour management were examined.
252 Fox and Yuen
Second, a questionnaire survey of main contractors was executed. There were 317
questionnaires sent, with 54 responses, giving a response rate of 17%. The respondents
were requested to score, according to a five-point Linker scale, 22 potential benefits of
multiskilling (see Table 1) and 9 barriers to implementation of multiskilling (see Table 2).
Main contractors were viewed as being the most knowledgeable about and experienced
with multiskilling. They have close relationships with their sub-contractors, as well as
with their directly employed workers.
Third, a series of interviews was conducted with representatives of five stakeholders, i.e.
the government bodies, the training authorities, the unions, the contractors and the
industry development groups, representing different points of view.
Data Analysis
b) Worker level
The employment duration can be increased 0 7.4 18.5 63.0 11.1 100
The # of moves from employer to employer can
7.4 7.4 25.9 48.1 11.1 100
be reduced
The # of moves between projects can be reduced 0 11.1 37.0 40.7 11.1 100
Marketability can be increased 0 0 25.9 66.7 7.4 100
Earning potential can be increased 0 3.7 25.9 59.3 11.1 100
Better understanding of different trades 0 3.7 14.8 63.0 18.5 100
Workers would have higher security of their job 3.7 0 22.2 63.0 11.1 100
The variety of job can be increased 0 7.4 22.2 63.0 7.4 100
Greater opportunities for advancement 3.7 3.7 22.2 51.9 18.5 100
Job satisfaction and quality of working life can be
0 3.7 25.9 51.9 18.5 100
increased
c) Industry level
# of new entrants to the industry can be increased 3.7 18.5 48.1 25.9 3.7 100
Multiskilling as a response to Globalisation 253
Comparing the benefits at the three levels of analysis (worker, project and industry),
results indicate that construction workers benefit most from multiskilling labour strategies
as nearly all the benefits listed in this part achieved more than 70% agreement from the
respondents. The benefits can be grouped into two major categories: economic benefits
and motivational benefits.
Construction workers can gain economic benefits because of the increased employment
duration, reduced number of job relocations to find work, increased marketability and
increased earning potential.
Over 70% of the respondents agreed that through the increased training in other trades,
the multiskilled workers are capable of performing different types of work and can
perform work in different phases of projects which allows them to have longer
employment duration. Another economic benefit of multiskilling that is closely related to
increased employment duration is the reduction in the number of moves and relocations
needed for a worker to find works. If multiskilling affords workers the opportunity to
work longer on the projects, the worker will experience fewer periods of non-work from
layoffs or firing which will reduce the periods of no income for the worker. Only half of
respondents agreed that there would be increased income because workers are able to
work more hours in a given year.
Results also indicate that multiskilled employees are more marketable than single skilled
employees, as employers would rather hire a person who can do a variety of tasks than a
person who can only perform one task. No one disagreed that multiskilling allows
workers to be more marketable in the industry.
Over 70% contractors indicate that multiskilling can increase the earning potential of the
construction workers. It can be concluded that most of the contractors willing to pay a
254 Fox and Yuen
higher wages to a multiskilled worker than the single skilled one. This result is
understandable. When a worker can perform a variety of tasks, employers would be more
willing to pay him / her higher wages. Even if the same wage was received, the
lengthened employment duration enables the worker to earn more, as he can work more
hours during a given year than his non-multiskilled counterpart. Thus, the earning
potential is still increased.
Multiskilling not only provides economic benefits to the workers, but also motivational
benefits. Under the current single skilled labour utilization strategy, most of the
construction workers adopt a short-term view of business development, with little interest
in enhancing their long-term competitiveness. With implementation of multiskilling, it is
likely that workers would seek a sustainable career development. The motivational
benefits include better understanding of different trades, increased security and task
variety, and increased job satisfaction.
Through additional training for other trades, most of the contractors believe that workers
can have better understanding of different trades. The result can be shown in the
percentage of agreement which is as high as 81.5%.
A major motivational benefit to the worker is increased job security. More than two
thirds of survey participants indicated employees could benefit from increased job
security. The security would be provided by the flexibility of the multiskilled employee
through his or her ability to work in several different trades.
For increased job variety, 70% of respondents agreed that greater opportunities for
advancement exist, leading to increased job satisfaction. The underlying reason may be
that multiskilling allows workers to perform a variety of tasks, so that their job
opportunities will not be limited to one trade. The workers themselves may appreciate it
because they get knowledge of more than one trade. Other benefits discussed earlier,
such as increased earning potential and increased employment duration, also have a
positive affect on the job satisfaction and happiness of the multiskilled employee.
Compared with the benefits discussed above, the benefits of reduction in the number of
moves from employer to employer and between projects receive lower degree of support
as both of the percentages are less than 60%.
At project level, 40% of the main contractors agreed the use of multiskilling leads to
increased job site productivity. The increased flexibility in job assignment after
implementing multiskilling is the most obvious and anticipated benefit. More than 85%
contractors agree with the benefits of flexibility (over one third of respondents even
strongly agree). For the continuity of workforce, there is also a higher percentage of
agreement as more than 70% of the contractors agree with this item. For site safety and
quality, the responses show both of these aspects are largely unrelated to multiskilling.
Most respondents did not consider there were any savings in Personnel Department
administration costs.
Compared with the other two levels, benefits at the industry level after implementing
multiskilling are less obvious as the number of contractors who agree with the potential
benefits in this area is less than half. Most of them remain neutral when talking about the
Multiskilling as a response to Globalisation 255
industry benefits.
Scores for better career development of workers together with the improved working
condition, indicate that the industry will hold greater appeal to young workers. It is
particularly important when the number of young workers can be increased through
multiskilling so as ensure a steady supply of labour. However, while the potential
benefits to workers as shown in Table 1 are obvious, more than two thirds of contractors
are neutral or indicate that multiskilling cannot stimulate the growth of young workers
entering to the industry.
Compared with the benefit of increasing number of entrants, the benefit of increasing the
competitiveness of local contractors is less likely to be accepted by the respondents.
When talking about the competitiveness of local contractors, the respondents can give
most reliable results as they are the direct parties being involved. The percentage of
agreement in this item is almost 45%. Even it is less than a half, it can be concluded that
at industry level, the benefit of increasing competitiveness is more obvious and
predictable.
Comparing the questionnaire survey and the interviews, the results show some differences.
Different parties would have different standing points and focusing areas. For the
contractors, they would focus on profit and productivity while for some other industry
stakeholders, they would focus the improvement of the whole industry. Although there
are some differences in the comments about the potential benefits and impediments of
multiskilling implementation, some points can be summarized.
Concerning the potential benefits, it can be concluded that workers benefit most from
multiskilling, such as higher earning potential and better understanding of different trades.
More importantly, multiskilling allows workers to have better long-term career
development. At the project level, both the survey participants and interviewees agree the
main advantage is increasing the flexibility in job assignment. For the industry level, it is
not easy for the survey participants to identify industry benefits, but some of the
interviewees believe multiskilling can improve the image of the industry by increasing the
social status of the workers and increasing the confidence of public on building works.
DISCUSSION
Although there are many identified potential benefits, impediments and limitations as
256 Fox and Yuen
identified in the literature, not all of them are suitable for the case in Hong Kong. The
main differences between the findings and literature are outlined as follows.
Most of the benefits identified in the literature research are found to be applicable in
Hong Kong. Those potential benefits include 1) the increased flexibility in job
assignment, 2) continuity of workforce, 3) reduced idle time between different trades and
4) reduced number of workers from different trades. At the worker level, the potential
benefits identified from this study are similar to those found in the literature. However
some of the potential benefits seem to be not applicable in Hong Kong. They include:
• Improved safety of work: The potential for increased site safety through the use of
multiskilling strategies is based on the literature. Past studies show multiskilled
workers are more aware of the hazards of the other crafts around them, so they tend to
perform better in the field of safety. Since they stay on the job through longer phases,
they will have a better understanding of what’s going on. However, from the
questionnaire survey and interviews, it can be expected the belief of improved safety is
too optimistic as about 75% contractors are neutral or disagree with this potential
benefit.
• Reduced number of moves: A reduced number of moves from project to project to find
work is an economic benefit of multiskilling that is mentioned in the literature.
Researchers from the University of Texas at Austin found that multiskilled workers can
possibly experience longer durations in the present site so that the workers can stabilize
in one location and reduce number of relocations of their family. This potential benefit
is not applicable to workers in Hong Kong, since it has a small geographical area, and
the distance between different sites is short. Workers live at home and travel each day.
Also, the employment of directly employed labour by main contractors is a limited
practice in Hong Kong (Tam et al., 2001). As a result, the number of moves between
employers or between projects is not important to the workers.
• Increased number of entrants to the industry: Concerning about the benefits at industry
level, [Burleson (2002)] believed that with the implementation of multiskilling, the
industry would hold greater appeal to young workers because of the development of
career-type employment opportunities. However, results from this study show that it
may be difficult to achieve. In Hong Kong, the attraction for young workers to enter the
construction industry in the short term is whether they can earn money or not. Career
development is one of their considerations, but not the most important one. In the
current situation, the unemployment rate is high, especially in the construction industry.
Young workers will not normally consider entering the industry because of the lack of
long-term career development.
Multiskilling as a response to Globalisation 257
Similar to the benefits discussed, not all the impediments of multiskilling covered in the
literature would also hinder the implementation in Hong Kong. Common impediments
include worker resistance and training availability. The unique impediment in Hong
Kong is the resistance from industry due to a change of the current traditional industry
practice. For union resistance, research from other countries indicated it is one of the
main barriers, however, it would not be expected in Hong Kong.
Limitations of multiskilling
Multiskilling provides a wide range of benefits, but there are still some limitations. Few
limitations have been identified in the literature [Hass et al. (1998) ], one being the
problems of information overload. This same limitation would be expected in Hong
Kong.
Applicability of multiskilling
From the literature concerning the implementation of multiskilling in Hong Kong, the
Construction Industry Review Committee (CIRC) has pointed out multiskilling should be
adopted to equip workers with a broader appreciation of their job requirements. On the
other hand, some researchers, such as [Tam et al., (2001)] believed it is difficult to
implement multiskilling in Hong Kong as the construction industry always comprises a
group of skilled or semi-skilled craftsmen belonging to a very narrow division of craft.
Findings from the questionnaire and interviews indicate that multiskilling is applicable.
From all questionnaire respondents, the average score of the overall potential is 3.19
(1=low; 5=high) and most of the interviewees indicate multiskilling is likely to be the
future direction of manpower development. Although it is applicable, it is difficult to
implement multiskilling. There are some impediments which make the implementation
very difficult, such as worker resistance and high training cost, but they can be solved.
The most important measure to overcome the barrier is the co-operation among the
government, training bodies, employers and employees.
CONCLUSIONS
direct benefit, but most of the interviewees indicated the image of the industry could be
improved in the long term.
REFERENCES
Stewart, B. (1999) Multi-skilling: timely manpower utilization for the new millennium?
<http://www.meritalberta.com/publications/open%20mind/open%20mind%207/mu
lti-skilling.htm>
Tam, C.M., Tong, K.L., Cheung, S.O. and Chan, P.C. (2001) Genetic algorithm model in
optimizing the use of labour, Construction Management and Economics. 19, 207-
215.
Tatum, D.J. (1989) Organizing to increase innovation in construction firms, Journal of
Construction Engineering and Management ASCE, 115(4), 602-617.
Williamson, R.M., (1992) Optimum performance through multi-skill maintenance, AIPE
Facilities.
Yuen, R.W.S., (2003) An Analysis of Implementing Multiskilled Labour Strategies in the
Hong Kong Construction Industry, unpublished Dissertation, Dept. of Building &
Real Estate, The Hong Kong Polytechnic University.
260 Fox and Yuen
INVESTIGATNG THE KEY OF KNOWLEDGE CREATION PROCESS AMONG
THAI CONSTRUCTION PROJECT MANAGERS
ABSTRACT
The goal of this study was to learn more about construction project managers’
experiences and perception of the knowledge management in construction project.
Qualitative method was used to describe knowledge enablers and knowledge creation
process. The focus attention was the knowledge creation process at the on-site work level.
Eleven senior construction engineers participated in focus group series and individual
interview. Consistent with previous empirical evidence, three knowledge enablers found
in this study were: organizational structure (corporate vision, leaderships, formalization,
and centralization), corporate culture (knowledge network, collaboration, trust, learning,
communication, and incentives), and IT infrastructure. These three enablers overlaid on
knowledge creation process in each stage of construction project management.
INTRODUCTION
In developing countries, previous literature supported that the core symptoms of problems
that extremely obstacle project teams competency in developing countries are managerial
level and human resource problems. One of human resource problems involves the
scarcity of skilled personnel at all levels [Imbert, 1990]. The failure of project
management team could adversely affect stakeholders.
Several studies had been widely investigated the incompetence of the project
management team. The factors were categorized according to their impact and factors of
262 Teerajetgul and Charoenngam
occurrence. Human factor was one of the most influential factors that could impact the
project team competency [Nonaka and Takeuchi, (1995), Kluge et al., (2001)]. In sum,
three main factors that influenced the site manager were (1) personal skills which
depended upon age, qualification, training, experience, leadership, communication,
negotiation, influencing, and problem solving; (2) technical skills and job conditions
identified as complexity, team relationship, job satisfaction, and job security; (3)
organizational culture including social, and environment [Belassi and Tukel (1996),
Mustapha and Naoum (1998), Odusami (2002)].
Knowledge is very different in many ways from the traditional critical asset. The way that
knowledge operates within organizational is difficult to track and the value it adds is not
readily quantifiable [Kluge et al., (2001)]. Currently, knowledge-based utilization should
be regarded as a critical success factor for project teams. The project teams can identify
success patterns and develop a pragmatic approach for competitiveness and
organizational competency.
Several factors impact a project team’s ability to acquire and use knowledge to improve
their probability of success. In today’s business, construction project team has added
knowledge to this learning field to complete the projects effectively. The teams have a
tendency to break problems down into small objects so that they are more manageable.
They need to construct of how they acquire and use information knowledge [Edum-Fotwe
and McCaffer, (2000)]. These findings should help in creating learning new product
teams, so that small and large firms can systematically profit from the knowledge capital.
[Lynn et al. (2000)] pointed out that the traditional way of handling complexity by
univariate perspective or linear association prevented the team from understanding the
larger problem, which is non-linear by nature. These authors further discussed that a
holistic view or system thinking helped the teams’ members to see different perspectives
of the new development process.
PROBLEM STATEMENT
transfer of knowledge has potential for project teams to make decision and accomplish
the common objectives.
In Thailand and other developing countries, the construction industry has inadequately
and ineffectively controls strategies towards project management problems. The
characteristics of the operating method of contractors are mainly based on sole
ownership, headed by entrepreneurs without expertise in construction management.
Evidently, the most important factor inhibiting the completeness of construction project is
a scarcity of skilled personnel at all levels of construction engineers especially
supervisors [Imbert (1990), Mackenzie et al., (2000)]. However, most of owners do not
want to spend money to employ qualified professional for management competency.
This exploratory study aims to describe the perception of construction project managers
and their experiences regarding knowledge enablers and knowledge creation process in
construction project. Qualitative research method was used. It helps the investigator to
obtain rich information about knowledge enablers and knowledge creation process in
construction project.
BACKGROUND
Knowledge needs in construction project are driven by the nature of task characteristic.
An important aspect of construction team is effective communication among members.
Traditionally, the communication has been handled through person to person dialogue or
meeting. Presently, the complexity of construction project and construction environment
has changed rapidly. The project teams need to integrate new information and their
collaboration to create consistent knowledge for supporting interaction and decision-
making through all construction steps. [Nonaka and Takeuchi (1995)] addressed the
interaction between explicit knowledge, which can be articulated in formal language
including grammatical statements, mathematical expressions, specifications, manual and
264 Teerajetgul and Charoenngam
tacit knowledge, which is hard to articulate with formal language then leading to the
creation of new knowledge. The combination of the two categories makes it possible to
conceptualize four conversation patterns. Socialization means sharing and creating tacit
knowledge through direct experience. Externalization means articulating tacit knowledge
through dialogue and reflection. Combination means systemizing and applying explicit
knowledge and information. Internalization means learning and acquiring new tacit
knowledge in practice.
Project team cannot create knowledge on its own without the initiative of team members
and the interaction within group. Knowledge can be amplified or crystallized at the group
level through dialogue, discussion, experience sharing, and observation [Nonaka and
Takeuchi, 1995]. Besides, knowledge is related to perception. Perceived difference is at
all kinds and levels of engineering depending on one in a given situation. Differences in
perceptions and experiences of construction engineers create a variety of behavioral
responses [Ogunlana et al., (2002)]. Apparently, all groups of construction engineers
show more or less variation in perceptions. Literature review revealed that construction
engineers have both management and technical thinking styles [Edum-Fotwe and
McCaffer (2000), Suaer et al., (2001), Odusami (2002)]. Among management problems,
extreme variation in perceptions of actual problems has been demonstrated. This clearly
suggests that for the same phenomenon, engineers have different mental models and
different capability to define a phenomenon. As a result, they take effective actions to
solve problems in a different way. Whenever there is a misperception, humans have a
tendency to show behaviors in a different manner. Therefore, understanding and
capitalizing on difference of behavior styles related to psychology will help increasing
project teams’ chances of success [Charoenngam and Maqsood (2001), Culp and Smith
(2001)].
Conceptual model in figure 1 was used to describe the relationship between knowledge
enablers and knowledge creation process. The goal of this study was to learn more about
construction project managers’ experiences and perception of the knowledge management
in construction project. The focus attention was the knowledge creation process at the on-
site work level.
Investigating the key knowledge creation process 265
Managing Director
Organizational Externalization
Socialization
Structure Project Manager
Forman 1 Forman 2
Crew 1 Crew 2
Figure 1.1 Relationship between knowledge enablers and knowledge creation process in
construction management team
METHODS
Sample selection
The study sample was 11 senior construction managers from construction projects. All
were qualified and met the following criteria: (1) having at least 20 years of experience in
construction projects, (2) being experts in knowledge management area, (3) willing to
participate. It was agreed that the study samples could withdraw from the study at any
point. Table 1 summarized demographics data of the 11 study participants. All of them
were male with a mean age of 49.27, ranging from 41 years to 63 years. Years of
experience in engineering discipline ranged from 21 to 40 years (Mean = 26.73, SD =
6.66). More than a half of the sample had bachelors’ degree in civil engineering.
266 Teerajetgul and Charoenngam
The study was conducted in construction sites in Bangkok and suburb areas. Interview of
the study participants and site observation were conducted from February 2003 to July
2003. The investigator developed a semi-structured interview for focus group series and
individual interview format for examining project managers’ attitude, experiences, and
perception regarding knowledge management practice [Stewart and Shamdasani, (1990)].
The questions were open-ended. Only four construction managers voluntarily participated
in the focus group series after briefing and discussion about detail. The others decided to
participate later in the personal interviews. Both formats were utilized to maximize the
variability in response and minimize the response biases. The focus group format
prompted for memories of experiences whereas site observation and individual interviews
relied on the individuals’ recollection of events. Follow-up interviews were used because
what participants perceived to be the content did not always relate to the investigators
own observation. Each interview and focus group was supplemented by note-taking and
audio-tape recorded and later transcribed for coding. The code is a word or phrase close
in meaning to what is in data. The significant statements pertained to the investigated
phenomenon were extracted and quoted [Stewart and Shamdasani, (1990)]. The
investigator added codes as necessary until redundancy was reached. Informant
comments were compared and found to be similar. The investigator formulated the
meaning of the significant statements and organized them into cluster of themes. The
investigator then confirmed the identified themes with the informants during the
subsequent interviews.
Investigating the key knowledge creation process 267
FINDINGS
The objective of the interviews was to better understand factors related to knowledge
management in construction management team. This also involved knowledge enablers
and knowledge creation process perceived by construction managers. Emerging themes
and highlights of the interviewing with construction managers are summarized below.
Enablers
The discussions have revealed that three enablers: organizational structure, corporate
culture, and information technology overlaid onto each stage of knowledge processes. A
brief mention of these areas will be made and provided below:
Organizational structure
The participants or informants expressed their opinions that enablers referred to the
impact on knowledge of knowledge management in form of organizational structure. It
included vision, leadership, centralization or hierarchical, and formalization. Data
revealed: “In the construction project knowledge came from people experience. Even
though the construction project had no vision or clear policy about knowledge
management but project managers’ used of knowledge management occurred by
traditional and working direction. Common workstation platform such as ISO was
necessary for collaborative environment.”
Corporate culture
Evidently, all participants stated that corporate culture had strong significant impact on
knowledge management practice in construction team members. The corporate culture
emphasized on members’ interaction or communication, collaboration, trust, incentive,
knowledge network and learning. Several informants explained: “Sometime I struggled
with unfamiliar problem. I traced other experts from my knowledge networks. There were
two general ways: 1) networks of expert who worked in the same field but in different
firms, especially friends. I was cited frequently for sharing knowledge to solve or improve
268 Teerajetgul and Charoenngam
working, 2) networks of expert from diverse background. I was used to contact sources
for identifying the appropriate experts for collaboration.”
“I emphasized teaching my team members with the real works or at weekly meeting.
Occasionally, training programs might not be focused or specific. Training programs
were not continued when mentors believed that these engineers were trained enough to be
responsible for their work.”
Information technology
After knowledge has been explicitly given or documented, team members consider it to
be a form of data or information. Data are better viewed as a set of facts about events.
Information is data that has been synthesized and inform the recipient of potential value.
Most of experts addressed that internet was only company provided for searching new
knowledge. “I mainly utilized information technology to search new knowledge or new
product and distribute to my colleagues based on area of interest. Because of day-job and
construction characteristics, most of my engineers stayed away from the construction
office so internet or e-mail was rarely used or less important than mobile phone in my
construction site.”
Socialization
Information was exchanged through my team members who joined activities such as
being together (living at the same construction camp), spending time living in the same
environment (coffee hour, informal drinking and eating together).
Externalization
By sharing experiences through socialization, project team obtains novel ideas that are
converted to language or explicit knowledge. This represents externalization. Almost all
informants expressed that wording and dialogue strongly support tacit knowledge into
readily and express ideas. “I never closed my door, my team members were freely to talk
with me for express ideas and opinion. We discussed in both formal and informal
depended on situation. My creative experience typically started with talking to my team
members, especially when I tried to solve construction problem. I’ll start saying, “ what’s
happen? How to solve it?” The civil engineers whom directly responded would say, “we
needed to do XYZ”. I’ll take a lead on this situation, guiding, explaining or asking the
others civil engineers who ever got that experience (finding best practice). Then a
template was developed to allow engineers to involve the interest and to convert it to
activities.”
Combination
When the team combined one example of explicit knowledge with another for new
knowledge creation, it called combination, in which information technology or
documentation played important role. Informants presented that knowledge was collected
in form of data (folder and database). The dissemination was based on the process of
transferring this form of knowledge by using directly presentation or meeting. “We had
traditional meeting where everybody sit around and offer different ideas. I discussed one-
by-one via phone calls. Only certain people were chosen, so sometime we lost other
people, novel ideas. They worked nothing in the discussed task, but would be some
different things outside the dotted line.”
Internalization
For internalization, knowledge was put into action and practice. It created value in the
form of technologies, products, services and solution. Then interaction returned to the
first stage of socialization. By the time, project managers escalated their competency in
making independent decision. Their knowledge and experiences also increased. Site
engineers largely made decisions under supervision of project manager or project
engineer. Majority of informants explained: “I got problems from young engineers. They
didn’t know how to do when a problem occurred or they had to produce work that was
not routine. Even though they got more than five-year experiences, they created nothing
appropriately with potential to solve or handle this situation. I (project manager) directly
used executable or adaptable example of prior situation that I had
experienced/memorized or learned about. Then they had learnt from doing the real
work.”
270 Teerajetgul and Charoenngam
CONCLUSION
Four factors should be taken for developing knowledge management ability: corporate
vision, culture or community of practice, information technology and creative process.
First, vision or policy is accepted by every level of employee and inspires were needed.
Vision is important to surpass the limitation of existing capability and speed up to new
market. Top management must take the initiative in knowledge management nurtured
culture for knowledge sharing and creation. Second, culture as virtual place is needed for
developing and maintaining creation and sharing knowledge. The culture promotes open
sharing of knowledge. It can be realized if leaders clearly articulate value of knowledge
management initiative or knowledge management program. Third, information
technology was facilitated to capture and access knowledge in the real time meaning. IT
realizes the benefits of increasing information technology development to response
shorter product cycle and speeds up decision making in project team. Last, creation
process is necessary to make knowledge visible or capability to convert from invisible to
visible product.
REFERENCES
GEORGE OFORI
National University of Singapore
bdgofori@nus.edu.sg
ABSTRACT
In many countries, construction enterprises are required to register with a central public
organisation. “Registration” is used to refer to a number of forms of official recognition
which construction business organisations must have. The impetus for registration comes
from different sources in different countries including: to enable the collection of
information on the industry to facilitate the regulation or management of the industry; to
generate revenue; and to facilitate procurement by being a pre-qualification initiative.
Registration can have several benefits. In order to safeguard public health and safety, the
requirement for firms to register is to ensure that firms which undertake construction
projects have the necessary professional capability to deliver built items of the requisite
quality and durability. Registration also provides targets for firms which seek to grow.
The demerits of registration are mainly with regard to its restriction of trade. It is also
difficult to administer the registration process effectively.
INTRODUCTION
In many countries at all levels of development, in addition to the need for organizations
engaged in construction activities on site to register as business enterprises for revenue
and taxation purposes, they are also required to register formally as contractors. This may,
indeed, be a statutory requirement. In such cases, firms must register with a central
government agency, and no organization can undertake any construction work within the
country if it has not been formally registered. This is quite apart from the need for
individual professionals such as architects and engineers, to register. Industrialized
countries where contractors must register include Australia, Greece, Japan and Italy.
However, registration is not required in many industrialized countries whereas it seems to
be the norm in developing countries, although it is carried out in these nations with
different levels of formality, effectiveness and efficiency.
276 Ofori
OBJECTIVES
The second form of “registration” is accreditation which also often has statutory backing.
Under accreditation, the firms must seek formal recognition by a government agency or a
designated organisation. Accreditation is less formal than licensing. The Philippines is an
example of a country where contractors must be accredited.
The final form of recognition of construction firms considered here is registration where
the requirement to seek official recognition is not mandatory, but may only be related to
qualification to undertake public-sector projects. Tanzania is one of a few countries which
have dedicated contractor registration agencies – called Contractors Registration Board
(CRB) in Tanzania. In other countries, the agency in charge of registration has a wider
developmental mandate. These include Malaysia and South Africa where the
Construction Industry Development Boards (CIDB), like Singapore’s Building and
Construction Authority (BCA) register contractors as part of their tasks in managing. In
Malawi, the National Construction Industry Council registers contractors, consultants and
materials suppliers (Somba, 2001). In some other developing countries, construction
firms must register separately with each of the major public-sector client agencies. In
Ghana, the Ministry of Roads and Highways registers civil engineering firms, whereas the
public-owned Architectural and Engineering Services Ltd registers building contractors.
Registration of construction firms 277
Countries may have a range of forms of registration, each applicable to different segments
of the construction industry. For example, in Singapore, owing to the greater threat to
public safety involved, specialist plumbing and electrical contractors are required to be
licensed (by the Public Utilities Board), and to engage trained, certified tradespersons and
technicians, whereas other contractors are to register (with the Building and Construction
Authority (BCA)) only if they wish to undertake public-sector construction projects.
All registration systems require the firm to meet certain criteria. The most common of
these are: financial resources (as represented by paid-up capital); equipment owned by the
firm; and (c) personnel employed by the firm. The applicant must submit documentary
evidence to support the information which it provides. In most countries, registered
contractors are placed in categories which indicate the size of the projects (in monetary
terms) they are capable to undertake. The classification, which denotes the capacity and
capability of the firms, indicates the sizes of projects that contractors in the various
categories can tender for.
The registration is usually valid for one year. However, in Singapore, this has been
extended to three years. To be re-registered, the firm must fulfill the set criteria for the
classification it belongs to, or wishes to join. A company can apply for the upgrading of
its classification. The registering agencies usually undertake periodic audits of the firms
on their books. Following such an assessment a company may be downgraded, have its
registration suspended, or de-listed. In some countries, such as Singapore, public sector
clients are required to provide the registering agency with reports on the contractors’
performance. Sanctions such as fines, demotion to a lower financial group, or debarment
for some years may be imposed on firms which are adjudged to have performed poorly on
projects.
The impetus for registration comes from different sources in different countries. This
motivation for the institution of the requirement influences the form of registration
stipulated.
The first reason why some countries have instituted contractor registration is to use it as a
national or regional framework for collecting information on the construction industry.
This information can then be used to regulate or manage the industry. Various authors
such as the team of international experts who conducted the national study of the
construction industry in Tanzania [Ministry of Works, (1977)] have suggested that a
registration system for construction enterprises be instituted for this purpose. [Ofori
(1988, 2001)] includes information on contractors obtained through registration among
the national database on construction, and the indicators on construction industry
development.
The second motivator for the establishment of a contractor registration scheme is that it
can be a revenue generating initiative, since firms pay a fee to be registered. As is done
278 Ofori
by the CRB in Tanzania, the funds collected from such fees are usually used for
developmental purposes such as training, and research, as discussed below.
The final reason for setting up a registration scheme is that it can serve to pre-qualify the
firms. This facilitates the tendering process. Clients can be assured that firms in a
particular financial category have similar capabilities. The central establishment of the
resources, records of accomplishment and other aspects of the profile of the contractors
reduce the cost of procurement for individual clients. The objectives of registration in
South Africa include: reduce the risk relating to the selection of contractors for public
sector work; regulate behaviors, actions and practices of contractors; reduce the
administrative burden associated with awarding contracts; reduce tendering costs to both
clients and contractors; promote best practice among contractors; provide information on
the size, distribution, volume, nature and performance of contractors [Water Meyer,
(2001)].
Merits of registration
Some of the often-cited merits of registration are regulatory, and others are
developmental. The need for aspects of construction activity to be regulated is well
understood. The main reasons are the need to safeguard public health, safety and
environmental issues during the construction project, and after the completion of the built
item. In these regards, the requirement for construction firms to register, and to satisfy
certain criteria before being considered to merit registration, is to ensure that the
companies which undertake construction projects have the necessary professional
capability.
In economic terms, the nation benefits if the better firms are separated out as they are the
only ones which succeed in being registered, and going on to constitute the construction
industry. The items built by such firms would be more cost-effective, completed in a
timely manner, and of good quality and durability. This would safeguard the nation’s
savings in its stock of built items.
The database on registered contractors gives a good indication of the capacity of the
country’s construction industry. Thus, it serves as a source of information for planning for
both the construction industry and the overall economy (given the role of the construction
Registration of construction firms 279
Demerits of registration
The first demerit of registration is its restriction of trade and its tendency to reduce
competition for projects, as it constitutes an entry barrier. An example of the anti-
competitive nature of registration is the restriction on the entry of foreign contractors
which prevails in many countries. Although the outright exclusion of foreign firms which
prevailed in several countries (such as China and Japan) is a thing of the past, various,
often subtle forms of restrictions remain [UNCTC, (1989)]. For example, in some cases,
foreign firms are required to have a local track record before being considered to have
qualified for registration. In Singapore, as discussed below, firms in the top registration
categories must have completed certain volumes of public-sector projects. Another
manifestation of this is the requirement in Malaysia that foreign firms must tender, not for
a period, but for each project they undertake.
Second, it is difficult to administer the registration process effectively owing to the need
to check a range of documents and references in respect of each applicant. Thus, in many
cases, firms are able to seek registration without having the full set of credentials
required. Moreover, it is a challenge to maintain the data on registered contractors in a
current state. In these regards, at any one time, information on the industry may not be
accurate. The final demerit considered here is that registration may introduce bureaucratic
delays, and some uncertainties in the management of the firm as the registration criteria
tend to be changed over time.
CW01 General All types of building works in connection with any structure,
Building being built or to be built, for the support, shelter and enclosure of
persons, animals, chattels or movable property of any kind,
requiring in its construction the use of more than two unrelated
building trades and crafts. Such structure includes the construction
of multi-storey car parks, buildings for parks and playgrounds and
other recreational works, industrial plants, and utility plants.
Scope of work includes the addition and alteration works on
buildings involving structural changes and installation of roofs.
CW02 Civil (a) Works involving concrete, masonry and steel in bridges,
Engineeri sewers, culverts, reservoirs, retaining walls, canals, drainage
ng systems, underground structures, cutting and filling of
embankment, river banks, excavation of deep trenches, scraping of
sub-soil, surface drainage works, flexible pavement, rigid
pavement or laterite roads, bus bays, open car parks and related
works such as kerbs and footways.
(b) Works involving dredging in canal, river and offshore for the
purpose of deepening and extraction of mineral or construction
material. It also includes reclamation works.
(c) Works involving marine piling and the construction of marine
structures such as jetties, wharves, sea and river walls. The head
does not cover the construction and fabrication of marine crafts,
pontoons and oilrigs or any floating platform.
Source: http://www.bca.gov.sg
The firms under each head are classified into a number of groups indicating the ceilings
of the projects they can tender for. As shown in Table 2, building and civil engineering
contractors are placed in seven “grades”. The criteria are:
• paid-up capital and net worth
• Management and development (mainly technical personnel and management systems
to which the firm is accredited). Firms in each category must have stated minimum
numbers of professional and technical personnel
• Track record in the past three years in terms of project value. In the higher categories,
certain stated minimum proportions of this completed work must be public-sector work
• Additional requirements such as that for firms in the top three grades to submit their
accounts annually for perusal by the BCA.
Source: http://www.bca.gov.sg
Notes:
Both minimum paid-up capital and minimum net worth must be met.
PS – projects executed for public sector agencies in Singapore; MC – main contracts (and
nominated sub-contracts)
SP – minimum size single project (main contract)
Percentage of sub-contract value taken into consideration shall be 50% for CW01 and 75% for
CW02.
P/T – Professional and Technical personnel with relevant qualifications.
ISO 9000:2000 (with effect from 1 July 2003); ISO 14000 & OHSAS 18000 (with effect from 1
July 2004)
282 Ofori
* One third of P/T personnel must possess relevant qualifications from universities recognised by
the Professional Engineers Board of Singapore (PEB) or Board of Architects (BOA).
** For renewal cases, projects completed satisfactorily in the past 5 years including ongoing
projects and recently awarded projects will be considered as track record.
The registration system, classification of contractors and the criteria for qualification,
have undergone changes over the years. In 1989, the number of financial categories was
increased from six to eight. An entry level with a tendering limit of $100,000 was one of
the changes introduced. A new G8 was included in 1998. Firms in the top three categories
were required to be certified to ISO 9000 was instituted in 1994, The system was
comprehensively revamped in 2000. Among the changes were: an increase in the paid-up
capital for the upper categories; requirement for public-sector track record for firms
seeking registration in the top two grades; raising of the number of professionals and
technicians required; and enhancement of the track record levels.
The BCA’s activities involve the development of the construction industry, and includes
training, technology development, quality development, and enhancement of the
operating environment of the industry. Thus, it can be said that the BCA registers firms,
provides help for them to progress through the system, as it manages the development of
construction enterprises. A significant current development is the promotion of exports as
the level of demand locally has declined.
The Contractors Registration Board (CRB) was established under the Contractors
Registration Act No. 17 of 1997 to register, regulate and promote contractors in Tanzania
after the dissolution of the board which registered architects, quantity surveyors and
contractors. The CRB’s functions include (United Republic of Tanzania, 1997: section
4):
(a) to consider and decide upon applications for registration, to effect registration of
contractors; to maintain a register of contractors
(b) to regulate the activities and conduct of contractors
Registration of construction firms 283
(c) to enter and inspect the construction, installation or erection sites for the purpose
of verifying and ensuring that the works are being undertaken by registered contractors;
and that the works comply with all governing regulations and laws of the country
(d) to promote and provide opportunities and facilities for the study of and for the
training in pre-contract and post-contract management, construction, erection, installation
or alteration of structures and allied subjects connected with them
(e) to promote and maintain professional conduct and integrity of contractors
(f) to furnish managerial, technical and administrative consultancy services to
contractors
(g) to classify contractors into different types, categories and classes and to set class
limits of projects to be executed by contractors
(h) to set criteria to be met by contractors for registration in different classes
(i) to review, from time to time, the registration criteria of contractors
(j) to review registered contractors with a view to ensuring that they meet the
registration criteria in force of their respective types, categories and classes.
The objective of the CRB “is to ensure that the industry is served by competent
contractors who observe business ethics and care for quality of work, environment and
safety of workmen and public at large” [Materu, (2001: p. 133)]. To achieve this, the
CRB undertakes regulatory and developmental activities. Its strategy includes: promotion
of training on aspects of construction business; dissemination of information and
networking; promotion of partnership and joint ventures between local and foreign
contractors; research on construction business; and promotion of a co-operative approach
in addressing issues of credit and equipment. The CRB requires at least one director of a
firm to be technically qualified (to a minimum of Trade Test Grade 1) before it can
register. Thus, most of the registered firms are managed by qualified persons. As noted by
[Lemunge (2001: p. 36)].
Most of the contracting firms currently registered are owned and managed by
academically qualified personnel. Technicians and engineers with varying years of
experience are found running most of the contracting firms. As a result there has been a
dramatic improvement in the quality of most construction works.
The quite significant registration fees charged by the CRB have enabled it to fund various
developmental activities. For example, in 2001, the CRB launched its CRB Sustainable
Structured Training Programme (SSTP). The programme, designed in modular format,
“aimed at enhancing the capacity of contractors to participate effectively in infrastructure
development” [The Contractor, (2001: p. 13)]. [The CRB (2001: p. 2)] states that:
The main objective of SSTP is to equip contractors with necessary technical and
management skills so as to make them more competitive in the local and regional
markets. This training focuses on contractors’ needs, encompasses all contractors and
takes into consideration lessons learnt from previous training programs.
The CRB Contractors Assistance Fund was set up in April 2002 to help small and
medium-sized contractors (Kagaruki, 2002) in Tanzania to obtain finance which
constrains their ability to take advantage of work opportunities to enhance their capacity
and capability. Thus, the main objective of the Fund is to enable small and medium-sized
firms to compete effectively for projects within their class limits by assisting them to
obtain bank guarantees for bid bonds and advance mobilization payments. The Fund is
used as security to facilitate guarantees to contractors when they seek to procure bid
284 Ofori
bonds and bank guarantees for advance mobilization payments. Only CRB registered
contractors in the three (out of seven) lower classes are eligible to receive assistance from
the Fund.
DISCUSSION
Experience
Countries have had various experiences in their efforts to administer the registration of
contractors. The discussion in the rest of the paper focuses on the potential of registration
to facilitate the development of the construction industry. The intention to use registration
to gather accurate information on the construction industry has not been fully realized. In
many cases, the lack of effectiveness of the enforcement of the prequalification criteria
means that, in several countries, many construction firms on the registers at any one time
may not meet the criteria. It is quite a difficult task in large countries to monitor each
contractor’s physical assets. Contractors’ track record information may also be difficult to
verify.
In many countries, there are delays in the registration procedure owing to many factors
including the inadequate capacity of the agencies; the cumbersome procedures; and the
many set criteria which firms must satisfy, and on which they must provide evidence.
Often, this is because there are no norms or targets on the time the approval process
should take. In Singapore, the BCA measures, among the indicators of its activities, the
number of cases processed, and the overall processing time. The former rose
progressively from 2740 in 1999 to 3462 in 2002; the latter was 2.4 days in 1999 and
2000, 2.8 days in 2001 and 2.0 days in 2002 [BCA, (2004: p. 62)]. In 2003, 92.6 per cent
of applications were processed within 4 days.
The yardsticks in the various categories of the register which firms should meet can lead
to difficulties. For example, the need for a firm to meet certain levels of turnover in order
to maintain its position in certain categories may motivate firms to over aggressively bid
for projects. Also, such a provision may lead to firms pursuing the wrong form of growth.
For example, in Singapore, the number of construction firms in the top registration
category grew substantially in the 1990s. This was initially highlighted as a success of the
industry development programme. However, by 1998, it was clear that the number of
such firms had outstripped the number of large projects available each year which these
firms could undertake. This was one of the reasons for the decision to revamp the
registration system.
Another aspect of “wrong growth” is in terms of the technical capability of the firms
which emerge, or grow. In Singapore, it was found that most of the local firms in the top
registration category had become large by undertaking projects such as public housing
which involved relatively basic technology. Thus, the BCA currently monitors the
development of the engineering procurement and construction (EPC) sector of the
industry [BCA, (2004)].
Good practices
Registration of construction firms 285
From the discussion so far, some elements of good practice can be highlighted. First, it is
evident that registration should not be an end in itself. In the context of this paper, it
should be linked to the development of the construction industry and its component firms,
and the improvement of their performance. Where a separate organization other than that
responsible for construction industry development registers contractors, a situation which
prevails in Tanzania where the National Construction Council (NCC) and the CRB co-
exist, it is important that at an early stage, some consideration is given to, and provision
made for, the collaboration of the two or more agencies.
The objectives of the registration system should be clearly explained to the stakeholders.
The details of the proposals for revisions to the registration scheme should be presented to
the industry and clients, and their feedback sought. The users of the system should also be
encouraged to provide continual feedback on the basis of their experiences, and these
should be acted upon to improve the scheme.
Measures of performance of the registration system should be set at the time the scheme
is designed or revamped. A set of targets should also be set under each performance
measure. In general, the broad performance criteria should be “effectiveness” and
“efficiency”. These should be operationalised in the context of the country. In the “due
diligence” mechanisms for verifying the records and other information submitted by
applicants, the agency should seek to balance strictness with flexibility. The stance of its
officers should be one of offering advice and assistance to facilitate and support
applicants’ endeavors.
RESEARCH AGENDA
There is a need for further knowledge on the registration of construction contractors. The
international research community should explore the following topics:
• enhancing registration and making it effective and development oriented
• international review of registration systems to increase knowledge
• Developing theoretical concepts to explain the need for, and merits of registration.
CONCLUSIONS
The registration of contractors has both positive and negative impacts and implications. It
is important that the former should be taken advantage of, and the latter minimized. In
286 Ofori
particular, registration should aim to develop the nation’s construction industry and
enhance its performance. The continuous development of the contractor registration
system itself should also be an objective of the agency responsible for it. Such periodic
review and further development should involve the stakeholders of the industry. In this
way, the system will be dynamic and continuously relevant to the needs of the country.
REFERENCES
Building and Construction Authority (2004) BCA and U: Annual Report 2003.
Singapore.
Contractors Registration Board (CRB) (2001) Sustainable Structured Training
Programme for Contractors. (A publicity leaflet). Dar es Salaam, p. 2.
Hillebrandt, P M (2000) Economic Theory and the Construction Industry, 3rd Edition.
Macmillan, Oxford.
Kagaruki, D R (2002) CRB Contractors Assistance Fund. In Proceedings of CRB Annual
Workshops 2002 – Five Years of CRB: Achievements and Challenges. CRB, Dar
es Salaam, pp. 75-77.
Lam, S W (2001) Development of the contractors registry for public sector Paper
presented at Conference on Developing the Construction Industries of Southern
Africa, Pretoria, 23-25 April.
Lemunge, N (2001) Experiences and challenges in contracting business in recent years. In
Proceedings, Contractors Registration Board (CRB) Annual Workshops 2001,
May to June 2001, pp. 35-40.
Materu, S N (2001) Promotion of local contracting capacity: CRB approach. In
Construction Industry Forum 2001: Construction Industry Development for
Tanzania Social and Economic Transformation – Forum Report. Dar es Salaam,
18-20 April, pp. 133-143.
Ministry of Works (1977) Local Construction Industry Study: General report. Dar-es-
Salaam.
Ofori, G (1988) Central data bank for construction. Habitat International, 12, 1, pp. 87-94.
Ofori, G (2001) Indicators for measuring construction industry development. Building
Research and Information, pp. 40-50.
Somba, J J (2001) Malawi country status report. Paper presented at Conference on
Developing the Construction Industries of Southern Africa, Pretoria, 23-25 April.
The Contractor (2001) Course Announcements. Issue 5, July, p. 13.
The United Republic of Tanzania (1997) Architects and Quantity Surveyors
(Registration) Act, 1997, section 4.
United Nations Centre for Transnational Corporations (UNCTC) (1989), Transnational
Corporations in the Construction and Design Engineering Industry, United
Nations, New York.
Watermeyer, R (2001) South African country status report. Paper presented at Conference
on Developing the Construction Industries of Southern Africa, Pretoria, 23-25
April.
LOCAL CAPACITY AND CAPABILITY: A PROBABLE DETERMINANT FOR
PROMOTION OF CONSTRUCTION EXPORT
ABSTRACT
The annual ENR top 225 international contractors’ list indicates that there is a positive
relationship between the development stage of a country and the capability of its
construction firms in export business. The majority of the top construction firms are from
the developed countries. There are also a number of firms from the middle income
countries (MICs). To secure and improve their trade in the international construction
market, the MICs’ governments emphasize the promotion of construction export.
However, for the export promotion, assessment of the export ability of the potential local
firms would be essential.
From a general point of view of MICs, it is argued that a certain level of domestic
capability would be required for carrying out the export business in construction. The
objective of this paper is to explain the theoretical bases on the development stages of
domestic construction sector – particularly with the focus on the stages for attaining
export ability. Some selected theoretical models are reviewed, and based on the models
probable growth paths of the construction firms and pre-requisites of the firms for the
export business are explained. This paper then suggests for prior assessment of the growth
stages and export capabilities of the potential firms before helping them through the
government’s construction export promotion mechanism.
BACKGROUND
The Engineering News-Record [ENR, (2003)] top 225 international contractor lists show
that the dominating top contractors are from the developed countries such as the United
States, Japan, and other European countries. However, there are also about 68
international contractors from middle income countries (MICs) which are scattered
between the 14th to other lower positions in the list. The presence of contractors from the
MICs like China, Korea, Taiwan, U.A.E., Singapore etc. in the list indicates that these
countries have also established their positions in international construction market and
they have potential to strengthen their competitiveness.
288 Bajracharya and Ofori
The list also indicates a positive relationship between a country’s development stage and
its potential in international construction market. [Turin (1973)] stated that the developed
countries have a strong construction industry in comparison to the less developed
countries. Therefore it can be argued that a country needs to attain a certain
developmental stage in order to enable its construction firms to export their services. For
the under-developed or developing countries exporting major construction services
(except labor supply) in international market would be beyond their capacity. However
for the MICs, the international construction market would be a viable domain to strive for
their export trade benefits. Therefore the governments of such MICs are putting efforts
on construction export. For instance, Singapore has set a target such that 15% of its
construction demands (about S$2 billion) to be driven by exports in 5 years’ time [ERC
Report, (2003)]. To achieve this target Singapore government have delineated some
supportive policies on financial and institutional fronts for its construction industry.
However, for the effectiveness of such programs, the potential local construction firms
should be identified on the basis of their capabilities.
Having known that the different local firms would have different capabilities, there could
be some crucial questions like what would be the required capabilities of the construction
firms for the export business and how would they acquire such capabilities. This paper
attempts to explore the theoretical background of these issues with the backdrop of the
nature of international construction.
Opportunities
[Mawhinney, (2001)] stated that if the construction produces 10% of global GDP, the
market size of global construction would be around US$3200 billion. [Bon and
Crosthwaite (2000)] found that Asia shares the largest chunk of 35% of world
construction market, while Africa and the Middle East share only 2%. Likewise, Europe
shares 31%, Latin America 8% and North America shares 22%. The ERC Report (2003)
stated that the amount of construction services export of the US firms to China, Indonesia
and India is around US$360 billion – only 1% of which would be around half of
Singapore’s total construction demand for the year 2002. The Singapore ERC Report
(2003) also stated that the average annual growth rate of the Chinese and Indian markets
would be around 10% in the next five years. It is estimated that by 2010, the Chinese
construction market would expand up to US$1.2 trillion and the Indian market would
amount to US$114 billion. Likewise the Indonesian and Thai market would also expand
to US$120 billion and US$71 billion respectively in 2010. These figures indicate the
scale of opportunities in the international construction market at the global and regional
level. Such opportunities encourage the MICs to compete for the maximum possible
market share.
Probable determinant for promotion of construction export 289
Challenges
[UNCTC, (1989)] outlined some of the challenges at the host country like the political
instability, economic instability, and poor economic climate of the host country.
Protectionist policies of the host country for its local construction firms might also create
cautious situation for foreign construction firms.
The challenges within the construction firm would be to acquire and possess the
necessary organizational requirements to sustain and to grow in international market.
[Khoon, (1991)] stated basically five types of such requirements of the firm: (1) size of
the firm, (2) track record, (3) expertise in management and technology, (4) financing
capacity, and (5) marketing network.
Determinants
Ownership (O) advantages are defined as the degree to which a firm possesses sustainable
ownership-specific advantages over other firms in the market. Some examples of these
advantages are innovative capacity, access to financial resources, and organizational and
marketing systems. The more the firms have the competitive ownership advantages, the
more they are likely to be engaged in foreign production.
Location (L) advantages are the foreign country specific locational attractions like natural
resources, labor force, social and physical infrastructure, market size, supplier network,
government policies, political stability, business culture, etc. The more the locational
advantages that can be exploited in the foreign country, the more the firms will increase
their engagement in foreign production.
Internalization (I) is the degree of ownership and control on the intermediate transaction
of goods and services that are required for the foreign production of the firms. The
transaction could be through the market or by ‘internalizing’ or owning/controlling the
other intermediate firms. The greater the benefits of internalizing the intermediate firms,
the more likely a firm will prefer to engage in foreign production itself.
The eclectic paradigm explains the OLI advantages that encourage the firms to engage in
foreign production. Therefore the more the construction firms acquire and possess the
OLI advantages, the more they would be able and are encouraged to venture into
international market.
290 Bajracharya and Ofori
The ‘factor conditions’ refer to the nation’s position in factors of production necessary to
compete in a particular industry. The factor conditions could be either ‘basic’ (like
natural resources, climate, location, etc.) or advanced (like modern IT infrastructure,
highly educated workforce, etc.). The basic factor conditions are inherited or at times
easy to create, whereas the advanced factor conditions are more decisive and strong basis
for competitive advantages.
The ‘demand conditions’ refer to the nature of the market demand in a country for the
industry’s product and services. They include composition of home demand, the size and
growth of the home demand, and the mechanisms through which domestic demand is
internationalized.
The ‘related and supporting industries’ refer to the presence of internationally competitive
supplier and other related industries in a nation. The presence of these industries would
also be a competitive advantage as they could be the parts of a supportive value chain for
the products of the firms.
The fourth determinant, ‘context for firm strategy and rivalry’ refers to the conditions in
the nation that govern the creation, organization, and management of enterprises as well
as the nature of domestic rivalry. The domestic rivalry encourages the firms to break the
dependence on the basic factor advantages.
Each of these four determinants represents a point on the [Porter’s, (1990]) diamond
model (Figure 1). The four determinants are interdependent. Therefore, weaknesses in
any one determinant will affect others and it constrains an industry’s potential for
advancement and upgrading.
Probable determinant for promotion of construction export 291
The two external factors ‘government’ and ‘chance’ also affect the competitiveness of an
industry, but they are considered as independent and indirect determinants within the
diamond model.
[Porter’s (1990)] diamond model has been criticized on some of its concepts. Some of
the major criticisms are on the concept of indirect role of the government [Stopford and
Strange, 1991), the underestimated significance of the globalization of economic activity
[Dunning, (1993)], and on the applicability of the model to all countries [Rugman,
(1991)].
The challenges and the determinants of international construction demand that the
construction firms should be able to tackle these issues so that they can harness the
potential opportunities in international market. However, the potential firms in the
exporting country would have diverse competence levels, and this situation would prompt
the question that which particular potential firm/s would be able to tackle the challenges
of the export business. Therefore in order to determine the export capabilities of the
potential firms, it would be necessary to take an account of the competitive stage of the
firms. Moreover, it would also be necessary to know that how the firms would attain the
different competitive stages. There are some theories which explain these questions on
the development and competitive stage of the firm.
The M-H model gives a fairly simplistic explanation of the sequential development stages
of construction firms. [Low (1996)] criticized the model for not being explicit in
providing detail accounts of construction firms’ development. [Ofori, (1996)] also
criticized this model for being over-dependent on the foreign firms. He suggested that the
292 Bajracharya and Ofori
development of the local firms does not only depend on the foreign firms – some local
firms can develop independently because sub-contracting may not be only the technology
transfer vehicle and the foreign firms do not transfer technology willingly.
Another model for explaining the competitive stages of construction firms can be
developed by using [Sterman’s (2000)] generic examples of different corporate growth
paths. He portrayed different growth paths in terms of feedback loop models. In this
paper his concepts on the corporate growth are reorganized and adapted to explain the
probable growth paths of construction firms. Figure 2 presents reorganized concepts of
corporate growth paths.
+
+ +
Investment in
R6
R4 R3 R2 + (+) Process Improvement
(+) (+) (+) Sales
+ +
+
- + Breadth of Cumulative R5
International Domestic International Domestic Scale of Operation
Industry Demand Industry Demand Market Share Market Share Product Experience (+)
+ + - +
+ R1 R7
(+) (+)
- -
Product Unit Costs - +
- Process Improvement
Attractiveness
-
B2 Price +
(-)
B1
(-) +
International Domestic + Perceived Attractiveness
Competitors Competitors of Business
+
[Sterman (2000)] postulated that there could be four possible growth paths of a firm – the
growth through (1) economies of scale, (2) economies of scope, (3) learning process, and
(4) process improvement and innovation.
1. Growth through economies of scale: In Figure 2 the reinforcing feedback loops R1,
R2, R3, and R4 depict the growth path through economies of scale. These feedback loops
state that the domestic and international market demand along with corresponding market
share is vital for increasing the sales of a firm. As the sales grow beyond a certain extent,
there would be incentives for the firm in increasing the scale of operation, which would
economize the unit cost of production. The cost of production determines the price of
product, and the competitive price increases the product attractiveness. Attractive
products in terms of its low price would increase the industry demands and it would help
capture more market share in turn. These reinforcing feedback loop concepts represent
the growth path through economies of scale.
attractiveness. It would help increase the firm’s industry demand and market share,
which eventually increase the sales in turn.
3. Growth through learning process: The increase in sales also implies the increase in
business involvement or experience or track record. The firm with a good track record
would perform the job efficiently in competitive price, and it would again eventually help
increase the sales in turn. This reinforcing feedback loop R6 (Figure 2) represents the
concept of the growth path through learning process.
4. Growth through process improvement and innovation: The increase in sales would
also motivate the firm to invest in process improvements. The improved process
increases production efficiency and reduces the price which would again eventually help
increase the sales in turn. This reinforcing feedback loop R7 (Figure 2) represents the
concept of the growth path through process improvement and innovation.
The corporate growth path model indicates that a firm can grow through four different
paths provided that its sales or revenue increases. However, as the scale of operation of a
firm increases, the words of mouth in the industry sends signal of attractiveness of the
business, and thus it attracts other firms in the business. This trend gives rise to a number
of competitors in the market and this would reduce the market share and the total sales of
the firm. This limiting process is represented by the balancing feedback loops B1 and B2
in Figure 2. Construction business for the beginners was highly lucrative and it attracted
so many new firms in the business that this speculative effect resulted overcrowding in
the industry. However, only the limited construction firms with the reinforcing growth
path capability grew and sustained in the industry, whereas other majority of the firms
have been struggling to grab the market pie or some of them were forced out of business
on the course of their growth.
The model suggests that the potential construction firm cannot compete in the
international market unless its products (services) are attractive enough for the market.
The product attractiveness should be backed-up by the firm’s economic strength and size,
diversification of the product range, the track record, and innovation.
This corporate growth model can be criticized for its high level of aggregation. However,
if we include the time factor in the growth path, it gives a sense of the evolutionary
development of construction firms. This model helps to mark-up the growth-path led
capacity of a firm.
The function of export promotion generally lies in the jurisdiction of MICs’ governments.
In general, the export promotion measures of the government [Ofori, 1994)] would
include, (1) providing institutional support, such as the support of construction industry
development board, (2) financial incentives such as the grants to set up and tender for
projects overseas, and tax exemptions on income derived from export, (3) technical
assistance such as providing public-sector experts for overseas projects, (4) information
services such as providing market and tendering data.
294 Bajracharya and Ofori
Low (1996) stated that the government’s policy measures in promoting exports may be
aimed at improving the two levels: the general national economy, and a particular
industry. Government organizations such as the economic development board (EDB) and
the trade development board (TDB) would be responsible for instituting the incentive
schemes for the general export promotion and establishing supports for the potential
exporting firms. These organizations might also have specific wing to promote the
construction export. Besides these organizations, the specific government agency like
construction industry development board (CIDB), which looks after the overall
development of local construction industry, would also have specific function in export
promotion.
CONCLUSIONS
The corporate growth models suggest that the firms acquire and accumulate their
capabilities in certain stages. The Moavenzadeh and Hagopian (M-H) model explains the
five stages of the growth of construction firms and indicates the stage at which the firms
would be able to handle the export business. Likewise Sterman’s corporate growth model
shows different possible growth path of a firm. These corporate growth theories postulate
that the growth of local firms is an evolutionary process and they need certain growth
stage and competitive advantages to be able to compete in international construction
market.
Export promotion is one of the important functional areas of MICs’ governments. The
governments can support the construction export promotion through their organizations
like EDB, TDB, and construction specific CIDB. The export promotion measures would
be targeted at providing the export incentives to the potential local construction firms.
However, in order to select the potential construction firms and to decide on the extent to
which the support is needed to them, their growth stages, competitive advantages,
Probable determinant for promotion of construction export 295
REFERENCES
ABSTRACT
The need to increase the capacity of local construction firms in order to deal with the
increasing rate of urbanisation has called for the acquisition of new construction methods.
Participation of foreign firms in the local Malaysian construction industry was seen as a
factor that could assist in catering to the needs. Globalisation of markets has allowed the
acquisition of new technologies to increase the capacities of local construction firms. A
case study is presented of a construction alliance with a foreign firm through joint venture
in the provision of industrialised building systems. The benefits of alliances have been
found to be favourable when there is a transfer of knowledge in the form expertise and
relevant technology that could be readily adapted to the local environment.
INTRODUCTION
In any country the construction industry plays an important role in developing the
investments of both the private and public sector into tangible and productive products.
The role that and contribution of the construction services sector primarily is in two fields
first, of meeting the socio-economic needs of the nation and secondly, of uplifting the
standard and equity of the people [Wang, (1987)]. [Crosthwaite (2000)] notes that there is
a strong association between construction activity, economic growth and economic
development of a country, with the share of construction activity growing during
developing stage and then tapering off as the nation attains a developed status. Alliances
with foreign construction firms and transfers of technology has increased the capabilities
of local firms and accelerated the economic development of some nations The
dependence on firms from developed countries has been reduced to a large extent due to
the development of the capacity of the local construction but also to the interaction
between local and foreign firms. Additionally, some developing countries have succeeded
in developing managerial and organizational resources that, together with the low costs in
these countries of skilled and unskilled construction labour, has helped local construction
firms to enhance their capabilities both at home and in the international markets. In part
this is due to the globalisation and liberalisation of nations, which has made capital,
technology and professional workforce mobile, benefiting the construction industry of
developing countries.
298 Awil
OBJECTIVE OF PAPER
The objective of this paper is identifying the contributions that alliances with developed
country firms have contributed to the development of Malaysian construction firms. This
paper will address the issues of alliances and the outcome of alliances after the joint
venture has ceased to exist. There have been arguments in the literature on the improving
the capacity of local developing country firms through acquisition but there has been no
studies done on the outcome of such technology transfer. Most previous studies
concentrate on dealing with technology transfer at the process approach with Devapriya
& Ganesan (2003) dealing with subcontractorship, [Kumaraswamy & Shreshta (2002)]
deal with organisations and industrial development. The focus of this paper is on the way
that provision of new technology and alliances with developed country firms have
contributed to the development of the local construction industry through use of case
study method. We will be initially discussing those issues that have contributed to the
necessity of using new technologies.
A brief description of the factors that necessitated the investigation for new technologies
and flexible policies to the involvement of foreign firms in the Malaysian construction is
introduced here. The rapid increase in population preceded the provision of industrialised
building systems and this factor in turn preceded the search for sources of new
technologies in order to cope with urbanisation and population high growth (Yeang 1997,
Choo 1997; Johnstone 1980). Increase in the urban population was due to the rapid
increase in the migration from rural to Urban areas (Sirat 1999). Apart from natural
increase and rural-urban boundary changes, rural-urban migration has played a significant
role in the growth of urban centres, especially those that are state or federal capitals.
Changes in the administrative boundaries and expansion of existing town centres as well
as establishment of new townships contributed to the higher share of population in urban
areas. Despite the growth of several individual urban settlements, the urban system
however, tends to be concentrated in the conurbations of Kuala Lumpur in the centre,
Penang in the north and Johor Bahru in the south.
The proportion of the population living in urban areas has increased from 50.7 per cent in
1991 to 61.8 per cent in 2000, growing at an annual average rate of 4.8 per cent. The
urbanisation rate for Malaysia is expected to increase to 66.9 per cent by end of 2005. The
industrialisation of the housing sector in Malaysia was preceded by the rapid increase in
the urban population as shown in table 1 below.
Various alternatives were tried to accommodate this growth, among which included
increasing density of the urban areas, participation of the private sector and increasing use
Promoting formation of alliances 299
TECHNOLOGY
Technology used in the construction in most developing countries has been found to be
lacking and this necessitated the search for solutions to the issues addressed above.
Malaysia undertook a survey of the available technologies as early as 1966 and involved
the despatch of professionals to France for exposure to the available technology for
provision of industrialised building systems [Sumadi et al (2001)]. It was then decided to
adopt the use of transfer of technology form developed nations in order to increase the
provision of available housing. Generally definitions of technology transfer is taken as to
represent the passing of knowledge, products or people to help augment existing
technological base that the firm or a nation possessed [Carillo (1994)]. Within the
Malaysian context [Jegathesan (1988)] defined it as ‘transfer of knowledge from one
brain to another.’ There are two types of technology transfer among firms. Vertical and
horizontal. In the services sector [Grosse (1996)] contends that it is horizontal as there is
transfer of technology from home office to an affiliate.
The most important long-term goals of technology transfer should be internal transfer of
advanced technologies to enhance and sustain domestic construction industry (Devapriya
& Ganesan (2003)]. Governments can sustain and enhance the development of
technology transfers by creating opportunities for domestic contractors with international
firms through the use of regulations and policies [Devapriya & Ganesan (2003)]. Among
the factors that influence successful transfer of technology was the more international a
firm is, larger the host country and a newly established affiliated positively correlate with
the transfer of technology [Grosse (1996)]. Technology in use is referred to as three types
namely; process, product and management technology [Grosse (1996)]. Product
technology is the knowledge used to produce a product, process technology is the
knowledge used in production to organise the inputs and operate the machinery, while
management technology is the knowledge used in operating a firm.
ALLIANCES
Initially the need for foreign firms in the local developing countries was resisted based on
the need to develop the local construction industry. But over a period of time the
resistance decreased due to the realisation that enhancing the local construction industry
required increasing their capabilities, which in turn required the exposure of local
construction firms to the foreign firms. In the East and South Asia environment the
government took the lead in realising that to maintain the pace envisaged for their
economic and infrastructure development, the active involvement foreign capital,
technology & management know-how should be encouraged [Raftery et al (1998)].
[Ofori & Chan (2001)] on a study of the factors facilitating the construction industry
development found that the role of foreign contractors was not a decisive factor in the
development of local contractors, but do acknowledge that the prevailing practice of
subcontractorship in Singapore to have a major influence on the contractor development
in Singapore. Competitiveness within the construction industry is increasing as market
borders are breached due to the wide use of telecommunications, increasing efficient
transport systems and lowering of tariffs. In such competitive environment, nations
realise the necessity of developing the local construction firms in order to compete with
foreign firms both at home and abroad. Firms must look to a variety of strategies to
assemble the services required to successfully acquire new projects and new revenues.
Alliance formation is one way to increase capabilities of local firms that can provide
complimentary services to the foreign contractors (Sillars & Kangari 1997; Raftery et al
1998).
Two specific types of alliances were reported by [Sillars & Kangari (1997)] Long-term
and short-term alliances; long-term alliances were used for strategic marketing purposes,
often to market or offer specific new technology. This is based on understandings that
take the form of loose contractual arrangement and allows each party the flexibility for
each party to sever themselves from the relationship relatively easily. The short-term
alliance is primarily for project or operational reasons. These are for acquiring partners
for specific client needs such as political requirements, to acquire single use technology
such as tunnelling techniques or to ensure resources such as local engineers or local trade
union. Utilising of alliances increases the capabilities of the firm through interaction
between firm and its potential partners, offers increase opportunities and the transfer of
technology and expertise possible. The rationale of alliances varies according to
development status. Table 2 indicates the reasons that firms from developed nations enter
into alliances.
Promoting formation of alliances 301
[Devapriya & Ganesan (2003)] propose the employment of local subcontractors in large
number by the foreign contractors employed in a developing country in order to reduce
the gap between domestic and foreign firms in terms of technology. They argue
compensating the main contractor for expenditure incurred in terms of time and cost to
help train local workforce will help in the development of the local industry and transfer
of knowledge to the local workforce. The United Nations [UNCTD, (1999)] emphasised
on the need to increase the development of local service sectors of the strategy to attract
investment to the services sectors through acquisition of new technologies so as to
strengthen the positions of services providers in developing countries. Malaysian firms
co-operated with firms from South Korea. India, Taiwan and Singapore in the design and
construction of investment projects, particularly in infrastructure projects such as the
Malaysian-Korea arrangement for the construction of the 13.5-Km long Penang Bridge in
Malaysia.
CASE STUDY
The information regarding this case study was collected through readings of literature,
from presentations by the company, company newsletters, annual reports, citing in
newspaper, interviews with company personnel and personal experience of the author as a
former civil engineer with the firm. A brief history of the firm will be presented here
starting with the firms establishment. Crendon Building Systems (CBS) a specialist
provider of building systems was incorporated in 1984 in order to help develop the use of
precast construction Malaysia. The firm had principal participation from Crendon
Concrete of U.K., which was a shareholder as well as a technology provider. The use of
technology to assemble & erect precast frame and panel system was provided by this joint
venture in order increase the availability of low to medium cost apartments so as to
accommodate the faster rate of urban migration that was being observed in peninsular
Malaysia. The use of this system of construction allowed for the efficient, fast and
reliable method of construction that was not previously undertaken in Malaysia.
The firm initially undertook projects in the conurbations of Kuala Lumpur & Penang. The
technology utilised by CBS consisted of utilising space available at site to assemble the
precast yard to cast the facades and panels so as to avoid logistical issues and increase the
turnaround time for erection of the various units of the project. The projects were mostly
of low cost and medium to low cost combination. Due to issues faced in filling of joints,
waterproofing, architectural rigidity and logistical issues the use of this method of work
was halted [CBS, (2001)]. Another reason was that space available at site greatly reduced
due to the large scale development that was being undertaken in location where the firm’s
projects was located.
302 Awil
As the trend in the construction industry nowadays, moves towards reducing construction
time and cost, improved work place safety and standardization, use of cross wall and half-
tunnel form systems caters to these requirements. The firm then adopted the use of cross
wall and half-tunnel type of system formwork, which had great many advantages over the
use of precast facades and less disadvantages. A brief introduction of the cross wall or
half-tunnel of work is warranted here. This is a method in which the walls and the slabs
are casted together in a single operation Initially the foundations are completed with the
conventional method and dowels are left out for column and wall reinforcement. The
wall reinforcement (in form of pre-assembled wire meshes) is tied in position along with
the electrical conduits and reservations for the plumbing fixtures before placing the tunnel
forms in position. The structure is designed as a portal frame having monolithic casting of
the wall, slab and columns. The beams are eliminated and columns are in built with the
wall. In locations where the requirement of is of dual use then use of conventional
construction is utilised for some part and for those parts that require repetitive works,
half-tunnel of cross-wall construction used and load transfer takes place through use of
transfer floor.
The introduction of systems formwork allowed CBS the efficient utilisation of the
available site without the requirement of large open spaces. Also such system has the
advantages of reducing the cycle time of per floor construction, reducing to a large extent
the use of plastering and brickwork for partitions, reduced dependence on labour and
increased quality of the projects. The advantage the use of cross-wall construction has
brought to the CBS is found in the cost comparisons that has been developed and
illustrated in fig. 1 below. As the CBS gained experience in the use of new technologies,
it introduced new methods of construction to Malaysia including the use of reusable
lightweight sheet metal formwork for suspended concrete slabs for multi-storey car parks.
This technology is patented by CORCON worldwide formwork.
Promoting formation of alliances 303
103%
100%100% 100% 99% 100%100% 100%100% 100% 100% 99%
100%
95%
89%
83%
79% 79%
80%
59%
60%
40%
20%
0%
Substructure Superstructure Brickw alls Wall finish Ceiling Finish Total Cost of
Above
Conventional Pre-cast Cross Wall
Over a period of time the share held by Crendon Concrete U.K. reduced and the expertise
provided by the British technical personnel was augmented by the training and transfer of
technology to Malaysian technical personnel. Subsequently the shares of CBS were
bought by IJM Corporation Berhad and then fully integrated within IJM’s group and
subsequently renamed IJM Building System to reflect the change in ownership.
In the year 2002 IBS patented along with another construction firm Brunsfield Resources
and the Forest Research Institute of Malaysia the oil palm fibre reinforced cement
(OPFRC) – a cement and palm fibre mix – which could replace bricks as internal partition
components in housing construction of homes [Star, (2002)]. The product utilizes the oil
palm trunk fibres, which are normally discarded during replanting in oil palm plantation.
Malaysia being the world’s largest exporter of oil palm it made sense to utilise products
that would otherwise been wasted. This later activity of patenting happened after the
company was fully owned by the local Malaysian firm and co-operation with research
institute and another contracting firm. Use of the excess oil palm plants to be recycled as
a lightweight block.
304 Awil
The development of the OPFRC was supported by a grant of RM 1.6 million by the
government of Malaysia in order to utilise process products of the agricultural industry.
The advantages of OPFRC includes the contribution to the zero burning approach for oil
palm replanting as the oil palm trunks will be processed to be supplied as natural fibres,
blocks with laboratory tests with a density of about 650 to 1000 kg/m3, strengths of 2 to 5
Mpa depending on the ratio of ingredients. The use of OPFRC could potentially be 30%
cheaper than use of conventional bricks and houses made from OPFRC are also cooler
due to the cement’s fibre insulation properties as well as water and termite resistance.
The OPFRC were used in two apartment blocks being undertaken by the co-patentees in
the south of Kuala Lumpur consisting of 2316 units. Acquisition of new technologies
both within Malaysia and outside is an on-going process and the firm believes that by
increasing its technological capability it will be able to play a bigger role in the field of
building systems in Malaysia.
CONCLUSION
The increase in population of developing nations along with the high urbanisation rates
has called for the use of new methods of construction methods. Available methods of
construction in developing countries were found lacking and subsequently there was a
deliberate approach to enhance the capabilities of local constriction firms through the use
of technology transfer and alliances with firms from developed countries. Malaysian
government facilitated the participation of foreign firms in local construction industry
through lowering tariff and non-tariff trade barriers but keeping in place statues
encouraging participation of local firms. This paper investigated the end result of alliance
between a Malaysian firm and a firm from a developed nation as means to increase the
capabilities so the local construction industry. It was found that Malaysian firms gained
from the formation of alliance in two folds. Firstly, there was a substantial transfer of
technology initially and exposed the local firm to newer methods of construction thereby
increasing its capabilities in knowledge and technology aspects. Secondly, alliance helped
the firm seek out other potential technologies independently through cross-linkages with
local Malaysian construction firms. The lesson learnt here is to encourage the
participation of the foreign firms in developing country firms in cases where there is
requirement for technologies that are not available in the local construction industry.
REFERENCES
a nation: A definitive Study. Cagamas Berhad. Kuala Lumpur, Malaysia. pp. 749-
789.
Crendon Building systems (CBS) (2001) Systems and affordable housing-our experience
in Malaysia. Presented at the National Seminar for Industrialised Building
systems. 3rd International Construction Week 2001. Organised by Construction
Industry development Board, Kuala Lumpur 10-17 September 2001.
Crosthwaite, David (2000) The global construction market: A cross-sectional analysis.
Construction Management and Economics. Vol. 18, pp. 619-627
Devapriya, K.A.K. & S. Ganesan (2002) Technology transfer through subcontracting in
developing countries. Building Research and information. Vol. 30 no.3 pp. 171-
182.
Drewer, Stephen (2001) A perspective of the international construction system. Habitat
International. Vol. 25 Issue 1, pp. 69-79.
Grosse, Richard (1996) International technology transfer in services. Journal of
International Business Studies. Vol. 27 no.4 third quarter pp. 781-800.
Jegathesan, J. (1988) Factors affecting access to technology through joint ventures.
Proceedings of joint ventures as a channel for the transfer of technology. United
Nations Conference on Trade and Development. Moscow 21-25 November 1988.
Johnstone, Mike (1980) Conventional housing provision in peninsular Malaysia: spatial
distortions in a developing economy. Habitat International Vol.5 no.3/4 pp. 337-
359.
Kumaraswamy, Mohan M. & G.B. Shrestha (2002) Targeting technology exchange for
Faster organisational and industry development. Building Research and
information. Vol. 30 no.3 pp. 183-195.
Ofori, George & Martin Betts (1992) Strategic planning for competitive advantages in
construction. Construction Management & Economics. Vol. 10 pp. 511-532.
Raftery, John, Bernie Pasadilla, Y.H. Chiang, Eddie C.M Hui and Bo-Sin Tang(1998)
Globalisation and construction industry development: Implications of recent
developments in the construction sector in Asia. Construction Management &
Economics Vol. 16 pp. 729-737.
Sillars, David N. & Roozbeh Kangari (1997).Japanese construction alliances. Journal of
Construction Engineering and Management. Vol. 123 no.2 pp. 146-152.
Sirat, Morshidi (1999) Low cost housing in urban industrial setting. Issues and
challenges. Penerbit Universiti Sains Malaysia Pulau Penang, Malaysia.
Star (2002). Brunsfield, IJM to tap oil palm fibre cement. Published on the 26 November,
2002.
Sumadi, Salahuddin Radin, Johnson W.K. Ng, S.L. Lim and C.M. Tham (2001)
Promotion strategies and future research and development needs on industrialised
building systems. 3rd International Construction Week 2001. Organised by
Construction Industry development Board, Kuala Lumpur 10-17 September 2001.
United Nations Centre on Trade & Development (UNCTD) (1999) Trade & Development
Analysis of experiences in selected services sector. TD/B/COM.1/28 17 August
1999.
Wang, B.T.H. (1987) Construction and Development. Pelanduk Publications, Petaling
Jaya, Malaysia.
Yeang, Kenneth (1997) Technology for housing: Past and future trends. In Housing a
nation: A definitive Study. Cagamas Berhad. Kuala Lumpur, Malaysia. pp. 499-
512.
306 Awil
A STRATEGIC PLANNING IN SMALL AND MEDIUM CONSTRUCTION
FIRMS
J. K. SSEGAWA
Department of Civil Engineering, Faculty of Engineering, University of Botswana, P Bag
0061, Gaborone, Botswana
ssegawaj@mopipi.ub.bw
ABSTRACT
Strategic planning is a key activity for survival and achieving sustained growth in a
competitive and turbulent environment. In addition, it serves other purposes including the
setting of the future direction, long- term measurement performance and control of
activities and resources of a firm. Proper planning requires time, effort and information to
be meaningful. However, it is doubtful whether the exercise is given the due weight and
attention it deserves in construction firms. Indications show that operational planning is
given the largest share of time, effort and importance at the expense of strategic planning.
Research reports indicate that firms find themselves in various problems traceable to lack
of strategic planning. The paper reports findings of a pilot study carried out to investigate
issues related to strategic planning by conducting interviews with chief executive officers
(CEOs) of nine small and medium construction firms operating in Botswana. The study
revealed that CEOs had strategic awareness capability in form of knowing where their
firms should be in future and the constraints they face in the business environment.
However, this was not matched by a strategic response in terms of devising appropriate
strategies to mitigate threats and formulating plans of getting their firms to desired future
positions.
INTRODUCTION
Strategic planning is the key to setting the long-term direction of organisations, including
construction firms. Strategic planning serves a number of purposes including, identifying
the desired future position of the firm in the market place, formulating objectives and
identifying strategies to achieve them. Strategic plans are also used as performance
benchmarks necessary for control of performance and resources of the firm.
Though strategic planning is not a panacea of all problems that firms encounter [Hayes,
(1985)], it has nevertheless been touted as an enabling tool, providing managers with
means to steer firms out of trouble and for achieving growth. Various studies (e.g. Baker
et al, 1993; Robinson and Pearce, 1984) have associated planning with financial
308 Ssegawa
performance in firms with some studies e.g. [Dunnand Bradstreet, (1976)] noting that
troubled firms had often neglected the planning process.
Planning as a process requires coordination, time and effort. It also requires both internal
and external information that is reliable, accurate, timely, and accessible and which is in a
decipherable format; attributes which are so elusive in the real world. Both of these
factors tempt a number of managers, particularly of small and medium firms, to perceive
planning as a time consuming process, which if pursued, disadvantages production
activities. [Miles (1979) and Upson (1987)] intimated that managers of small and medium
construction firms are too busy pursuing construction work to bother about office
activities like planning and financial management. The remark was made a while ago, and
one wonders whether the statement is still true today. The answer to the question is the
subject of discussion in this paper. The paper highlights the process of strategic planning
and its importance in the context of a construction firm. It further reports findings of a
pilot study carried out to investigate issues relating to strategic planning in construction
firms in Botswana. The first section discusses the study methodology and is followed by a
discussion of data analysis and study findings and the paper ends with some conclusions
regarding the practice of strategic planning, for example, that CEOs of small and medium
constriction firms had the strategic awareness capability in form of knowing where their
firms should be in future and the constraints they face in the business environment but did
not match the awareness with a strategic responses
STRATEGIC PLANNING
For construction firms, survival depends on winning contracts, while growth depends on
profitability. Since most of the lucrative contracts are obtained by open tendering
systems, firms have two choices; to depend on luck or to formulate appropriate strategies
that increase the chances of winning contracts.
In most sectors of the economy, operational plans are normally devolved from strategic
plans. In the construction sector, the link between strategic and operational plans is ever
pervasive. The project nature of construction work forces firms to carry out operational
planning, which results in, for example, project estimates, programmes and cashflow
forecasts. In many instances, it is possible to have operational plans, once a tender is won
and leave strategic plans in abeyance.
Assessment phase
The assessment stage consists of several interlinked tasks namely environment appraisal,
capabilities assessment, and future position forecasting and assumptions generation.
Environmental Appraisal
The environment appraisal requires scanning both the micro and macro environments for
current and future threats and opportunities [Kotler and Armstrong, (1991), Baker,
(1985)]. [Scherer (1970) and Pickering (1974)] noted that performance of a firm depends
on the structure of the players and their conduct in the market. Structure refers to the
number of buyers and sellers, vertical integration, barriers to entry and conglomerates in
the industry. Conduct relates to the strategies pursued by firms, such as, pricing
behaviour, promotion, innovation and the level of investments in production assets. Porter
(1980) added that profitability in an industry is determined by the intensity of
competition, threat of new firms entering the market, bargaining power of suppliers,
bargaining power of clients, and the threat of substitutes of services. A few examples in
the construction industry in Botswana may be noted. The government is the largest single
client of the industry, letting over 80% by value, of all jobs in the industry (Ssegawa,
2003). Due to the enormous bargaining power, the government exerts a lot of impact on
the industry, for example, the setting of reservation and preferences schemes for citizen-
owned firms, which include [Ngowi et al, (2002)]: provision of government guaranteed
performance bonds; 2.5% price preference;10% up-front mobilisation allowance; and
reservation of 30% on the total volume of building projects.
The macro environment may be appraised using political, legal, economic, social and
technological factors [Loosemore et al, (2003)], for instance, the state of health of the
national economy is one of the most worrying aspects of any construction industry as it
influences the demand for projects. Secondly, the level of inflation, interest and exchange
rates, the major economic parameters, affect the performance of both projects and firms.
310 Ssegawa
Phase 2 - Formulate
Formulation Objectives
Phase 3 - Evaluate
Evaluation Strategies
Develop
Phase 4- Strategic Plan
Develop
Plan
Production IT
Estimating Human Assets
Phase 5- Resource
&
Devolve
Tendering
Operational
plans
Capabilities Assessment
The assessment of capabilities is carried out by looking at how the strength of a firm can
be positioned to take advantage of the opportunities in a changing environment and how
weaknesses can be mitigated or turned into strength. [Teece et al (1997)] noted that
capabilities permit the adaptation, integration, reconfiguration of internal organisational
skills, resources and functional competencies to suit a dynamic environment.
Functional and value chain analysis may be used to assess or benchmark capabilities.
Functional analysis looks at each function (e.g. marketing, finance, research and
development, human resources, production and IT) of a firm, in terms of how it adds
value and supports the achievement of objectives. While all other functions of the firm
are important, production, material procurement, estimation and tendering functions play
a major part in the success of a construction firm. The value chain analysis examines the
efficiency and the level of integration of core and support activities in terms of the
respective value created in the firm. The aim is to reduce non-value adding activities and
hence reduce cost, speed up decision making and delivery time while improving quality.
Though cost reduction is an internal perspective, while value is a customer perspective,
both are geared at increasing competitive advantage and hence increasing profitability.
Strategic planning in small and medium construction firms 311
The last activity of the assessment stage is the forecast of the future desired position in the
market and listing assumptions on which the position is based. The future position is a perception
of management taking into consideration assessments of the environment and capabilities.
The forecast position describes what the firm should be at a point in time in terms of say,
the desired class, e.g. (E) and market share, e.g. (25%) in five year’s time (class E is the
largest class of contractors in Botswana, others being OC, A, B, C, and D). To register for
to class E requires formulation of objectives as discussed in the next section. However,
because the future is uncertain, managers try to ‘tame’ it by stating assumptions on which
their perceived position and objectives are based. Assumptions could be, for instance, ‘the
current success rate of bidding and current work load availability in the industry will
remain unchanged for the planned period’.
The intention of formulating objectives is to move a firm from its current position to the
future desired position to close the performance gap, given the stated assumptions. An
example, if the firm has an annual winning bid rate of 1:5 (20%) as an objective, it will
lead to a greater market share provided it is better than the competition. If the projects are
profitable, growth will be achieved leading to registering in a higher class. The example
illustrates that the objectives must be: identifiable (or specific); leading to the expected
goal or target; measurable; achievable; time bound; agreed to by both policy makers and
implementers. [Drucker (1968)] suggested that a firm could formulate objectives in any
combination of the following eight areas, namely market share and perception,
innovation, productivity, physical and financial resources, profitability, manager
performance and development, worker performance and attitude and public
responsibility. [Kaplan and Norton (1992)] in their balanced scorecard framework, noted
that firms could formulate objectives in the following perspectives: improving customer
perception in terms of time, quality, performance, service and cost; improving internal
capabilities, e.g., information systems, procedures and policies; increasing innovation and
continuous improvement; and increasing wealth through growth (market share,
profitability and return on investment).
In construction, the most important objectives are those of delivering projects on time,
within budget and at a specified quality. However, achieving them at the expense of other
underlying objectives may be catastrophic; for example, an improvement in customer
satisfaction when the rate of human accidents on a project site is increasing may lead to
numerous litigations and industrial action, all which may result in financial haemorrhage.
If objectives are set how can they be achieved? The answer lies in evaluating appropriate
strategies as means of achieving the chosen objectives. The concept of strategy has been
studied by various scholars, including [Porter (1985)] who provided three basic strategies
for gaining and sustaining competitive advantage. They are: being able to perform
contracts at a lower cost that the competition; the ability to perform contracts in a way
312 Ssegawa
that clients perceive unique in relation to the competition and thus attract a premium fee;
and being able to carve out a niche market due to some unique competence (Porter,
1991). Porter noted that when a competitive advantage is achieved and sustained it gives
a firm superior profitably than the competition. However, while cost leadership is an
achievable strategy in construction, differentiation is rather difficult to realise. The scope
for service differentiation at the lower segments of the construction market, where the
small construction firms operate, is limited. This is because the services that these firms
offer do not have many attributes that can be manipulated or modified [Kale and Arditi,
(1998)].
[Ansoff (1957)] provided another set of strategies, specifically aimed at increasing the
market share in form of a product-market matrix and are: penetrate market; develop
product; develop market; or diversify. In the construction industry this could translate in
moving from one class to another to increase the scale of projects taken; venturing into
building, civil and roads works to increase scope; being able to take on projects in distant
locations or outside national borders; and vertically integrating into a supplier or
developer.
Figure 2 illustrates a summary of the strategic planning process. The desired position
could be, say, moving from class C to E and capturing a market share of 25% (from 15%)
in five years, using the anticipated performance (rate of growth of turnover, which may be
stipulated as an objective). Objective formulation and strategy evaluation are iterative
processes, involving an analysis and evaluation of alternatives until an optimal strategic
plan is arrived at. In practical terms, the manner in which the processes are carried in
small and medium firms has been a subject of investigation in numerous studies and is briefly
highlighted in the next section.
Performance
GAP
0%
In the past two decades, there has been a heightened criticism of the role, purpose and
value of strategic plans. It has been argued that uncertainty and complexity in the
business environment often renders strategic plans obsolete before they are implemented
(Mintzberg, 1994). The market place often changes and the competition frequently moves
goal posts in a manner not anticipated in the plans. In addition, most managers: mistake
strategic plans to be a destination as opposed to being an en route to the destination;
rarely refer to them after preparation; and are forced to produce plans by creditors
(sometimes written by consultants) whose contents are not internalised.
It has also been argued that the formalisation of strategic plans depends on the size and
stage of growth of a firm [Camillus, (1975)]. For large firms, it has been suggested that
the planning process is often formalised and systematic and separated from operational
planning [Hannon and Atherton, (1998). In these types of organisations, it is necessary to
have plans to serve as a means of: coordinating the strategic direction; communicating to
relevant stakeholders (e.g. employees, shareholder, etc); controlling activities and
resources; creating responsibility in terms of authorisation and accountability; measuring
performance; getting inputs from other employees in order for them to accept and
implement the plans; creating continuity in case of a change in management; and
affording a chance to critically review the set objectives.
[Ansoff and MacDonnell (1990)] have argued that strategic planning cannot be left alone
as if it was a distinctive process but has to evolve into strategic management. Strategic
management integrates the management functions of planning, organising, staffing,
leading and controlling [Fayol (1984)] while adding the strategic awareness and response
capability. The result is that the speed of planning, decision making and intervention are
much faster bringing about change (which may be a response to a threat, seizure of an
opportunity or creation of an innovation) than the classic strategic model. This is
particularly possible due to the characteristics of small firms, mentioned earlier. These
attributes are some of the pre-requisites for gaining and sustaining a competitive
advantage and it may explain why small firms are more innovative than large firms and
why a lot of criticism has been levelled against public departments. The latter are
criticised for their lack of innovation, efficiency and quick response. This is
understandable because in response to the turbulence and complexity of today’s markets,
314 Ssegawa
the use of blue prints in the form of long-term plans, implemented with a bureaucracy of
general orders is inappropriate and ineffective.
With that background, the business profile of construction firms should not be left to luck
but should be a result of strategic management decisions carved out to match a business
environment. In other words, a planned approach should increase the chances of winning
tenders and executing them in a manner that satisfies client objectives. The next section
discusses a pilot study designed to investigate issues pertaining to practice of strategic
planning or management in construction firms in Botswana.
METHODOLOGY
For purposes of public procurement, firms in Botswana are divided into classes OC, A,
B, C, D and E by the Public Procurement and Asset Disposal Board (PPADB), which
replaced the Central Tender Board (CTB). The classes represent the maximum value of a
single project that a firm can execute, e.g., class OC (opportunity class) can tender for
projects of up to P0.3 million, class E may execute projects from P8 million upwards and
the rest may tender for projects within the P0.3 - P8 million (1U$=P4.59) ceiling band.
The firms may register for building works only, or both building and civil works. There
are basically three major types of ownership; citizen owned, non-citizen owned and
subsidiaries of foreign firms. The study focused on classes A, B and C and within these
classes subsidiaries of foreign firms were excluded. The firms in these three classes were
deemed to exhibit characteristics identifiable with small and medium firms. In addition,
subsidiaries were excluded from the study, as they normally use more advanced systems
of parent firms. The time and effort required to make arrangements for interviews limited
the sample of firms studied to nine, three from each class. This was done by listing the
firms in each class in alphabetical order and every fifth firm was selected. If management
declined taking part in the study or if the firm was a subsidiary of a foreign firm, the next
firm on the list was selected.
The interview method was considered the most appropriate for the study because of its
effectiveness in capturing data and the flexibility it offers when seeking clarifications to
both questions and responses. The chief executive officers (CEOs) of the firms were
identified and telephoned to make necessary arrangements for interviews. Between 25 to
35 minutes were allocated for each interview. Care was taken to ensure that respondents
understood strategic planning concepts through clarifications but without compromising
the technical meaning.
CEOs from the selected firms were given codes A (1, 2, 3), B (1, 2, 3) and C (1, 2, 3), for
anonymity, as shown in Table 1 (column 2-10). Some of the responses from CEOs were
captured and tabulated in the table, e.g., row 3 shows that most firms were citizen-owned,
except C1 and C3 (all CEOs were male). The next two rows (4 and 5) show the year of
first registration and the respective class. If this is viewed in tandem with the current
class, firm C2, e.g., took 10 years (1990-2000) to move from class OC to class C2. The
next row (6) shows the scope of work firms execute; with firms most carrying out
Strategic planning in small and medium construction firms 315
building work only and a few firms carrying out both building and civil. Row 7 shows
that all firms obtain the majority of their work from the local and central government.
CEOs indicated the targeted class their firms should be in five years time and row 8
shows that some were conservative in their forecast while others were more ambitious.
The CEO of firm C2, whose firm achieved a relatively higher rate of growth than the rest
desired a more ambitious target of class E. As one of the basic strategic planning aspect,
all CEOs showed they knew at least where their firms should be in five years. Responses
in row 9 showed that all CEOs did not know the current and desired future market share.
A few CEOs (B2 and C1) commented that what is important is that there are jobs in the
market for a firm to ensure it wins jobs and executes them at profitable levels. Though
estimation of market share is not easy, it is one of the targets that firms use to measure the
rate of performance and growth periodically or in comparison with the competition.
Additional responses were also obtained relating to specific questions discussed below.
Class A B C
Profile/CEO-firm A11 A2 A3 B1 B2 B3 C1 C2 C3
2 2
Ownership CO CO CO CO CO CO NCO CO NCO
Date of first registration 1995 1999 1990 1990 2000 1997 1989 1990 1997
Which jobs do you do (B: C) 3? 100:0% 100:0% 100:0% 100:0% 85:15% 100:0% 55:45% 80:20% 65:35%
Who are your clients (Pub: Pri) 4? 85:15% 95:5% 90:10% 90:10% 85:15% 80:20% 80:20% 70:30% 75:25%
1
The last class registration was carried out in 2000 by CTB; 2CO-citizen owned, NCO –non
citizen owned; 3Building and civil jobs proportions; 4Public and private jobs proportions; 5NK-not
known
Overall, CEOs showed a lot of enthusiasm to the question and they were unanimous in
identifying the inability of the Government to procure projects as the greatest threat to the
industry. Botswana Government gets 45% of its revenue from the sale of diamonds. The
vagaries of world trade determine the quantity of diamonds purchased and hence the
amount of revenue earned by the government. Judging from the projections made in the
budget speech [Republic of Botswana, (2004)] and comments made by some public
officials, a downturn in the procurement of public works is expected in next few years. It
is also forecast that some of the projects in the National Development Plan 9 may not be
implemented.
The second threat, also identified by all the CEOs, was the delay in payment for work
done for the government, with some saying it sometimes takes more than six months to be
316 Ssegawa
paid. Apparently, the government is well aware of the problem and has formalised the
payment of an interest on outstanding amounts at 2.5% per annum. The government
blames bureaucracy and inefficiency on part of some of the government officials and
sometimes under-budgeting by procuring entities. Delayed payments cause a serious
cashflow problem to contractors.
The pricing behaviour of Chinese owned firms was perceived as a third threat by all
CEOs who complained that the firms often bid below acceptable cost levels. They also
allege that the firms are subsidised by their state or similar agencies and hence can afford
to bid so low. During the ABCON conference [ABCON, (2004)], a participant
representing one of the procuring entities, commented that there are two major factors
governing bidding at a lower cost on a project tender namely, the ability to reduce
overheads, and how a contractor manages the finances of the firm (a direct reference to
the perceived problem of Chinese firms). Most contractors bid high because they try to
pass their overhead expenses and inefficiencies to the client [Ssegawa, (2000)]. Chinese
firms have existed in the country for more than 15 years and their continuing presence in
the market may suggest that clients are not unhappy with their work.
Some of the CEOs (C2 and C3) saw the frequent utterances by government officials about
the poor performance of many contractors [Tebelelo, (2004), Mogami, (2004)], as a
threat. The under-performance was reinforced by the report of the [Auditor General
(2004)] which revealed that large amounts of tax payers’ money had been squandered by
the industry through some unscrupulous contractors who abandoned projects, escalated
costs, completed jobs beyond stipulated time and provided low quality work and some
with unacceptable defects. However, the CEOs feel it is unfair for the government not to
discriminate between performing and under-performing contractors. A backlash by the
state for the perceived situation is considered a threat by some CEOs.
Another threat mentioned by CEOs B1, C1, C2 and C3 was the influx, into the
construction market, by South African (SA) contractors. One CEO called them ‘suitcase’
contractors and emotionally described their modus operand as follows: …they take jobs
without having any plant at all and bring in hired plant from SA. …they do not provide
employment but we do have a stable force which we cannot necessarily fire like they do
when a project is completed’. When officers at PPADP were requested to comment on
this allegation, they asserted that in awarding tenders they only deal with registered
companies and hence the question of ‘suitcase’ firms being awarded tenders does not
exist. However, they speculated that some locally registered firms ‘sell’ their contracts to
SA contractors, in what is locally known as ‘fronting’ and PPADB is not legally
empowered to monitor the behaviour.
Two of the CEOs (C1 and C2) perceived the reservation and preference schemes as unfair
and a threat to their business. They contend that they have been operating in the country
for a long period, paid their tax bills, trained citizen employees, employed citizens from
labourer to supervisors and hence feel they should be part of the schemes. Alternatively,
they suggested the schemes should not exist at all as artificial and unsustainable barriers
are created yet subsidies are becoming a thing of the past in most economies. One
described the situation as feeding an orphaned animal on home food until it is old and
then releasing it to the wild when it has lost its killer instincts.
Strategic planning in small and medium construction firms 317
Some CEOs (C1 and B3) complained that they do not understand the tender evaluation
methods, adjudication procedures and the proposed registration requirements by PPADB
yet each process or procedure directly affects their performance or existence.
The old adage that one man’s meat is another man’s poison seems true for reservation and
preference schemes. Citizen-owned CEOs see them as a means of creating a level playing
field with foreign-owned and subsidiary firms, which they perceive as having adequate
resources.
A number of CEOs mentioned that a few aspects they felt were their strength but could
not substantiate the claims, e.g., B2 and C2 claimed that estimating is their strength but
did not even know their biding rates or could not provide the accuracy of the project
budgets. Another CEO (C3) claimed his production team was good, particularly the
builders but failed to provide indicators whether there are any references from clients (it
is noteworthy that to request further substantiation sometimes looked like a challenge to
the CEOs and on many occasions, there was backing down on the issue). C2 provided
illustrations to back up his claims as regards what was the strength of his firm- the good
relationship with suppliers, subcontractors and the bank by supplying references and
letters that entitles him to get credit and overdraft facilities. .
Regarding weaknesses, all CEOs in class A and B felt that their firms were financially
under-resourced and also felt that the financial institutions were reluctant to assist them.
Some (B2 and B3) also indicated that they have difficulties in recruiting and retaining skilled
staff and mobilising staff when they get projects at distant locations.
All the CEOs responded that they need to increase their chances of winning jobs.
However, many did not state how this could be done though some contemplated acquiring
more resources like plant (A3, B2 and C3), delivering projects within client objectives of
time, costs and quality (B1 and C1 and C2).
Most CEOs did offer any strategy to overcome the threats except many mentioned the
continued engagement of government on various issues affecting them, particularly by
using lobby groups. There was no mention of down sizing in case of an anticipated
318 Ssegawa
downturn or even partnering or forming joint ventures. It was also noticeable that at some
point CEOs confused problems with threats. Though threats and problems lie on the same
continuum, threats are strategically solved while problems are tactically solved. As an
example, some CEOs (A3 and B1) mentioned that the rigorous accounting needed for the
recently introduced value added tax is a threat to their operations; surely this is a problem
not a threat.
The last row (10) of Table 1 shows that many firms (A1, A2, B1, B3 and C1) did not have
documented strategic plans. CEOs from firms A1 and A2 indicated that they produce
mainly operational plans, that is, once the firm win a tender project,, they plan for its
execution and hence solve on an ad-hoc basis any problem that arises thereof. The CEO
of firm B3 and B2 showed the researchers a document which showed very little elements
of strategic plans but more of operational plans. The CEO of firm B2 elaborated how the
process is carried out namely functional heads are called for meetings to discuss all
problems and challenges facing all projects; suggestions are then floated in the meeting
until a solution is obtained. This is a pseudo- formalised strategic planning process but a
major part of it devoted to operational plans.
Table 1 shows that only firms A3, B2, C2 and C3 had documented strategic plans.
However, on clarifying the responses, it transpired that firm A3 prepared the plans when
it needed a loan from the bank to buy a truck (two years ago before the study. Firm B2
prepared the plans when they wanted to a get a loan from Citizen Entrepreneurship
Development Agency and were prepared by a consultant. The CEO and other employees
provided some information to the consultant but the plan was never referred to in course
of business.
It was only CEOs (C2 and C3) who had current strategic plans but they differed in how
they approached the process. C3 drafted the plans in a sketch with a friend, financial
expert, and had them typed. They are mainly biased to future resource requirements of
labour and plant in relation to projects. Apparently, C2 is a managing director but there
are three other directors who co-own the firm and they normally have annual director
meeting where, as he put it, ‘strategise’. C2 drafts the plans and the co-directors make
comments in a meeting.
SUMMARY OF FINDING
The responses showed that all CEOs had an understanding of the business environment,
particularly threats to their firms (although sometimes, they could not distinguish between
problems and threats). However, most of the CEOs could not identify opportunities
beyond the preference and reservation schemes. In addition, most of them could identify
where each of their firms was more competitive. Therefore, almost all the CEOs did not
have full-fledged strategic awareness and response capabilities needed to understand,
learn and respond to the environment by making appropriate decisions to seize
opportunities while mitigating threats.
Strategic planning in small and medium construction firms 319
As regards to the strategic planning process and plan documentation, only one firm (C2)
endeavoured to produce periodic strategic plans using a formalised process. Firms A3, B2
and C3 produced documented plans as a result of being forced by external parties to do
so, particularly when they needed financing. Firms A1, A2, B1, B3 and C1 carried out
strategic activities in an ad-hoc manner. That is strategic issues were discussed remotely
when operational plans were being considered. For these firms the modus operandi was
‘tender for a project and if lucky, execute it’ and repeats the cycle.
CONCLUSIONS
Strategic planning, even in its crudest form, provides means of steering firms in the right
direction whether for survival or for growth. The activity makes the future a matter of
choice and not chance. The nature and form of planning depends on the size and age of
firms. Larger and older firms pursue the activity in a more systematic and formalised
manner. Most of the smaller and young firms carry out strategic planning in an informal
and ad-hoc manner, if they pursue the activity at all. In most cases, it is the owner-
manager who carries out the process and the plan stays in his memory and is rarely
documented.
The selected firms have highlighted that very few firms carry out a fully fledged strategic
planning process, leave alone producing strategic plans. Most of CEOs identified threats
and opportunities in the business environment. However, they did not have appropriate
strategies to match their capabilities and the business environment and therefore could not
mitigate threats or seize opportunities but depended on ad-hoc means. The research
confirmed earlier findings that small and medium firms hardly carry any comprehensive
or meaningful strategic planning.
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Strategic planning in small and medium construction firms 321
ABSTRACT
BACKGROUND
knowledge flows take place by means of which technological capabilities can further
grow. On the other hand globalisation forms a threat of marginalization and further
lagging behind of the construction industry in these countries given the fact that
international communication, collaboration and trade thrives on attractiveness of the
countries and their industries.
OBJECTIVES
METHODOLOGY
IITKF
TeNeeds TeCaps TeNeeds TeCaps
T T
input H I output input H I output
O O
country A country B
Fig.1 International Technology & Knowledge Flow
Source: Van Egmond 2000
Technology and Knowledge Flows in Building 325
The industrial innovation system is the network of the industrial enterprises, their forward
and backward linkages with other industrial enterprises, as well as with the so-called
technology promoting –or constraining- agencies, such as governmental institutes, R&D
and educational institutes, information and documentation centres, financing agencies.
The actors in this network should supply the means, skills, know-how and knowledge not
only to select, master and adapt the technologies that are needed in production and that
are most appropriate to the social system of the country. It should also enable the country
to develop and generate its own new technologies (self-reliant technology generation)
.The generic analytical framework that we elaborated for studies on technology and
innovation related to socioeconomic development is based on the above described basics
of the techno-economic evolutionary theoretical viewpoints and a framework developed
by UNESCAP (UNESCAP 1989). We translated the core elements in this generic
analytical framework in research instruments for case studies in the construction industry.
(see also Kumaraswamy, MM et all (2002) and Egmond, ELC. and Kumaraswamy, MM
(2003). Each case study is composed of a number of sub-studies at different level of
aggregation: country-, industry-, enterprise-/project- and technology- transfer level.
The country context is analysed by investigating the particularities of the social and geo-
physical environment in which the construction industry (CI) operates. The Sector or
Industry context is analysed by investigating the particularities of the market in which the
CI operates as well as those of the industrial innovation system and its technological
capabilities. Indicator for the market is the technology need, determined by the
requirements for the desired building, civil works or building materials and components.
Indicators for the particularities of the industrial innovation system are (a) the nature and
number of the actors in this system and (b) the nature and intensity of linkages (supply of
means, skills, know-how and knowledge) Technological Capabilities are assessed by
using the stock of technologies, human and natural resources that are needed to assimilate
the ITKFs as indicators. The enterprise- and project context in which innovation takes
place is generally analysed in detail by investigating the type, time frame, location, scale,
management orientation, production/construction process and production performance of
the enterprise or project. Process technologies are assessed by investigating the four
inextricably interrelated technology components: Technoware (equipment, tools,
machines), Humanware (manpower), Infoware (documented facts) and Orgaware
(organisational framework) (UNESCAP 1989) The ITKFs are analysed by investigating
the (a) nature of the technology or knowledge, (b) source of the transferred technology (c)
modality in which the ITKF takes place. The impact of ITKFs is assessed by investigating
the achievement of targets for the ITKFs.
The Tanzanian ITKF case took place in the building materials industry to establish, run
and maintain a Tanzanian small scale private family business (< 10 employees) located in
Dar es Salaam focussed at production of concrete building materials for the local urban
market. Although the national economic situation at that time (the 1990s) still was not
very favourable, liberalization and privatization policies offered room for private
investments. The traditional economic feasibility studies that were carried out indicated
an opportunity for ITKFs based on a local market demand for the building material and
only one local competitor that produced the same product. The technologies and
326 Van Egmond
knowledge components that were needed to be imported for the establishment of the
building materials enterprise were identified next. Table 1 shows the nature of the
components of technology and knowledge that were transferrred to Tanzania, the source
of these and the particular mode through which the components were transferred. The
production performance -in terms of the quality of the produced building materials- was
at the start basically good. The building materials met the quality requirements of the
market. A problem was the quantity of the production output that did not keep pace with
the actual market demand and the enterprise had to terminate their operations a few years
after the start up. Our evaluation of this ITKF case revealed the following reasons.
Local financing of enterprise investments were subject to strong loan conditions, which
were difficult to meet by the enterpreneur. The physical infrastructure formed a another
constraint at national level: the road infrastructure and transport system showed
deficiences as well as the electricity and water supply network. Technological capabilities
in the CI were not very strong. The local production and supply of capital goods for the
intended production process was negligible. Also spare parts and some of the
intermediate products -e.g. pigments- had to be imported on continuous basis. Production
labour was sufficiently available, although their education level was rather low. Also the
construction labour appeared to have insufficient knowledge and skills to use the building
materials properly. The stock of natural resources for the building material production
like sand and water is large, however the supply was constrained by the in-sufficient
exploitation and a rather bad state of infrastructure and transport facilities in the country.
Electricity supply broke down several times for a rather long period and cement delivery
consequently also stagnated which affected the continuity of the building material
production. The innovation system of the construction industry showed rather weak or
even non-existing linkages between the enterprises in the CI and various other agents
such as governmental-, financial-, R&D and educational institutes. (Egmond 1999). The
selected and imported machinery for the production line was rather easy to maintain and
repair. The production and maintenance skills of the labour force -which belonged in
majority to the (extended) family of the director of the enterprise- needed to be up graded
through through training. Information and documentation on the production process and
maintenance was imported and the local labour force was trained to use these as well. The
European management principles that were introduced as well as the principles of running
and maintaining the production process were not familiar to the Tanzanian partner. Socio-
Technology and Knowledge Flows in Building 327
Literature studies were carried out to gain insight on the factors that influenced the
success of the development and diffusion of innovative bamboo construction technologies
for lowest income households in Ecuador. (de Vries, 2002) Alike many other developing
countries also Ecuador has to cope with an unfavourable social structure, economic
situation and policy-making noticable in deficiencies in the physical infrastructure and a
housing shortage in particular for the lowest income households. The majority of formal
residential construction takes place for middle- and higher income families, generally by
using concrete blocks. Lowest income households generally rely on the informal sector
construction activities. This implies that this section of the residential construction sector
has practically no linkages with the agents in the formal innovation system of the
construction industry. Consequently informal residential building construction has to rely
mainly on own sources, without support from governmental, financial, educational or
R&D organization, which implies a limited availability of TeCaps. The technology stock
in the informal sector is limited to predominantly bamboo technologies used for and by
the lowest income families for their houses. The knowledge and skills of a large part of
those who are involved the actual execution of the informal housing construction projects
appears to be limited as well which is revealed in a very traditional and non-innovative
use of bamboo in housing construction, and the very limited availability and use of tools
and equipment to build. The availability of the needed natural resources like bamboo
seems to be sufficient. On the other hand the available technological capabilities in the
formal Ecuadorian construction sector for the (incremental) development of technologies
for the benefit of low-cost housing seemed to be promising. An opportunity to overcome
the non-existent linkage between the formal and informal residential construction sector
in the country was created by the intervention of a Non Governmental Organization
(NGO) in Guayaquil the “Viviendas de Hogar de Cristo” (VHC). This organization which
has formal relations with the agents in the CI developed a design and a bamboo
construction system for the lowest income households based on the traditional rural
bamboo houses.
328 Van Egmond
The basic house unit consist of room to live and sleep. (see figure 2) The design,
construction system and costs of the innovative housing technology respond rather well to
the technological requirements and capabilities of the target group. Social acceptation
therefore appeared not to pose any problems, which is enhancing for the succesful
diffusion of the innovative building technology. The materials that are used and the
physical properties of the houses very well match both sector and national conditions in
Ecuador. The lack of technological capabilities to carry out the on-site construction
activities properly is overcome by the off-site prefabrication of the building elements in a
serial production process.. On-site construction with the system requires limited process
technological components: equipment, tools, skills and knowledge, information and
Case 3 ITKFs and diffusion in the residential construction industry in Costa Rica
Literature studies, field observations and interviews with the involved experts were
carried out to gather information for the evaluation of the ITKF case in the residential
construction sector in Costa Rica. (Egmond 1994). The case of the Proyecto Nacional de
Bamboo (PNB) represents an example of ITKFs of innovative building technologies.
Although the Costa Rican national socio-economic situation is better than that in
Tanzania or Ecuador, also this country had and still has to face deficiencies in the
physical infrastructure and a housing shortage for in particular the lowest income
Technology and Knowledge Flows in Building 329
The PNB houses (see fig.3) were designed by a Costa Rican architect according to
national and sector conditions: the appearance as well as physical performance of the
houses meet the (inter)national building standards as well as the requirements of the
Costa Rican population; they score better regarding the construction costs, the earth
330 Van Egmond
quake resistance and the environmental sustainability compared to similar houses built
with concrete systems, but they were not affordable for the lowest income population.
Industrialisation –systematisation, standardisation- of certain bamboo processing
activities resulted in the establishment of a production plant for prefab bamboo wall
elements. Further improvement and mechanisation of the process followed after
investigation by Dutch researchers. Since the bamboo harvest appeared to be more than
actually needed for the planned housing construction, the PNB decided to extend its
activities to industrial production of bamboo based products like furniture and timber
substituting panels supported by investigations of Dutch researchers and contribution of
US experts in industrial design and engineering of furniture. Training programs, short
courses and conferences were organised and information services rendered to those (1000
professionals, technicians, family heads involved in housing construction) involved in
cultivation, production, preservation and application of bamboo technologies for housing
construction, as well as for those involved in adminstration of small bamboo based
community bussiness. These activties were carried out in collaborative effort of Costa
Rican, Latin American and European experts. The bamboo based economic activities and
housing construction could not be continued on durable basis as was planned. Crucial
factors due to this were found at national level: the economic and political situation in the
country as well as the dependence of the PNB on foreign and public financing. The
economic situation and not all govermental regimes are favourable for the financing of
the activities such as envisaged in the PNB. At sector level a major constraint was the
lack of linkages of the PNB in the sector and the reluctance of the private sector
contractors to accept and adopt the bamboo construction technologies. The residential
construction industry is dominated by the concrete building materials suppliers and
contractors predominatly building with these systems. Moreover the public owned
materials industry of the PNB had limited capabilities for the commercialization of
bamboo-based building products.
Case 4 ITKFs from Latin America: opportunities for low cost housing in
Bangladesh
Opportunity studies were carried out to find out whether the introduction in Bangladesh
of innovative and sustainable bamboo technologies developed in Ecuador or in Costa
Rica and making use of the Latin American experiences could contribute to a solution to
the housing problem and to a sustainable development in the construction industry in the
country. Field studies have been carried out in four villages in the CHT and data was
gathered by means of observations and through interviews with the target group as well as
with local construction experts. Next to this literature studies rendered information on the
residential construction sector as well as the national context in which construction
activities take place in Bangladesh. The studies showed opportunities to transfer
innovative bamboo technologies for low-cost housing from Latin America to Bangladesh.
However there are some major obstacles for the ITKFs to the CHT in Bangladesh. (see
table 2) These result in particular from the national context of the country. Basically, the
country lacks a solid socio-economic base for initiatives towards technology
development. Any national effort for investment in the CHT in particular may form a
problem as the CHT people take a marginal position in the country. The fact that bamboo
as a building material for houses has low social status, forms a huge constraint for the
development of bamboo construction technologies in general. Moreover, introduction of
innovative technologies thrives on political stability and political will at all levels of the
country, which unfortunately is not the case for the CHT. As bamboo is available
throughout the whole country, there are plenty of other areas suitable for the application
of innovative bamboo technologies.
332 Van Egmond
Table 2 Crucial factors for ITKFs from Latin America to CHT Bangladesh
Source: Adapted from de Vries, S. 2002
Bangladesh EC CR
National context Economic - -
Political - -
Socio-cultural - +
Physical infrastructure - -
Constr sector Innovation system - -
Techn Needs (house) Functionality - +/-
geometry /dimensions +/- +
Materialisation - +
physical durability +/- +
production complexity+ +/-
Costs + --
TECHN CAP Techn Stock Products+/- - +/-
Process + -
HR stock +/- -
NR stock + +
+ indicates a promoting factor for assimilation of ITKFs from Ecuador or Costa Rica
- indicates a constraining factor for assimilation of ITKFs from Ecuador or Costa Rica
The comparison of the data of the cases enabled to make some first cautious conclusions
regarding ITKFs in the CI related to the technological capabilities in the industrial
innovation system of the construction industry in the developing countries in which the
case studies took place.
The national setting in many developing countries forms a major obstacle for ITKFs,
which can not be solved just from one day to the other. The economic situation in many
DCs is far from favourable for local investment in ITKFs. Technological development
through ITKFs therefor has to rely on either foreign financial sources or on a political
orientation and will at various levels in the country to give priority to the support to
investments in CI development. The world wide globalisation pattern, which also has left
traces in the national policies of liberalisation and privatisation in many DCs offers
incentives for foreign investments. However not in all DCs there is a situation of
economic and political stability which makes the countries attractive for foreign
investment. The physical infrastructure (communication and transportation, energy and
water supply network) in many DCs often shows deficiencies which form an obstacle for
the diffusion of ITKFs in the countries.
The socio-cultural system in DCs, the expectations, beliefs, norms, values, motives of the
local communities, often does not comply with those of the foreign suppliers of
technologies and knowledge. This forms a constraint for proper ITKFs and even leads to
non-acceptance of the transferred technologies and knowledge.
The innovation system of the CI in DCs shows a characteristic of rather weak or even
non-existing linkages between the actors in the network. ITKFs then take place without
broad support and acceptance among the actors in the network, with too much
dependence on single sources of support within a too limited time frame. ITKFs often are
isolated actions by a single actor in the sector. Technological capabily building then takes
Technology and Knowledge Flows in Building 333
place on non-durable basis and gets easily lost when it is not further diffused and
assimilated in the innovation system.
Technological capabilities in the CI -in terms of the stock of national resources that are
available and that can be committed to the construction industry - showed deficiencies
that could not all be counterbalanced by ITKFs. The technological capabilities in the CI
in DCs can be improved through ITKFs, though given the characteristics of the context in
which ITKFs in DCs generally takes place TeCap building does not always succeed as
was expected.
The case studies that we carried out just give a rough picture of the major aspects that are
considered to influence the success of ITKFs leading to technological capability building
and improved performance of the CI in DCs. In order to get a better understanding of the
phenomena more en more in-depth studies should be carried out in our opinion, while
knocking down the total process of ITKFs – taking into account the stages of initiation,
selection, assessment, negotiation, contracting, implementation and assimilation of the
technologies and knowledge- in different DCs. Thereby it is considered necessary to
further elaborate and refine the basic theoretic framework and research instruments for
the investigations.
REFERENCES
technologes for housing in selected rural villages of the Chittagong Hill Tracts,
Bangladesh. MSc thesis: Eindhoven University of Technology. Eindhoven, The
Netherlands.
PROCUREMENT STRATEGY FOR PROMOTING SMALL SCALE
CONTRACTING IN RURAL INFRASTRUCTURE PROVISION: CASE STUDY
OF INDONESIA
K. S. PRIBADI
Department of Civil Engineering, Institut Teknologi Bandung, Jl Ganesa 10, Bandung
40132, Indonesia. ksuryanto@si.itb.ac.id
ABSTRACT
Small-scale contracting is one of the methods for private sector participation in rural
infrastructure provision. It promotes small enterprise development in rural areas and thus
stimulates local economic activity through backward and forward linkages. It is expected
that promoting small scale contracting activities will improve the capacity of the national
construction industry, which consists of a large number of small scale contractors (SSCs),
and will contribute significantly to the national economy.
It is generally accepted that technology for rural infrastructure is basically simple, thus
considered suitable for SSCs.. Labour-based methods may be applied by SSCs with
limited heavy equipment, thus improving job opportunities for communities in rural
areas, particularly for seasonal agriculture workers. The method utilizes labour in an
optimal way, supported by appropriate equipment, to produce cost-effective rural
infrastructure.
This paper describes an investigation into the structure of the construction industry in
Indonesia focusing on SSCs and the procurement system in the provision of rural
infrastructure. Current practices are identified and issues, problems and strengths within
the local context are discussed. A strategy for improving the procurement process is
proposed. The strategy is based on targeting small scale contractors through proper
contract packaging, simplifying administrative processes, building the capacity of the
local construction industry and local government organizations to manage small scale
contracts.
INTRODUCTION
Background
Infrastructure facilities have an important role in improving quality of life, as well as the
economic and business activities. Rural infrastructure is expected to contribute to poverty
reduction by increasing access to basic social and economic services. Activities to plan,
336 Pribadi
construct, and maintain rural infrastructure may also increase job opportunities in rural
areas.
Rural infrastructure development as a means for employment creation involves small
scale contracting. Participation of the community in rural infrastructure development
increases ownership of the created asset and therefore helps to sustain the infrastructure.
It is also generally accepted that technology for rural infrastructure is basically simple in
nature, and is therefore suitable for small-scale contractors (SSCs). SSCs with limited
heavy equipment can apply labour-based technology, thus improving job opportunities
for communities in rural areas, especially for seasonal agricultural workers. Labour-based
methods utilize labour in construction activity in an optimal way, supported by
appropriate equipment, to produce cost-effective rural infrastructures.
Small-scale contracting is one of the methods for private sector participation in the rural
infrastructure procurement process. It promotes small enterprise development in rural
areas and thus stimulates local economic activity through backward and forward linkages.
Promoting small scale contracting activities may also improve the capacity and
professionalism of the local construction industry and, through fair and transparent
competition, ensure a level playing field for new emerging contractors. A healthy national
construction industry, which comprises a large number of SSCs, will contribute
significantly to the national economy.
The current situation is different. A quick look at national construction industry practices
in Indonesia makes clear that there are many obstacles to promoting SSCs. There is
corruption and collusion in the practice of public procurement. Local governments tend to
prefer medium- and large-scale contractors. There is no continuous market for small scale
contracting due to lack of investment in infrastructure. There is a lack of capacity due to
inadequate investment in human resource development in the SSCs as well as in the local
government agencies dealing with public procurement. SSCs have inadequate access to
financial resources. Procurement procedures are overly complicated. SSCs have difficulty
competing due to the unbalanced structure of the construction industry. All these issues
make it difficult to promote SSCs.
Objective
This paper describes the result of a study on the structure of the construction industry in
Indonesia focusing on small scale contractors and the procurement system in the
provision of rural infrastructure. The objective is to develop an overall strategy for
promoting small scale contracting in rural infrastructure programs, in order to provide
more employment and business opportunities for the rural community, where poverty is a
common phenomenon.
Prior to the economic crisis in 1997, the construction industry grew at the rate of 20% per
annum (excluding small scale construction industries such as the housing sector). This high
growth was mostly attributable to the private sector. Since the crisis, labour demand has
declined - with highly visible lay-offs in the construction and manufacturing sectors. In
Procurement strategy for promoting small scale contracting 337
1998, BAPPENAS (the National Development Planning Agency) estimated that around 6
million persons (~7 % of the total labour force) were laid-off, the greater part of which (1
million) came from the construction sector (25% of the construction labour force was
laid-off) [Anon,(2000)].
With the economic rebound, the construction sector in Indonesia was able to employ
4,300,000 construction workers in the year 2001 (4.69% of the total labor force in
Indonesia). Among them, 19.1% were located in rural areas. Most of the workers (97.2%)
were low-level laborers indicating that this sector can absorb unskilled or semi-skilled
workers – those affected most by poverty.
At the moment in Indonesia there are about 63,000 contractors and 2,500 consultants
listed at the National Construction Industry Development Board. About 55,000 of these
are members of the Construction Business Association (GAPENSI), while the rest are
members of other contractor associations. About 91% of them are SSCs. Data from East
Nusa Tenggara (ENT), where in-depth research was conducted, confirm these results: Out
of 3,600 contractors listed in Local Construction Industry Development Board, 3,000 of
them are members of GAPENSI, and 95% of these are small contractors.
The World Bank has reviewed the practices of the construction industry in Indonesia
[Tollie ,(2000)] and identified a number of features of the industry. The broad
conclusions of the review were:
• Projects built by large construction companies were up to international standards;
• The standard of workmanship and value-for-money of projects built by the 65,000
(before the crisis) or so medium and small-scale contractors is extremely variable;
• The structure of the industry does not favour specialisation and many contractors are
incorrectly registered. Small-scale contractors, in particular, are sometimes registered
without fully meeting standard classification criteria;
• There is a common practice of total “vertical” sub-contracting by national contractors
to inexperienced and non-pre-qualified local contractors;
• Excessive slicing or unbundling of contracts has lead to a highly segmented industry.
Small contracts are often excessively targeted to a limited group of small contractors
registered in each kabupaten. These poor performers are protected from price and
quality competition with more efficient (often small-scale) contractors operating in
other kabupatens, in urban areas and at the provincial level;
• Designs are often not adapted to local conditions or to the availability of appropriate
local materials;
• Industry development is very variable, with the largest concentration of contractors
and consultants on Java;
• Small contractors are often poorly trained and unable to follow simple drawings or
specification norms; and
• “Hire and fire” are normal practices in both contracting and consulting, and firms are
often unwilling to invest in management and to provide sufficient funds for in-house
training.
The market segment includes construction and repair for simple buildings and
infrastructure. In the Indonesian construction sector, larger contractors appear to be more
attracted to private sector building work and smaller scale contractors to public sector
338 Pribadi
Up to now, the definition of SSCs in Indonesia is still vague. The National Law on Small
and Medium Enterprise classifies SSCs based on the value of their assets, while the
Presidential Decree No 80 Year 2003 (Technical Guidelines for Government Procurement
of Good and Services) stipulates that the net assets of SSCs should not exceed Rp 200
million (about USD 22.000), excluding fixed assets such as land and buildings. Annual
sales should not exceed Rp 1 billion ( USD 110.000). In the past, SSCs used to be divided
into 3 categories (K1, K2 and K3) and public procurement regulations only limit
competition between similar classes.
SSCs have only limited access to construction plants. For example, an SSC which has
been operating for 20 years in ENT owns only one small pick-up truck and one water
pump. A typical SSC usually employs one technical staff and one field operator.
Administrative work is handled by the contractor, supported by the staff. In many cases,
the staff is employed only when the contractor has a job. Trades and craftsmen are hired
on work-volume basis, the contractor sublets the work to a group of workers consisting of
at least a mason and a carpenter and supported by 4 non-skilled labourers. The group is
Procurement strategy for promoting small scale contracting 339
coordinated by a foreman (the local term is mandor). Daily wages are used when the
work volume cannot be measured easily.
Rural Infrastructure
Rural infrastructure can be practically defined as “……… all that is constructed in rural
areas, however it usually refers to "small-scale" rural infrastructure and concentrates on
rural roads, paths, bridges, water supplies, small-scale irrigation systems, schools, health
centre, markets and other pavement” [Parikesit et al, (2002)]. In addition, rural energy
and water transport infrastructure should also be considered important in the Indonesian
context. Different approaches can be used for the delivery of rural infrastructure. Large-
scale rural infrastructure can be provided by a contractor working on its own account or
in a joint operation with a local organization, whereas small-scale rural infrastructure can
be provided by the local community. In both cases, however, certain technical
qualifications and safety requirements must be met.
Indonesia has a long history of rural development, with programmes for both rural
infrastructure development and rural community (economic) development. A few
examples include the Poverty Alleviation Programme, the Village Infrastructure Project,
the Kecamatan Development Programme, the Rural Electrification Project, the Public
Works – Sectoral Productive Labour Intensive Programme, Integrated Infrastructure and
Village Environment Development, Rural Water Supply and Sanitation, and the Rural
Electrification Program.
When funding for rural infrastructure comes from either central or local government,
construction services and goods should be procured publicly in accordance with the
prevailing regulations on public procurement. On the other hand, when local
communities provide the funding for their own rural infrastructure, there are a variety of
approaches, such as procuring contractors and material locally, the force-account method,
and collective community volunteer work.
In practice, there are many problems related to construction industry practices and in
particular to public procurement that prevent it from being a cost effective, fair,
transparent, non-discriminating and non-collusive process. Public procurement is
notorious for being a high-cost process, where a major portion of the construction budget
is absorbed by unaccountable expenses, resulting in poor quality infrastructure and less
340 Pribadi
value for the cost. The provision of rural infrastructure through contractors tends also to
reduce community involvement and ownership, which are important for sustainability.
At the national level, policies concerning the construction sector are set in the following
act and regulations
• National Act No. 18 Year 1999 on the Construction Industry .
• Government Regulation No. 28 Year 2000 on the business and role of the
construction industry society
• Government Regulation No. 29 Year 2000 on the operation of construction business.
• Government Regulation No. 30 Year 2000 on the development of construction
business.
The decree provides detailed instructions on how to procure services and goods publicly.
It also provides guidance on SSC empowerment through small scale bid packaging. The
decree divides contractors into two categories only: large-scale contractors and SSCs.
Regarding competition, the spirit of the decree is to liberate the market, so that small
contractors can compete with larger ones and contractors can bid for all projects in
different areas or provinces without geographic barriers. The idea is to train national
contractors to be competitive and prepared for the global construction market once the
AFTA open market is put into effect.
Prequalification
procurement Notice
(e.g., procuring the services
Tenderof large/medium
Notice scale contractors to reduce the
Invitation
number of contracts, establishing agreements with communities exclusively and avoiding
contracts with contractors).
Prequalification Evaluation
Invitation based on
Prequalification Result
Pre-bid conference
Bidders’ Rank
& Negotiation
Bid submission
Bid Evaluation
Legend:
List of Candidates Limited Tender :
Objection Periode Contract Award Open Tender :
Notice of award Direct selection :
Direct appointment :
Current Practices
SSCs use trade or petty contractors to execute their work. In many cases, the basis of the
work is not a contract, but a document in the form of a Notice to Proceed. In some
programmes, contractors are required to establish a joint operation agreement with local
community groups who provide local construction materials and labour. In community
empowerment schemes, in which local communities obtain block grants from local
governments or donors, the local community could choose either to contract a contractor
for the provision of construction equipment, administrative staff and technical
supervisors, or to implement the project on a forced-account basis, with equipment being
provided by the local government agency as part of the in-kind support of the project
(such as plants and bitumen asphalt). A small scale contractor typically operates with
very limited staff and workers, about 5 to 10 persons recruited locally through the chief
craftsmen.
Typically 60% of small scale projects in East Nusa Tenggara are behind schedule and
25% deteriorated before the end of the design life. Community projects executed by
collective volunteer work or by forced-account are often considered to be of reasonable
quality, considering that the community members are not construction professionals.
Local government agencies planning to implement rural infrastructure projects usually set
up a procurement committee whose members are selected from officers and staff in the
agencies. A project manager is appointed on behalf of the agency to implement the whole
process (tendering, contract preparation and signing, project monitoring and reporting,
approving payments and project handover).
The government effort to promote small scale contracting for rural infrastructure
development as a means to alleviate poverty faces a number of obstacles. In particular,
any strategy to promote small scale contracting must address the following issues:
• How can a continuous construction market be provided for small scale contracting in
rural infrastructure?
• What kind of procurement process in rural infrastructure will help small-scale
contractors and community contractors compete successfully?
• How can procurement regulations ensure consistency, fairness and transparent
business in the construction sector?
• What kind of contracting procedure and management process is applicable to support
a small scale contracting strategy?
• How can the (local) government’s capacity to manage a large number of small scale
contracts be improved?
• How can contractors be encouraged to improve quality and become more
competitive?
Stable jobs for contractors are often not available continuously in the construction market.
Without such job security, there is little incentive for the contractors to invest in
improving their human resources. The government, at the national and local level, could
address this problem by requiring that a certain amount of the rural infrastructure program
is procured exclusively through SSCs. The planning and designing process should also
ensure the use of simple technology in rural infrastructure programs.. The SSCs should be
able to compete with the other segment of the construction industry when the use of
sophisticated technology and equipment can be avoided.
Capacity Building
It is also important to develop the capacity of local government staff to manage the entire
small scale contracting process, from planning and procurement through implementation.
In the past, the procurement committees established by local government agencies were
not always staffed with knowledgeable personnel, as assignment was usually on a rotating
basis. Adequately trained personnel in procurement and contract management should be
developed through appropriate training programs. References [Thongchai, (2002)] and
[Bentall et al., (1999)] provide a wealth of idea on how to strengthen local capacity in
this regard.
344 Pribadi
On the supply side, contractors’ training programs should also be developed. Objectives
of the training programs should be well set, target groups identified and outputs and
results specified. When the trainees know in advance what is expected of them, they are
more likely to achieve a significant performance improvement [Hernes, (1988)].The
training programs should include materials on bid preparation and submission,
construction planning and scheduling, site management, construction business
management (cash flow management, office and plant management, labor relations, etc.),
construction methods, construction quality, productivity improvement, construction
safety, and hygiene. The training programs should prepare all players to respond to the
higher demand for quality infrastructure and to a more competitive process in the industry
while understanding their limitations. The training should include at least 60 to 70% of
hands-on experience and practical applications, supported by about 30 % theoretical
basis.
CONCLUDING REMARKS
An analysis of the Indonesian construction industry has been described, focusing on the
small scale contractor (SSC) category and the current public procurement system.
Opportunities for promoting small scale contracting is available in the sector of rural
infrastructure provision, with the aim of providing more employment and business
opportunities for rural communities where poverty is a common phenomenon,. A strategy
to improve the representation of SSC in the rural infrastructure sector has been proposed.
The strategy is based on improving the construction business environment, removing
barriers to the entry of SSCs in the very competitive industry, and developing the capacity
of all players in the sector. The goal is to enhance the effectiveness and efficiency of
planning, procurement, and implementation in order to produce quality infrastructure for
reasonable cost.
ACKNOWLEDGEMENT
The author thanks the ASIST-ILO Asia Pacific in Bangkok and the Coordinating Team
for Rural Infrastructure Development of the Coordinating Ministry of Economic Affaires
of the Government of Republic of Indonesia for their support of the investigation in East
Nusa Tenggara.
REFERENCES
Aniruth Thongchai (2002) Small Scale Contracting – Strengthening Local Capacity for
Sustainable Rural Infrastructure in Thailand, International Labour.
OrganizationAnonym (2000) Project Document For Technical Support and
Training for Targeting the Creation of 1.1. Million Jobs in Indonesia, ILO.
Bentall P, Beusch A, de Veen J (1999) Employment Intensive Infrastructure Programmes:
Capacity Building for Contracting in the Construction Sector.
Edmonds and Johannessen (2003) Building Local Government Capacity for Rural
Infrastructure Works, ILO.
Procurement strategy for promoting small scale contracting 345
Hernes T (1988) Training Contractors for Result: A Guide for Trainers and Training
Managers, International Labour Organization.
Pribadi, K S and Pribadi, T (2002) Cash Flow Structure in Indonesian Small Scale
Contractors, Proceeding of International Conference on Advancement in Design,
Construction, Construction Management and Maintenance of Building Structures,
Bali, 27-28 March, pp.II-163-175.
Pribadi K S (to be published, 2004) Development of Strategy for Rural Infrastructure
Procurement and Improving Small Sacle Construction Business, IL0.
Parikesit, D, Pribadi, K S and Dwiryanto, R (2004) Rural Infrastructure Development :
Problem and Perspective, Working Paper (in Bahasa Indonesia), Coordinating
Team of Rural Infrastructure Development, Coordinating Ministry of Economic
Affaires, Government of Indonesia.
Tollie J.M (2000) Watching Brief on the Construction Industry, EASTR, World Bank,
Washington.
346 Pribadi
CONTRACTOR DEVELOPMENT MODELS THAT MEET THE CHALLENGES
OF GLOBALISATION - A CASE FOR DEVELOPING MANAGEMENT
CAPABILITY OF LOCAL CONTRACTORS
ABSTRACT
This paper argues for contractor development models and programmes that are holistic
and integrative in their approach. It supports a view that globalisation in the construction
industries of developing countries is real, unstoppable and has the potential to destroy
non-competitive contractors. Developing countries, particularly those in Southern Africa,
are therefore encouraged to meet the challenges of globalisation by strengthening the
competitiveness of small and medium sized-enterprises (SMEs) in particular.
The paper summarises a preliminary review study on the status of development models
for construction SMEs in South Africa and other developing countries, highlights the
challenges and potential effect of globalisation on this sector. On the basis of the review,
suggestions are made that can improve the current models and procurement programmes.
Due to a significant socio-economic role of construction industries in developing
countries, the authors argue for increased effort in the programmes that promote
contractor development of small and medium-sized indigenous contractors. The paper
promotes implementation of well-structured contractor development models and
supportive procurement programmes in order to improve technical and managerial skills,
knowledge and competitiveness of contractors. The benefits expected from effective
contractor development include global competitiveness, sustainable business growth,
good environmental management and socio-economic development of the developing
countries.
INTRODUCTION
competitive contractors. The adage “if you cannot beat them, join them” should be taken
to heart by many leaders throughout the world, in particular those in the developing world
who are not currently in the forefront of globalisation.
According to [Ofori, (2000)], globalisation is a trend which has occupied the headlines of
major popular publications for several decades. He argues that there are sharply different
arguments on the advantages and disadvantages of the process of globalisation from the
perspective of developing countries. It is the view of the authors that the majority of
contractors in many construction industries fall in the small and medium-size range and
do not export their services outside their countries. This sector therefore does not compete
in the global construction market which is dominated by a few, construction multinational
enterprises. However, the local SME sector often has the capacity to execute small and
medium-sized projects, and can thus compete at this level. Globalisation thus brings
opportunities for SMEs to subcontract work from large, multinational enterprises and, in
limited cases, to form joint ventures and partnerships. Competition of SMEs at regional
level, where a contractor works across its national borders is, however, a common
phenomenon.
This paper therefore advocates the development of contractors’ skills and knowledge in
order to: (a) build capacity to grow their businesses trough technical and managerial
skills; (b) compete locally among fellow SMEs (c) build a foundation for competing
globally, once adequate capacity has been built over time. A “Contractor Development
Model (CDM)” refers to structured methodology comprising measures designed to help
the managers of contractors to develop their technical and managerial skills and thus
grow their business enterprises. These models should be located within the procurement
programmes of government, in line with the government’s procurement policy.
The authors do not wish to create an impression that contractor development models
advocated here will immediately make SMEs global players. Rather, the focus is on how
the models can assist SMEs, largely within the context of domestic economies, to
capitalise on construction opportunities brought by globalisation, as well as to mitigate
the risks. What is promoted is an incremental approach to contractor development that is
underpinned by clear development goals.
than ten employees per enterprise, this sector is still the largest employer. For example,
the Singapore Construction Industry Development Board (1996) found that 73% of total
construction industry employees employed by contractors in Singapore were employed by
small and medium-sized contractors. Similar trends have been reported in many other
countries.
According to [Ofori (2001)], estimates show that foreign contractors and consultants have
about 70% of the construction market share in the Southern African region. In many
Southern African countries, governments have expressed frustration at the poor returns on
their investment in improvement programmes, such as the granting of tendering
preferences to local construction firms. As early as the 1960s, the forces of globalisation
had begun to make their presence felt in Africa in the form of international financial
institutions, mainly the World Bank and the International Monetary Fund. The arrival of
these institutions in Southern Africa opened the gates for foreign contractors to operate in
these countries.
As indicated in Table 1, the disadvantages of globalisation are more severe to small and
medium-sized contractors in the developing countries; hence the need to find solutions
through various measures and contractor development models (CDMs), which are
advocated in this paper.
350 Dlungwana and Rwelamila
Merits Demerits
II: Direct foreign investment in II: Local construction companies lack the
projects leads to increase in technical and managerial capability to
construction demand, creating work undertake most of the foreign-funded
opportunities for local firms. projects.
III: Competition between foreign firms III: It is possible that local firms will be
lowers the costs of projects to deprived of the opportunity to grow
developing countries. (Hillebrandt, 1999).
IV: Presence of large numbers of IV: Foreign construction firms may pay lip
international firms offers scope for service to technology transfer (Carillo,
technology transfer and the 1994) or take measures to avoid it.
development of local firms and Moreover, local companies may not be in a
upgrading of the industry. The large position to benefit from technology
number of such firms also means that transfer, or to subsequently utilise the
technology transfer can be a tool for acquired expertise.
competition.
[Mashamba (2001)] comments that many Zambian contractors have, over times, found it
very difficult to take advantage of these economic opportunities, due to highly
controversial participation schemes which do not favour small and medium-sized local
contractors. [Mashamba (2001)] further states that a cursory look at the history of the
Zambian construction economy in the 1960s and 1970s testifies to the fact that many
Contractor development models 351
African countries have a long history of problems in their industries, which have seen the
number total market share of local contractors shrinking drastically. [Mashamba (2001)]
cites [Kampsax’s (1996)] estimate that the current market share of Zambian contractors in
road construction projects is a mere 17%, and the rest in the hands of foreign contractors,
a situation even worse than Ofori’s estimates. The Zambian experience highlights the
critical role that government and other industry stakeholders should play in assisting
contractor development.
While globalisation may have benefits for a country’s economy, such as reduced prices,
high standards of quality and improved technology and skills, it can have serious negative
consequences for the construction industries of developing countries. Unless local
contractors succeed in raising performance standards relative to foreign competitors, the
current situation will worsen. Some of the key challenges faced by developing countries
include:
• The high failure of local contractors due to lack of competitive advantage will result
in a situation in which most of the construction work is undertaken by foreign
contractors, with very limited participation by the local industry. Thus, in many
Southern African countries, the base of viable contractors has been severely depleted.
• Severe socio-economic problems, such as increasing unemployment.
• Lack of resources resulting in an unhealthy dependence on foreign resources to create
badly needed social and economic infrastructure.
• The lack of appropriate legislation that creates an environment in which contractors
can grow sustainably.
• The lack of well structured training programmes to equip enterprises with technical
and managerial skills, as well as the lack of strong mentorship programmes.
• The lack of performance improvement strategies and tools that nurture the culture of
continuous improvement at national and regional level.
• Poor construction procurement systems and lack of management capacity and
resources to equip managers to operate their business enterprises effectively and
efficiently.
The question: “How do construction firms in Southern African countries adopt a strategic
approach to performance management?” posed by [Ofori (2001)] is becoming
increasingly uncomfortable for many in Southern Africa’s construction industries as the
pressures exerted by the global forces intensify. [Rwelamila (2001)] has also challenged
the use of registers of contractors for “gate-keeping” purposes as opposed to facilitating
contractor development and better project delivery.
The authors confront these challenges and argue that strategic adoption of contractor
development models or programmes that have full support of governments and other
institutions could well begin to create a culture of continuous improvement and
innovation in the Southern African region and thus respond earnestly to globalisation
challenges facing the construction industries of developing countries. The CDMs should
be implemented within a clear, supportive regional policy framework which encourages
cooperation between contractors across the regional borders.
352 Dlungwana and Rwelamila
As a response to the question posed by Ofori, this paper suggests a possible solution,
namely fostering a competitive construction sector at two levels, i.e. at the level of
management tools and at the level of regional institutional collaboration.
The paper promotes contractor performance development models that seek to promote
entrepreneurship, innovation and global competitiveness of contractors, based on the
principles of the Total Quality Management (TQM) philosophy. The models should be
used as instruments for promoting effective managerial approaches essential for a vibrant,
competitive SME sector.
For CDMs to be effective, the following key characteristics should be the features of the
model:
• The models should aim to develop contactors’ technical and management capacity
over a long-term period with a view to encouraging competitiveness and growth of
contractors. There must be a clear development path along which contractors
progress.
• The models should integrate development activities of all stakeholders, from
government to private sector, such that procurement, training, mentorship and
performance assessment activities are well integrated and complementary. In other
words, the model should encourage partnering in all aspects of contractor
development.
• The models should become an integral part of the entire industry development
strategy and be strongly championed.
• The models should be flexible enough to accommodate the varying needs of
contractors at different levels of development.
• The models should promote the adoption of industry best practices and be supported
by excellent research practices in order to create and share knowledge. Many such
models for example: [Dlungwana, et al, (2002), Brown, M.G., (1996)] incorporate the
use of Total Quality Management (TQM), including safety and environmental
management.
Key processes on the way in which the typical models function, are centred around the
need to focus the development effort on small and medium-sized contractors. These
processes include:
Since development resources are limited, it is important that only contractors which show
good potential to succeed be selected. It is also important that they be selected in a fair
and transparent manner. The selection criteria should therefore be objective. An
assessment should be conducted on selected contractors to determine their performance
capabilities as well as the improvement intervention that will be required. Selected
Contractor development models 353
contractors should be properly registered and categorised in terms of their size and
performance capabilities with a view to assisting their progression through subsequent
higher categories. Some development models make use of performance scores to rate the
performance of companies.
Training and mentorship needs are identified, based on the results of the assessment
exercise, and an appropriate training and mentorship intervention is developed. Training
and mentorship revolves around the contractor’s business management skills and
knowledge, such as tendering and marketing, thus affording SMEs an opportunity to gain
basic capability or, more importantly, a competitive edge in comparison to their
counterparts. The benefits that construction industries reap for developing their
contractors include, among others, sustainable, competitive enterprises that deliver better
products and create growth and employment.
Preliminary results of a study being conducted by the authors in a few selected countries
in Southern Africa, including South Africa, Zambia, Botswana, Tanzania and Malawi,
354 Dlungwana and Rwelamila
suggest that the CDMs, or some forms of CDM, have not yielded the required results in
the past.
At the time of writing, South Africa was in the process of launching its register. Much of
the contractor development effort in South Africa and in other African countries has a
greater focus on providing work opportunities to as many contractors as possible, at the
expense of assisting a limited number of contractors to build long-term sustainability.
Much of this effort is also characterised by ad hoc development interventions that do not
promote a culture of continuous improvement and long-term growth of contractors.
However, some medium-sized and large construction enterprises in South Africa have
been successfully competing in the global markets for some time. Within a period of less
than ten years these contractors have increased their share of external revenue from less
than 10% to between 30-50% of their total revenues.
Based on the preliminary review exercise, it would seem that a number of African
countries do not have structured development models to assist their small and medium-
sized contractors. Due to a lack of structured effort to develop contractors, many
construction industries in Southern Africa are not in a position to compete in the harsh
global construction market. Globalisation is therefore a big threat to these industries.
CONCLUSIONS
It is clear that construction industries of developing countries need to urgently address the
problems they face. This paper recommends a vigorous promotion of well-structured
contractor development models. Given the necessary integrated support from all
stakeholders, the models could make a remarkable difference in easing the plight of small
and medium-sized contractors as well as that of construction industries as a whole, in
Southern African countries in particular. The following are suggested to address
contractor competitiveness in the industries of developing country:
Thus, African economies should give their local contractors some limited form of
temporary protection while they develop their capacity to grow and compete. Failure
to do this will exacerbate the status quo and completely destroy local contractors,
with grave consequences for local economies. On the other hand, the benefits of a
competitive local industry include sustainable employment creation, economic
growth as a result of the tendency by local contractors to spend in the domestic
economy, and equity in income distribution.
• African countries should take advantage of the opportunities arising from the
implementation of the New Partnership for Africa’s Development (NEPAD) to
jointly exploit opportunities brought by globalisation.
• Models for developing contractors should be implemented within a clear, supportive
regional policy framework which encourages cooperation through joint ventures,
partnering and sub-contracting - and which discourages exploitation - between
contractors of different sizes across regional borders. Innovative partnering
relationships between local enterprises and foreign construction enterprises to create a
“win-win” situation in how local projects are undertaken. The support of other
industry stakeholders must also be strongly encouraged.
While Africa’s SME sector cannot stop the winds of globalisation, it must prepare itself
hard in order to explore the opportunities of globalisation as well to mitigate the risks.
356 Dlungwana and Rwelamila
REFERENCES
Brown, M.G. (1996) Baldrige Award Winning Quality. ASQC Quality Press.
Hassan, T., Mitrovic, D., Gayoso, A., Hunter, I. (1998) The Future LSE Industry, Work
Package 2 of Report on the ELSEWISE Project, European Construction Institute,
Loughborough, UK.
Hillebrandt, P. M., (1999) Problems of Larger Local Contractors: Causes and possible
remedies, Unpublished paper presented at the Second Meeting of CIB TG29, Kampala,
Uganda.
Dlungwana, W.S., Noyana, C., Rwelamila, P.D., Nxumalo, X.H., van Huyssteen, S.,
(2002) The Development and Implementation of the South African Construction
Excellence Model (SACEM) Proceedings, International Conference on Construction in
the 21st Century (CITC2002), “Challenges and opportunities in Management and
Technology” 25-26 April, 2002, Miami, Florida, USA
Hough, J., Neuland, E.W., Bothma, N., (2003) Global Business Environments and
Strategies, Oxford University Press, Southern Africa.
Ngowi, A. and Ofori, G., (2001) 2nd conference on the construction industry in
developing countries. Sustainable Building, Vol. 1, No. 1, pp. 20.
Rwelamila, P.D., (2001) From Gate Keeping Registers to Best Practice Accreditation –
Learning from Others and Past Mistakes, Proceedings, Conference on Developing the
Construction Industries of Southern Africa, Pretoria, South Africa .
HENRY A. ODEYINKA
School of Property and Construction, Nottingham Trent University, Nottingham NG1
4BU, UK, E-mail: henry.odeyinka@ntu.ac.uk
ABSTRACT
INTRODUCTION
The environment within which decision-making takes place can be divided into three
parts: certainty, risk and uncertainty [Flanagan and Norman, (1993)]. According to them,
certainty exists only when one can specify exactly what will happen during the period of
time covered by the decision. This, they concluded, of course does not happen very often
in the construction industry. Bennett and Ormerod [1984] also concluded that an
important source of bad decisions is illusions of certainty. They submitted that
uncertainty is endemic in construction and needs to be explicitly recognised by
construction managers.
According to [Flanagan and Norman (1993)], uncertainty, in contrast to risk, might be
defined as a situation in which there are no historic data or previous history relating to the
situation being considered by the decision-maker. In other words according to them, it is
360 Odeyinka, Oladapo and Dada
‘one of a kind’. A company has to operate in an environment where there are many
uncertainties. The aim is to identify, analyse, evaluate and operate on risks. Accordingly,
the company is converting uncertainty to risk. The more one thinks about risk and
uncertainty, the more one is inclined to the view that risk is the more relevant term in the
building industry [Flanagan and Norman, (1993)]. [Perry and Hayes (1985)] submitted
that while the distinction between risk and uncertainty is recognised, the distinction is
unhelpful when it comes to construction projects.
[Fong (1987)] asserted that it is generally recognised that those within the construction
industry are continually faced with a variety of situations involving many unknowns,
unexpected, frequently undesirable and often unpredictable factors. These factors
according to [Lockyer and Gordon (1996)] include timing schedule slippage of the project
tasks, technological issues, people-oriented issues, finance, managerial and political
issues. [Smith (1999)] and [Chapman and Ward 1997)] submitted that generally, risk is
viewed within the context of the probability of different outcomes and that the general
attitude towards risk is its identification, evaluation, control and management. Some of
the major causes of risk in construction include design error, estimating error, competitive
tendering risk, financial risk and changes in political and economic climate among others.
Whilst these risk factors are not unknown to the Nigerian construction practitioners, the
relative likelihood of occurrence and impacts in case of occurrence at pre and post
contract stages is yet to be investigated. This then is the concern of this study.
Risk is inherent in all human endeavours, including construction activities, and the risk
elements involved are diverse and varied [Odeyinka, (2000)]. Risk has been defined in
many different ways by economists, insurance scholars and construction management
researchers among others. In the business and insurance domain, [Knight (1921)] defines
risk as measurable uncertainty or uncertainty of loss. Risk has also been defined as the
uncertainty that exists as to the occurrence of some events [Greene, (1973)]. In the light
of these definitions, risk can be viewed as a psychological phenomenon that is meaningful
in terms of human reaction and experience. It can also be viewed as an objective
phenomenon that may or may not be recognised in terms of human reaction and
experience.
In construction management domain, [Perry and Hayes (1985)] and [Healey (1982)]
defined risk as an exposure to economic loss or gain arising from involvement in the
construction process. [Moavenzadeh and Rossow (1976)] however regarded risk as an
exposure to loss only. Bufaied [1987] described risk in construction as a variable in the
construction process whose variation results in uncertainty as to the final cost, duration
and quality of the project. Moreover, [Fong (1987)]. According to [Akintoye and
MacLeod (1997)], risk in construction has been the object of attention because of time
and cost overrun associated with construction projects. Many time and cost overruns
according to [Perry and Hayes (1985)] are attributable to either unforeseen or foreseen
events for which uncertainty was not appropriately accommodated. [Thompson (1992)]
also identified an effect of risk on construction project as failure to achieve the required
quality and operational requirements. This is in addition to cost and time overruns which
other authors also identified.
The assessment of risk in construction in Nigeria 361
[Perry and Hayes (1985)], [Thompson (1992)] and [Akintoye and MacLeod (1996)] have
identified risk sources in construction at pre contract stage to include design risk,
competitive tendering risk, tender evaluation risk and estimating risk among others. In
addition, they also identified risk factors at post contract stage to include physical risk,
site condition, inclement weather, legal risk, environmental risk, logistic risk, political
risk, financial risk and contractual risk among others.
Data were collected from Lagos and Abuja, which are respectively the commercial as
well as the political capital of Nigeria. The choice of these cities was made for data
collection, as they are the hubs of construction activities in Nigeria. Data collection was
done through a questionnaire survey self-administered on 40 randomly selected
construction practitioners involved in a nearly completed or recently completed
construction projects. Subjects include project quantity surveyors, architects, engineers
and contract managers in the employment of construction companies, consulting firms,
government establishment and institutions [see Tables 1 and 2]. The computed mean
experience of the respondents is 14.5 years with a standard deviation of 5.2 years. About
49% of the respondents were educated up to HND level whilst the remaining 51% had at
least first degree in construction related fields [Table 3]. This background information
regarding the respondents indicates that responses provided by them could be relied upon
for this study.
Many risk management researchers as stated earlier viewed risk as the probability that
cost, schedule or technical performance of a system goes wrong combined with the
consequences of these aspects going wrong. With this view, they argued that risk could be
measured through the following formula:
R=P*I [Equation 1]
where:
R = the degree of risk
P = probability of occurrence of a risk
I = the consequence or perceived impact on a project
Akintoye et. al. [2001] and Carter et. al. [1994] referred to this as the risk exposure or
expected value [EV] while Tweeds [1996] referred to it as average risk estimate. This
method of risk measurement has a well-established place in decision theory domain.
[William (1996)] however contended that rather than decreasing the two-dimensional
nature of the risk measure, it should be extended. Charette [1989] uses 3-dimensional
graphs [see Fig. 1] with independent axes he labels severity [i.e. impacts], frequency [i.e.
likelihood] and 'predictability' (in technical terms, the extent to which the risk is aleatoric
rather than epistemic). [William (1996)] demonstrated that calculating 'expected' risk as
probability multiplied by impact has limitations and that ranking risks according to this
figure is misleading. [William (1996)] concluded that both probability and impact must
be considered at all times. Taking the cue from [Williams (1996)], and [Charette (1989)]
underpins the approach adopted in this study in measuring respondents’ perception of
risk. In this study, two-dimensional approach to measurement of risk have been adopted
in which case the likelihood or probability of risk occurring and impact in case of
occurrence have been considered.
Out of the 40 questionnaires administered, 31 responses fit for analysis were received,
representing a response rate of 77.5%. The questionnaire identified from literature and
based on discussion with industry practitioners, various risk factors encountered at the pre
and post contract stages of construction. Using a two-dimensional scaling, respondents
were requested to score on a Likert –type scale of 0-4, the likelihood of the identified risk
factors occurring and their perceived impacts in case of occurrence. The measuring scale
of 0 represents a situation where there was no likelihood of occurrence or impact while 4
represents a very high likelihood of occurrence. This then gives the measuring scale the
property of an interval scale, which enables the collected data to be capable of being
subject to various statistical analyses.
The assessment of risk in construction in Nigeria 363
Risk impact
Probability
of risk Extent of risk
occurring occurrence
Data analyses were carried out by evaluating the relative importance of the identified risk
factors at pre and post contract stages of construction. The numerical scores assigned by
respondents were transformed to relative importance index [RII] using the following
formula:
i=4
RII = ∑E P
i =0
i i [Equation 2]
An analysis was carried out to evaluate the relative importance of risk factors at pre-
contract stage. Table 4 summarises the result of the analysis. From the table, it is evident
that the highest-ranking risk factor at the pre-contract stage is design risk. This is not
surprising due to the fact that most projects in the Nigerian construction industry are
procured using the traditional procurement option. As most design details are still
unresolved at the pre-contract stage, there is a lot of uncertainties as to the final cost and
completion duration. It is therefore not a surprise that this risk factor ranks highest.
Following design risk on relative importance scale are tendering risk and estimating risk.
364 Odeyinka, Oladapo and Dada
Competitive tendering has had the effect of preventing a realistic attitude towards risk
[Thompson, 1992]. This is because the risk involved is often buried in the total bid. It is
therefore not a surprise that this risk factor ranks next to design risk and should therefore
engage the attention of the construction contractor.
Estimating risk ranks next to tendering risk on the relative index scale [Table 4]. During
bidding, the contractor will usually base his estimate on similar past project. The
contractor will attempt to assess the current market price for the proposed project, the
design of which is subject to revision and with proposed labour force not yet recruited. In
most cases, the contractor would have to bear any losses attributable to faulty estimating.
As such, it is also not surprising that this risk factor ranks fairly high. Tender evaluation
risk ranks lowest on the relative index scale [Table 4]. In public works, the usual thing is
to go for the lowest tender. However, there are cases of many contracts in which the
lowest tender did not result in the lowest final cost [Chapman and Ward, 1997]. As such,
selection of contractors on their tender price alone is like buying trouble. It is however not
surprising that this risk factor ranks lowest as the risk can be avoided by using risk
analysis to decide what range of price is reasonable.
From Table 4, it is also evident that whilst the likelihood of design risk occurrence ranked
1st overall, its impact in case of occurrence also ranked 1st. This same pattern is repeated
for estimating risk [rank of 2 in both cases], competitive tendering risk [rank of 3 in both
cases] and tender evaluation risk [rank of 4 in both cases]. This indicates that the order of
impact also follows the order of likelihood of occurrence.
Further analysis was carried out to evaluate the relative importance of the likelihood and
impact of occurrence of risk factors at post-contract stage. Table 5 summarises the result
of the analysis. From this table, it is evident that the risk factor ranking highest in
likelihood of occurrence is financial risk. It also ranked 2nd in its impact in case of
occurrence. Financial risk to contractor includes whether the building owner has enough
money to complete the project, financial failure of the building owner or sub-contractors,
availability of money to the contractor in a suitable manner and time to enable the
contractor to progress with the work [Akintoye and MacLeod, (1997)]. Financial risk
according to [Perry and Hayes (1985)] also include adequate provision of cash flow,
fluctuations, inflation and taxation. In view of all these issues involved in financial risk, it
The assessment of risk in construction in Nigeria 365
is therefore not surprising that it ranked highest in likelihood of occurrence and also
ranked 2nd in its impact in case of occurrence.
Political risk ranked 2nd in its likelihood of occurrence while it ranked 3rd in its impact in
case of occurrence. Political risk includes wars, revolution, and changes in laws or
decrees, which were not envisaged during the formation of a contract. The Nigerian
construction industry had in the recent past coped with frequent change of government
and as such exposed to political risk to a great extent. It is therefore not a surprise that the
likelihood of occurrence of the risk factor ranked 2nd while its impact in case of
occurrence ranked 3rd. Physical risk on the other hand ranked 3rd in its likelihood of
occurrence whilst it ranked 1st in its impact in case of occurrence. Physical risk according
to [Perry and Hayes (1985)] includes site difficulty, inclement weather, flood,
earthquakes,
destruction of work by fire, etc. and accident on construction site. Since most of these
issues have great potential of occurrence on any construction site, it is therefore not a
surprise that physical risk ranked 3rd in its likelihood of occurrence. Moreover, since the
impact on occurrence of this risk factor could be devastating, it is also not a surprise that
it ranked 1st in its impact in case of occurrence.
Contractual risk ranked 4th in its likelihood of occurrence while it ranked 5th in its impact
in case of occurrence. Contractual risks are those associated with flaws in contract
document or improper contractual relationship [Akintoye and MacLeod, (1997)]. The risk
consequences or implication of these include claims and disputes, disruption of work,
stoppage of work, lack of coordination, delays and inflated cost. In spite of the grave
consequences of this risk factor, it is hardly surprising that it ranked mid way among the
identified risk factors. This is because balancing of risk allocation within construction
project by the two major parties to the contract can mitigate the risk factor.
Other risk factors which ranked low both in likelihood and impact of occurrence include
logistic risk [damage to material and equipment during transportation, availability of
suitable labour and materials], legal risk [liability for acts of others, direct liabilities,
complying with local law] and environmental risk [risk associated with the environment
where construction work is taking place e.g. reclaimed land, contaminated site,
ecologically damaged site, etc.]
366 Odeyinka, Oladapo and Dada
CONCLUSION
This paper has attempted to investigate the likelihood of occurrence and impact in case of
occurrence of some identified risk factors at pre and post contract stages of construction
in the Nigerian construction industry. The paper concludes that at pre contract stage, the
likelihood of occurrence of identified risk factors was found to be in the order of design
risk, estimating risk, competitive tendering risk and tender evaluation risk. The perceived
impact of the risk factors in case of occurrence was also found to be in the same order.
Whilst this order is not a surprise in traditionally procured projects, which form the basis
of the majority of the responses to the study survey, it provides an invaluable piece of
information to the construction contractor as regards the risk factors to concentrate on in
the risk management process.
Moreover, the paper concludes that at the post contract stage, the likelihood of occurrence
of identified risk factors was found to be in the order of financial risk, political risk,
contractual risk, logistic risk, legal risk and environmental risk. Unlike the case with the
risk factors at pre-contract stage, the perceived impact in case of occurrence did not
follow the same order of the likelihood of occurrence. For instance, whilst physical risk
ranked 3rd in its likelihood of occurrence, it ranked 1st in its perceived impact in case of
occurrence. Whilst this ordered list helps the construction contractor to target the
significant risk factors to concentrate on for risk management purposes, it also reveals the
need to consider the two- dimensional nature of risk in the risk management process.
REFERENCES
ABSTRACT
The construction industry has long been inherently disturbing our environment in the form
of noise, dust, muddy runoffs and improper disposal of chemical waste and the industry has
been criticized as a major waste producer. There are inevitably many resistive forces
obstructing enterprises of the industry to move forward to achieve better environmental
performance. However, it is not difficult to discover that environmental performance as
well as safety and health awareness of a company will contribute equally well to the
strategic success factors of a company towards competitiveness for this ultra-competitive
world due to globalization. This paper will attempt to discuss the resistive forces that
enterprises are facing in environmental improvements and investigate the success factors
and their relationship with environmental friendliness.
Life cycle analysis is no strange to environmental experts, which is a useful tool to study
different environmental aspects through the product life cycle from raw materials sourcing
to its disposal. The Environmental Excellence Model presented in this paper incorporating
a comprehensive “candle-to-grave” perspective for the entire life cycle of the process that
will be definitely useful for the industry. It is certain that enterprises in the industry
adopting this Model will stay competitive in the industry in terms of quality, productivity,
finance, reputation, etc while other goals are still achieved in addition to excellent
environmental performance. It follows that enterprises of the industry adopting the
Environmental Excellence Model may associate with each other to become Green
Construction Alliances. This paper attempts to discuss the benefits of this approach in the
Pearl River Delta region in Mainland China in particular and introduces how the
Environmental Excellence Model may be employed in the industry to achieve the
environmental goals of all the stakeholders.
INTRODUCTION
Globalization has already aroused the leading developers, designers, contractors and end
users in Asia, if not the whole world, to pay particular attention to competitiveness in terms
370 Kinman and Liu
The economic and environmental objectives have long been seen as competing and this
mindset has become extra obstacles that arise within and outside the companies to impede
the implementation of environmental improvement programmes. In the wake of economic
downturn, restructuring, downsizing and outsourcing by large corporations become
popular. This results in greater numbers of small and medium sized enterprises and
collectively, this causes a huge environmental impact. However, the resistive forces
associated with the environmental improvements are particularly significant within the
enterprises. On the other hand, most of the companies emphasize profitability rather than
environmental management, particularly within the worldwide competitive business
environment. They believe that environmental development may impose an additional cost
while the long-term benefits are uncertain. Therefore, they are lack of motivation to
recognize the benefits of the environmental initiatives and they tend to keep the critical
processes and markets as simple as possible to match the capabilities to raise short-term
successful business goals. The possible resistive forces are listed as follows:
Environmental issues have now become a concern for business in both strategy and
management practice. Before discussing the Environmental Excellence Model for
enterprises, it is necessary to mention that environmental improvement is one of the key
building blocks for steadily contributing to enterprises’ competitiveness, particularly with
the exposure of worldwide competition. As a matter of fact, the most competitive
companies always consistently outperform their competitors in productivity, quality,
innovation & technology, efficiency, finance and reputation and continually improve the
aforementioned Critical Success Factors (CSFs) (See Fig. 3.1). Green business can mean
lower operating costs associated with waste reduction, energy efficiency, resource
conservation, reduced pollution, regulatory compliance, better public image, etc and all
these will enhance productivity and financial saving and create more market opportunities
for the business. Therefore, it is essential to cultivate this strategy for cost savings and
competitive advantages.
Quality Productivity
Environmental
friendliness
Safety &
health
Efficiency Reputation
However, many enterprises often focus on short-time quick profit and are lack of long-term
strategic vision. They are unaware of the importance of environmental performance and its
contributions to the competitiveness and ultimate total customer satisfaction. With the
worldwide competition and external pressures due to globalization and stringent
environmental standards, the enterprises should change the wrong perception of
competitiveness and profitability and adopt a balanced and holistic environmental
improvement strategy for their prosperous development in the global marketplace.
Very often, the enterprises believe that additional investment is required for the
environmental compliance and the involved costs might lead to poor profit margin and end
up with the erosion of competitiveness. In reality, competitiveness depends on the CSFs as
specified in Fig. 3.1. Enterprises can effectively use labor, capital and resources to produce
quality products or services as to achieve total customer satisfaction. In fact, those CSFs
can only be able to further stretch their muscles to full potential in an environmentally
friendly, safe and healthy business environment. Pollution is a form of economic waste and
it is a sign that resources have been used incompletely and ineffectively. Actually,
additional costs are required for handling, storage and disposal of wastes, which create no
372 Kinman and Liu
value for the customers. The preservation of environment can definitely reduce pollution,
waste and energy consumption, which leads to a productive and effective use of resources
for providing products or services. On the other hand, environmental compliance ensures
that all investments are diverted into productive costs such as equipment or technological
upgrading and good practices development instead of the unproductive costs such as
environmental clean-up, disposal, pollution control, litigation, workers’ compensation, etc.
In this way, environmental costs are gradually becoming internalized within the profit and
loss account. Additionally, the outstanding environmental performance enhances the
maintenance of productive work environment and facilities at optimum and efficient
operating conditions. A good reputation of environmental forerunner can cultivate high
level of morale within the company, which is helpful for products or services marketing
and attracting talent people. A good morale causes the whole team to work towards
established and desired business goals.
The cause-and-effect chart (See Fig. 3.2) attempts to identify the environmental aspects and
develop practical solutions for enhancing the overall competitiveness of an enterprise in
consideration of the perceptive from the CSFs. Similar benefits can result from the causes
identified particularly from other strategic business goals.
Competitiveness
Innovation &
Efficiency Reputation Technology
With the aforesaid principle in mind and having taken into account that good
environmental performance enhances overall competitiveness of an enterprise, it is now
clear that the translation of vision and strategy into critical business goals taking into
account of the environmental friendliness, safety and health and social concern is essential.
The Balanced Scorecard philosophy is one of the performance measurement tools for
establishing a coherent set of critical business goals from different perspectives in seeking
full spectrum measurement and analysis. The targets of the CSFs will provide strategically
clear directions and objectives for diverting resources and driving improvements in the life
cycle of the product or service (See Fig. 4.1).
Critical Business
Stakeholders’ Satisfaction
Goals
Safety &
Vision & Innovation &
Finance Health
Environmental Strategy Technology
Friendliness
Social
Concern
Efficiency Reputation
The full participation of all stakeholders becomes the primacy of the model by taking the
advantages of their information, skills, knowledge, opportunities, etc, which is useful to
address potential environmental problems before they even arise. Each stage of the model
should be reflected from the interaction and coordination between stakeholders. The key
stakeholders involved in the model include customers, general public, government
departments, manufacturers, suppliers, environmental pressure groups, media, educators,
trade unions or associations, research institutions, etc and finally the industry itself. The
stakeholders may provide the driving forces for the enterprises to enhance the
environmental performance. Such driving forces include government policies, taxations,
penalties, financial subsidiaries, incentive schemes, ethical investments, insurance
premiums, public image, market share, etc. At each stage of the model, it is necessary to
provide products or services within the intent that all the stakeholders’ benefit but
particularly for the benefit of customers. As the customers might not have time and
adequate knowledge to examine the whole lift cycle of product or service and thus its
environmental implications, they are likely to make wrong purchasing decisions taking into
account the price of product or service. The model allows the involvement of all
stakeholders such as educators, media, environmental pressure groups, etc for developing a
higher transparency and positive business climate in respect of environmental
characteristics of products or services towards the long-term critical business goals of the
enterprise. After all, the final green products or services can totally satisfy and benefit
374 Kinman and Liu
customers by offering the products with higher quality, innovation and efficiency but at
lower cost.
The adoption of life cycle thinking (See Fig. 4.2) is fundamental upon environmental and
business excellence. Life cycle analysis is being adopted for analyzing all potential
environmental impacts such as emissions and wastes at each stage of process or operation
across the entire life cycle, evaluating the trade-offs and mitigating environmental hazards.
It adopts a “cradle-to-grave” approach focusing on process-based analysis of
environmental impacts for considering of the wider implications of all the activities. The
life cycle concept has been defined in the ISO 14040 as a means for assessing the
environmental impacts of a product or service over its entire life cycle and identifying
opportunities for reducing these impacts. However, the concept has been augmented from
different literatures as there is a restriction that the focal point on environmental
management might just mitigate the impacts throughout the life cycle without triggering
the improvement on CSFs, safety and health and social concern. As a result, a more holistic
view for life cycle that results on value-added environmental processes has received
attention. In view of this, a modified model which is propelled by numerous driving forces
of CSFs, vision and strategy as well as stakeholders’ interests is proposed. The job hazard
analysis and risk assessment is incorporated for ensuring all the foreseeable or potential
hazards that may give rise to the possibility of injury, illness or damages are adequately
controlled. It is essential for the smooth and effective implementation of each stage of the
life cycle.
Productivity
Improvement
Raw Materials
Sourcing
Critical Business
Stakeholders’ Participation
Goals
Stakeholders’ Satisfaction
Waste Manufacturing
Management / Processing
Strategic Life
Environmental Vision & Safety & Resources Cycle Analysis &
Friendliness Strategy Health
Inputs Risk Assessment
Disposal / Distribution /
Recycle Transportation
Social Concern
Finance Reputation
Efficiency
towards the CSFs. Suitable measurements and alignments are required for further
improving the entire life cycle without jeopardizing the fundamental CSFs. For instance,
the innovative goals established. May actually adverse the environmental improvements
and in consideration of the total life cycle effects, the utilization of recycling materials may
be required for ensuring the integrity of the model.
After the review of the entire life cycle, the resource inefficiencies are identified in the form
of incomplete input utilizations or poor process controls during the life cycle of product or
service, which result in unnecessary wastes. The feedback system allows the validation
and modification of the entire life cycle taking into account the critical business goals as to
improve continually the effectiveness of the system. As a result, the emissions are largely
reduced and the resources are effectively utilized resulting in business improvements in the
CSFs and the overall competitiveness.
The new model attempts to seek for synergism emphasizing the potential for reduction in
environmental and safety impacts by linking all business processes and perceptions of
stakeholders via cyclic flows of resources and materials with necessary review, redesign
and improvement. The traditional barriers of life cycle analysis such as fragmentation of
processes, lack of recognition of drivers and incompatibility with corporate culture are
recognized and reinforced by using the model. Ultimately, it becomes a systematic
business approach to eliminate or minimize environmental impacts while enhancing
overall competitiveness and maximizing stakeholders’ satisfaction within the global
marketplace.
As our Chief Executive indicated in his Policy Address in 2003, Hong Kong should make
further progress with environmental protection and greening and strengthen
comprehensively the advantages for promoting economic growth, particularly in vigorous
competitive business environment due to globalization. The establishment of Strategic
Green Alliances is useful for integrating strengths for economic and environmental
challenges. Actually, the form of Strategic Green Alliance within the Pearl River Delta
(PRD) is of particular importance to achieve a “win-win” situation between Hong Kong
and the PRD region for achieving sustainable and competitive business goals.
The Strategic Green Alliance Model is built on the foundation of business partners under
the modified life cycle Environmental Excellence Models (See Fig. 5.1). The business
partners become the strategic stakeholders of the other business partners and their
interaction and collaboration are important for sharing and combining their resources, skills,
knowledge, etc as to identify the environmental aspects and provide insights for improving
operational efficiency, extending market share and reinforcing their overall
competitiveness within the region. For instance, if one of the business partners explored
energy efficient equipment, the strategic interaction within the Green Alliance can send
ripples throughout the region for adopting that equipment and hopefully, leading to
environmental improvements and competitiveness enhancement within the region. On the
path of this collaboration, it is helpful for developing the best environmental practices,
techniques, technologies and indicators. Furthermore, the Green Alliance may find it
376 Kinman and Liu
easier to attract foreign environmentalists and trading partners for fostering the sustainable
development of the global market. The successful Green Alliance can build and improve
the collaborative advantages by first acknowledging and then effectively managing the
human aspects of this Green Alliance so as to sustain the fruitful collaborations and
improve global environmental performance continually.
Fig. 5.1 The Strategic Green Alliance within the Pearl River Delta
The construction industry has long been inherently disturbing the environment in the form
of noise, dust, muddy runoffs and improper disposal of chemical waste. The project teams
(including the design team, the construction team and the facilities management team) and
the users generally give inadequate concern to the environmental nuisance. The Tang
Report 2001 also gives comprehensive recommendations to the industry in respect of
environmental performance improvement. The Environmental Excellence Model
presented in this paper incorporating a comprehensive candle-to-grave perspective for the
entire life cycle of the process will be definitely useful for the industry. Adequate
considerations for each phase of the life cycle of a building, from design, materials
sourcing, construction, occupation, maintenance, demolition and recycling are necessary to
ensure the environmental friendliness of all the processes without jeopardizing the
fundamental CSFs.
At the outset, the design team may consider to make more use of environmentally friendly
building materials, energy efficient devices and equipment, natural sources of energy
including the solar energy, innovative design as to make use of more daylight and natural
ventilation to save energy, etc. The contractor may adopt innovative construction methods
as to reduce waste, pollution and noise and shall meet the stringent environmentally
friendly specifications in respect of the building materials and equipment. With the design
team taking the lead, the traditional manufacturers will be forced to comply with the
Enterprises towards environmental excellence 377
requirements of the designers to produce more environmentally friendly products for the
industry. The facilities manager may devise methodologies to make best use of the
advanced technologies to maximize the value of the building. Environmental management
will definitely be an area not to be overlooked. The conventional way to dispose of
construction waste is to dump it at the landfill. If more recyclable materials and equipment
are specified at the outset, the problem of shortage of landfill may be tackled.
Indeed, the Environmental Excellence Model is valuable and viable for incorporating
environmental aspects in the entire life cycle of building. By linking practically the top
management commitment in environmental friendliness with other CSFs in the project
team companies and individuals, the quality awareness and innovativeness is enhanced and
the behavior change is facilitated which leads to pollution prevention, toxic reduction,
waste reduction, energy conservation, recycling and reuse. For instance, the business target
for innovation may enhance the adoption of advanced construction technologies, out-situ
construction methods and recycling building materials. The work processes become
efficient with consistent and traceable workmanship. With the concerted contribution of
the stakeholders in driving the environmental improvement through the entire life cycle, a
substantial improvement in the competitiveness to the whole industry with a change of
culture and mindset is easily achievable.
CONCLUSION
The governments, enterprises and general public have expressed their growing concern of
the environmental problems that industries have brought about. Enterprises, however, are
still reluctant to put efforts on improving their environmental performance under the
delusion that they will be less competitive given the higher costs of production based on the
short-term profit analysis.
This paper has suggested a modified life cycle model integrating the strategic success
factors of enterprise, the participation of the stakeholders, the setting of balanced goals and
application of the life cycle analysis. The model can achieve continual improvement of the
environmental performance of an enterprise given its feedback mechanism and can deliver
products providing ultimate satisfaction to all stakeholders. Enterprises adopting this
business model will stay competitive in the industry in terms of quality, productivity,
finance, reputation, etc while other goals are still achieved in addition to excellent
environmental performance.
The Strategic Green Alliance Model has been suggested to establish strong joint efforts and
forces to promote and adopt the modified life cycle Environmental Excellence Model.
With such practice and collaboration, sustainable development is just an inch rather than a
mile away.
The local construction industry is in dire need of a serious upgrade. Voices have been
expressed throughout the community about the over-consumption of energy in buildings
and too much waste generated in the industry. The Environmental Excellence Model, if
applied thoroughly across the board in the industry, will definitely help control the problem.
Actually, the model is not for the faint hearted.
378 Kinman and Liu
REFERENCES
Chief Executive’s Policy Address (2003) Capitalizing on our Advantages, Revitalizing our
Economy. 2003 Policy Address of the Government of Special Administrative
Region, HKSAR, China.
Chief Executive’s Policy Address (2004) Seizing Opportunities for Development,
Promoting People-based Governance. 2004 Policy Address of the Government of
Special Administrative Region, HKSAR, China.
Commission of European Communities (2001) Green Paper on Integrated Product Policy,
European Commission, Brussels, COM2001 68 Final, Europe.
Construction Industry Review Committee (2001) Construct for Excellence – Report of the
Construction Industry Review Committee, The Construction Industry Review
Committee, HKSAR, China.
Dixon Thompson (2002) Tools for Environmental Management – A Practical Introduction
and Guide, New Society Publishers, Gabriola Island, Canada.
International Organization for Standardization (1996) Environmental Management
Systems – Specification with Guidance for Use, ISO 14001:1996E International
Standard.
International Organization for Standardization (1997) Environmental Management – Life
Cycle Assessment – Principle and Framework, ISO 14040:1997E International
Standard.
Ingrid Ritchie & William Hayes (1998) A Guide to the Implementation of the ISO 14000
Series on Environmental Management, Prentice Hall, Upper Saddle River, NJ,
USA.
Michael E. Porter & Class Van Der Linde (1995) Green and Competitive – Ending the
Stalemate, Harvard Business Review on Business and the Environment, Harvard
Business School Press, U.K.
Robert S. Kaplan & David P. Norton (1996) Using the Balanced Scorecard as a Strategy
Management System, Harvard Business Review on Measuring Corporate
Performance, Harvard Business School Press, U.K.
Rosabeth Moss Kanter (1994) Collaborative Advantage: The Art of Alliances, Harvard
Business Review on Strategic Alliances, Harvard Business School Press, U.K.
LOCAL PROBLEMS IN THE CONSTRUCTION INDUSTRY OF YEMEN
ABSTRACT
The problems plaguing the construction industry of Yemen are fairly typical of most
developing economies. There exists a strong requirement for improved construction
methodologies, management practices and legislative reform. Research is being
conducted into the Yemen construction industry in an attempt to develop an industry that
is efficient, economical and ultimately, sustainable. Preliminary findings from this
research are presented in this paper and focus initially on determining the major
impediments to any intended development in the local construction industry from an
assumed start point that any strategy formulation should be cognizant of, and in harmony
with, the local conditions and capabilities. Data associated with the research was collected
using a structured questionnaire, distributed to appropriate professionals and other
stakeholders operating in Sana’a and Aden cities. This survey scrutinized the views and
knowledge of the professions and stakeholders of the construction industry in Yemen as it
currently exists and comprised questions relating to major barriers to the development of
the local construction industry and building materials development. This paper presents
this research, its findings and proposes a set of recommendations for industry
development in Yemen and other similar developing countries.
INTRODUCTION
As construction booms began in the gulf countries in the 1960’s and 1970’s labour was
attracted from throughout the region, including Yemen, which has exported labour to the
region [Nader Fergany (2001), ESCWA, (1993)]. In 1975, about 280,000 Yemenis were
working outside the country, remitting some 375 million US dollars annually. In 1979
this remittance rose to 1.5 billion US dollars [Kulkarni, (1983)]. The national exchanger
gained much-needed foreign exchange for development, but the nation lost its pool of
skilled workers and human resources.
The late eighties saw the end of construction booms in the gulf. It was expected that those
who returned would bring with them valuable experience. Perhaps as a result, the
construction industry in Yemen expected to start with a higher benchmark. However,
recent history has demonstrated that it was not possible for the local Yemen construction
industry to cope with the rapid growth needed for the modern forms of construction that
380 Sultan and Kajewski
have occurred over the past decades. The inadequacies of building materials as well as
inadequacies in design and project management potential have been a further hindrance.
A lack of any approved national system of codes, standards or specifications have only
compounded the industry’s problems. The result is that construction projects are often
over-designed or inappropriate to local needs and priorities [UNIDO/world bank (1981)].
Further, in the early 1990’s, the economic and social conditions in the country of Yemen
started to deteriorate noticeably due to many factors but mainly due to ‘The Gulf’ wars;
the reunification of Yemen in 1990, which has caused even more confusion and chaos;
and the civil war in 1994. Inflation soared in 2003, jumping from 4.3% in 2002 to 13.6%
in 2003 [World Bank (2004)]. The heavy reliance on imports is a continuing problem as
materials comprises 60% to 70% of the construction costs in the modern sector in Yemen
[Miles, (1984)], moreover there is no indication of any significant development, if not
degeneration by the sudden growth of the construction activities associated with the
expulsion of over 1 million Yemenis from the gulf due to the Gulf War of 1991. This has
created an instant increase in the population, the loss of remittances (the country’s
primary source of income), increased unemployment in Yemen reaching30% [CIA,
2003)], housing shortages, and pressure on the existing infrastructure.
For the purpose of proposing any solution there is a need to gain knowledge of the current
situation and possible barriers within the local industry. The paper will focus initially on
determining the major existing impediments to any intended development in the
construction industry in Yemen. Hence any solutions strategy and policy formulation will
be within the local conditions and capabilities.
METHODOLOGY
Due to the lack of existing data and research in this sector, it was reckoned that a local
survey of construction industry issues was needed; to provide some insight into the
current local obstacles. Surveys are considered a popular method for gathering
information needed for identification and assessment as they allow inputs from various
sources (clients, key informants and target populations) and help to build consensus for
solutions.
It was also felt a survey would be beneficial to scrutinize views and knowledge of the
stakeholders and professionals in the sector as it exists. Thus, it was hoped that the results
obtained would generate some idea on the various issues occurring and affecting the
industry. Data was collected using a structured survey questionnaire. The questionnaire
was distributed to a selected professions and stakeholders operating in the capital Sana’a
and Aden city. The questionnaire contained questions relating to major issues affecting
the local industry performance and the factors causing high construction waste and cost.
Variables were compiled form existing literature; mainly World Bank reports such as
[Kimani, (1988)], the [UNCHS (1984a and b) and Wells (1986)], and using the judgment
gained through 12 years of work experience in the local market.The survey was made as
simple and as clear as possible, to encourage the participants to respond as quickly as
possible. Further, the survey questionnaire was designed to enable respondents to add any
further variables or suggestions that they considered necessary for inclusion.
Local problems in the construction of Yemen 381
The survey was distributed electronically (emails) and via local representatives who
delivered, collected and returned the surveys. A total of 49 responses were received, 5 of
which have been discarded for being incomplete, making it a total of 44 participants.
These responses represented a wide range of stakeholders who have been involved in
construction activities including the construction of informal housing units, as well as
experienced engineers working privately in small to medium size consulting and
contracting construction firms or on government projects. While the choice of the survey
location was mainly in the capital city of Sana’a, where major construction and economic
activities are taking place, the participants were in fact from different parts of the country
and are currently working in the capital. Therefore the survey unintentionally embraced
other regional parts of Yemen.
The survey comprised three sections. This paper will deal only with section (A) which
comprised of 4 interrogations:
Q.1. Barriers to the construction sector development
Q.2. barriers to building materials industry development
Q.3. Causes of high construction cost
Q.4. Causes of construction waste
Each interrogation has a set of selected factors/variables which the participants had to
give a ranking according to its perceived effect on the industry and construction activities.
These variables are outlined in later parts of this paper
Respondents were asked to indicate their perception on the factors for each interrogation.
A frequency distribution of the responses was used to assess the prevalence of these
factors. Factors were identified as either an “important factor”, “medium importance
factor”, or “low importance factor”. For each factor, an importance index was determined
by calculating the total percentage of respondents.
Following the frequency recording and percentage calculation, the ‘Importance Index’
was used to find the relative importance and ranking of each variable. This could be
expressed as:
Where w is the weighting, ranging from 1 to 3, given to each factor; W is the highest
weight, that is, 3; f is the frequency of the response; and F is the total number of
respondents. When a tie occurs, ranking is in accordance with the percentage of
respondents rating the variable as very important (i.e. 2 or 3). A low importance index
indicates that the variable is perceived to be of a low importance, while a high importance
index indicates a high importance factor.
382 Sultan and Kajewski
The first interrogation asked the participants to give a ranking to the factors that they
thought were the major barriers to achieving development of the construction industry in
Yemen. Figure 1 summarizes the responses. In general it was found that there was
moderate agreement between professions and stakeholders to most factors.
Administrative problems and red-tape (including corruption) was ranked the first barrier
to the construction development. Excessive bureaucracy is a cause of project delays at all
phases, and is characterised by an abundance of laws and regulations, excessive
paperwork, too many permits and overlapping authority of government agencies.
The second ranked barrier is inadequate infrastructure, lack of infrastructure such paved
roads or electricity power and water supply, road access and associated damage to
vehicles, delay and difficulty of delivery of resources. This has inflated inner and urban
land prices and increased the load on existing infrastructure which already stating to
deteriorate.
The ineffective penalty on delay or damage and frustrating dispute resolution, which has
often been blamed on inefficient and ineffective law and construction legalisation is
ranked third.
Inadequacies of the finance system were ranked fourth. Clients, investors and contactors
often experience a lack of the financial support from institutions or the there are very
difficult conditions associated with getting a loan or assurance certificate. Often,
contractors have to carry out the project or investment using their on expenses and by
doing so they have to cut few corners in the attempts to reduce costs and risks.
Local problems in the construction of Yemen 383
The fifth factor highlights the existence and increasing dominance of the informal sector,
although section (B) of the survey indicates a high use of the informal sector by
stakeholders perhaps indicating its acceptance. This may be as a result of the absence of
regulations, difficulties in obtaining permission and the many difficulties and expenses
involved in using the formal sector.
This section of the survey investigates the reasons behind the lack of achieving
satisfactory manufacturing and production capacity in local building materials. The
factors were carefully chosen from a blend of work experience, extensive literature
reviews and international reports on developing countries. Theses are
1. Market problems
2. Difficulty in getting materials
3. Financing
4. Difficulties in acquiring skilled labour and technicians
5. Machinery lacking
6. Poor plant locations and land problems
7. Poor local conditions and infrastructure
8. Lack of studies and information
9. Administrative problems and Red tape
Administrative problems and Red tape (1) 70% Difficulty in getting materials (8)
60%
50%
40%
30%
20%
Lack of studies and information (3) Financing (4)
10%
0%
Poor plant locations and land problems (6) Machinery lacking (9)
The lack of information was the third ranked impediment to the development of an
appropriate building materials industry. The World Bank (2002) has already indicated
384 Sultan and Kajewski
Yemen’s less-developed market institutions, and how firms face specific uncertainties
due to lack of information. These include the inability to identify markets; insecurity and
unenforceability of contracts; and the lack of specialized business skills, such as
accounting and bookkeeping, marketing, exporting. Such factors increase the uncertainty
faced by the firms about its future earnings and prospects, and once again induce them to
indulge in low-risk, short-term activities. Reducing such firm-specific uncertainties would
require a range of institution-building, and the need to make available planning and
business resources to the firms.
In this section, participants were asked to give a ranking to the factors that they think
contribute most to high construction costs. It was agreed by most participants that the
most important factors causing high cost, from highest to lowest, were inflation and price
fluctuation, imported materials and excessive waste. Factors that emerged clearly as not
very important were labour cost and local materials cost. Figure 3 summaries the
responses.
Inflation and price fluctuations identified as the most important factor by stakeholder and
professions (97% Importance factor) and was ranked 1st as shown clearly in (figure 3 ).
The inflationary trend is probably due to: demand exceeding supply, artificial scarcity of
goods, unstable economy and political instability. Furthermore, fluctuation in prices
affects the prices of raw materials, labour and services and other ancillary materials.
The consequences of expensive imported construction materials came 2nd (over 79% of
the responses agreed upon and a score 93% in the Importance index) this always only
lead to the selection of cheap but poor quality and less durable materials. Additionally the
Local problems in the construction of Yemen 385
life-cycle cost required for maintenance and replacement will sharply increase, all this
can be avoided by the selection the correct and most durable materials for the job.
3rd excessive wastes due to lack of efficient execution and lack of skilled labour,
supervision, lack of management and planning of the project procurement and absence of
reuse mechanism. 4th factor was lack of cost effective methods, quantity surveyors and
accountants are hardly involved in the construction phases. Inefficient local construction
methods was ranked 5th, with an importance index of 72%, with 79% of respondents
giving it a medium causing ranking.
This section was used to rank the factors causing construction waste. Waste has been
defined as “any thing different from the absolute minimum amount of resources of
materials, equipment, and manpower necessary to add value to the product”. Alwai et al.
(2002) also indicated that waste is not only associated with waste of material in the
construction process but also other activities that do not add value, such as repair, waiting
time and delay.
In general, all construction activities that produce cost, direct or indirect, but do not add
value or progress to the product can be called waste. Any improvement effort should be
focused on identifying waste in the construction process, analysing the causes that
produce this waste, and acting over these causes to reduce or eliminate them. Any
improvement effort should be focused on identifying waste in the construction process,
analysing the causes that produce this waste, and acting over these causes to reduce or
eliminate them. (Serpell & Alarcon, 1998)
On ranking the factors which cause construction waste, professions agree on most factors
with the results ranging between 62% and 80% for the importance index values as
indicated in figure 4.
386 Sultan and Kajewski
80%
Inefficient procurement and
Resources misused (3)
transportations (7) 60%
40%
20%
0%
Unclear information and
Lack of control and
information quality problems
supervision (2)
(4)
Lack of early planning and poor contract management are ranked first. Good project
management entails planning, coordinating and controlling all aspects of the work and
could lead to significant improvement in productivity without necessarily increasing
input. Local formal and even more informal contractors lack any managerial skills that
can increase productivity and prevent time and cost overrun. Inadequate economic
analysis of the project or over estimation of the financial capacity of the owner is also
symptoms of poor planning. Adequate contract management is very important since most
other variables result from the lapses in the management of the contract by either the
client or the contractor. Lack of managerial skills has been highlighted by the World
Bank (1984) and Ofori (1991) as a major deficiency of local construction enterprises in
developing countries
The second ranked factor was lack of control and weak supervision of site activities
perhaps due to qualified engineers limiting their supervision to match fee rates or
deliberate underpayment. In addition, the market often uses unqualified supervisors and
technicians in the control of labour and minor works.
Resources misuse was ranked third, perhaps due to unnecessary or inefficiently managed
labour use onsite, and inappropriate materials storage and transportation. Unclear
information is ranked fourth, despite the fact that this factor is frequently used by
contractors as rationalization for delay or choice of low quality materials. This problem
can be improved if professions are more prudent in their design, and more knowledgeable
of material availability, suitability and usage.
Local problems in the construction of Yemen 387
The general conclusion for the barriers of development came as institutional and
administrative weakness, red-tape and corruption followed by the availability of
infrastructure required for economic activities and human settlement, third was law and
legal matters followed by and financial issues. Participants think that industry technical
problems are of lesser concern. They also indicated that economical stability is important
for any development because it creates less risk for investment. In addition, the most
important factors that caused high construction costs were identified as imported
materials, inflation and unstable economy and construction wastes. Factors that emerged
clearly as less important are labour cost, local materials cost, availability of local
materials and standardisation.
There exists demand for serious strategies and policies that should be implemented and
exercised by both public and private sectors; to initiate and sustain any economic
development. The adaptation of explicit strategies and policies to reduce the impact of
unemployment and consumption of foreign exchange should be implemented through
appropriate and more thoughtful labour employment and local materials protection
policies. There is most of all an urge for institutional and administrative development to
facilitate and monitor any required development.
REFERENCES
Nader Fergany (2001) Aspects of labor migration and unemployment in the arab region,
Almishkat Center for Research, egypt (www.almishkat.org)
http://www.worldbank.org/mdf/mdf4/papers/fergany.pdf
Ofori, G (1991) Programmes for improving the performance of contracting firms in
developing countries: A review of approaches and appropriate options.
Construction Management and Economics, 9, 19-38
Serpell A and Alarcon L F (1998) Construction process improvement methodology for
construction projects’, International journal of project management vol. 16, no 4,
pp 215-221, 1998
Tassios S (1992) “Structure & function of the construction industry with emphasis on
developing countries,” Paper ID/WG.528/1, 8 September 1992. Prepared for
meeting of UNIDO and UNCHS (Habitat), First Consultation on the Construction
industry, Tunis, Tunisia, 3-7 May 1993
United Nations centre for human settlements (UNCHS), (1984) a, small-scale building
materials production in the context of informal economy, Nairobi, HS/45/84/E
United Nations Centre for Human Settlements (UNCHS), (1984) b, ‘The construction
industry in developing countries. Contribution to socio-economic growth, Nairobi,
United Nations Economic and social Commission for West Asia (ESCWA) (1993), “the
Absorption of returnees in the Republic of Yemen”, in Return Migration profiles,
Impact and Absorption in Home Countries, E/ESCWA/SD/1993/12, ESCWA,
New York, 30 December 1993)
UNIDO/World Bank Cooperative Programme (1981), Yemen Arab Republic: The
Construction Industry, Report no. 17, Vienna, July 1981.
World Bank (1984) The Construction Industry: Issues and Strategies in Developing
Countries, International Bank for Reconstruction and Development, World Bank,
Washington, D.C.
World Bank (2002), The Republic of Yemen Economic Growth: Sources, Constraints and
Potentials Report No. 21418-YEM -31 May 2002, Social and Economic
World Bank group (2004), Yemen economic update, The World Bank Group, Sana’a
Office Social and Economic Development Group (MNSED), Middle East and
North Africa Region, prepared by Nadir Mohammed & Maria Handal.
LOCAL PROBLEMS IN THE CONSTRUCTION INDUSTRY OF YEMEN
ABSTRACT
The problems plaguing the construction industry of Yemen are fairly typical of most
developing economies. There exists a strong requirement for improved construction
methodologies, management practices and legislative reform. Research is being
conducted into the Yemen construction industry in an attempt to develop an industry that
is efficient, economical and ultimately, sustainable. Preliminary findings from this
research are presented in this paper and focus initially on determining the major
impediments to any intended development in the local construction industry from an
assumed start point that any strategy formulation should be cognizant of, and in harmony
with, the local conditions and capabilities. Data associated with the research was collected
using a structured questionnaire, distributed to appropriate professionals and other
stakeholders operating in Sana’a and Aden cities. This survey scrutinized the views and
knowledge of the professions and stakeholders of the construction industry in Yemen as it
currently exists and comprised questions relating to major barriers to the development of
the local construction industry and building materials development. This paper presents
this research, its findings and proposes a set of recommendations for industry
development in Yemen and other similar developing countries.
INTRODUCTION
As construction booms began in the gulf countries in the 1960’s and 1970’s labour was
attracted from throughout the region, including Yemen, which has exported labour to the
region [Nader Fergany (2001), ESCWA, (1993)]. In 1975, about 280,000 Yemenis were
working outside the country, remitting some 375 million US dollars annually. In 1979
this remittance rose to 1.5 billion US dollars [Kulkarni, (1983)]. The national exchanger
gained much-needed foreign exchange for development, but the nation lost its pool of
skilled workers and human resources.
The late eighties saw the end of construction booms in the gulf. It was expected that those
who returned would bring with them valuable experience. Perhaps as a result, the
construction industry in Yemen expected to start with a higher benchmark. However,
recent history has demonstrated that it was not possible for the local Yemen construction
industry to cope with the rapid growth needed for the modern forms of construction that
380 Sultan and Kajewski
have occurred over the past decades. The inadequacies of building materials as well as
inadequacies in design and project management potential have been a further hindrance.
A lack of any approved national system of codes, standards or specifications have only
compounded the industry’s problems. The result is that construction projects are often
over-designed or inappropriate to local needs and priorities [UNIDO/world bank (1981)].
Further, in the early 1990’s, the economic and social conditions in the country of Yemen
started to deteriorate noticeably due to many factors but mainly due to ‘The Gulf’ wars;
the reunification of Yemen in 1990, which has caused even more confusion and chaos;
and the civil war in 1994. Inflation soared in 2003, jumping from 4.3% in 2002 to 13.6%
in 2003 [World Bank (2004)]. The heavy reliance on imports is a continuing problem as
materials comprises 60% to 70% of the construction costs in the modern sector in Yemen
[Miles, (1984)], moreover there is no indication of any significant development, if not
degeneration by the sudden growth of the construction activities associated with the
expulsion of over 1 million Yemenis from the gulf due to the Gulf War of 1991. This has
created an instant increase in the population, the loss of remittances (the country’s
primary source of income), increased unemployment in Yemen reaching30% [CIA,
2003)], housing shortages, and pressure on the existing infrastructure.
For the purpose of proposing any solution there is a need to gain knowledge of the current
situation and possible barriers within the local industry. The paper will focus initially on
determining the major existing impediments to any intended development in the
construction industry in Yemen. Hence any solutions strategy and policy formulation will
be within the local conditions and capabilities.
METHODOLOGY
Due to the lack of existing data and research in this sector, it was reckoned that a local
survey of construction industry issues was needed; to provide some insight into the
current local obstacles. Surveys are considered a popular method for gathering
information needed for identification and assessment as they allow inputs from various
sources (clients, key informants and target populations) and help to build consensus for
solutions.
It was also felt a survey would be beneficial to scrutinize views and knowledge of the
stakeholders and professionals in the sector as it exists. Thus, it was hoped that the results
obtained would generate some idea on the various issues occurring and affecting the
industry. Data was collected using a structured survey questionnaire. The questionnaire
was distributed to a selected professions and stakeholders operating in the capital Sana’a
and Aden city. The questionnaire contained questions relating to major issues affecting
the local industry performance and the factors causing high construction waste and cost.
Variables were compiled form existing literature; mainly World Bank reports such as
[Kimani, (1988)], the [UNCHS (1984a and b) and Wells (1986)], and using the judgment
gained through 12 years of work experience in the local market.The survey was made as
simple and as clear as possible, to encourage the participants to respond as quickly as
possible. Further, the survey questionnaire was designed to enable respondents to add any
further variables or suggestions that they considered necessary for inclusion.
Local problems in the construction of Yemen 381
The survey was distributed electronically (emails) and via local representatives who
delivered, collected and returned the surveys. A total of 49 responses were received, 5 of
which have been discarded for being incomplete, making it a total of 44 participants.
These responses represented a wide range of stakeholders who have been involved in
construction activities including the construction of informal housing units, as well as
experienced engineers working privately in small to medium size consulting and
contracting construction firms or on government projects. While the choice of the survey
location was mainly in the capital city of Sana’a, where major construction and economic
activities are taking place, the participants were in fact from different parts of the country
and are currently working in the capital. Therefore the survey unintentionally embraced
other regional parts of Yemen.
The survey comprised three sections. This paper will deal only with section (A) which
comprised of 4 interrogations:
Q.1. Barriers to the construction sector development
Q.2. barriers to building materials industry development
Q.3. Causes of high construction cost
Q.4. Causes of construction waste
Each interrogation has a set of selected factors/variables which the participants had to
give a ranking according to its perceived effect on the industry and construction activities.
These variables are outlined in later parts of this paper
Respondents were asked to indicate their perception on the factors for each interrogation.
A frequency distribution of the responses was used to assess the prevalence of these
factors. Factors were identified as either an “important factor”, “medium importance
factor”, or “low importance factor”. For each factor, an importance index was determined
by calculating the total percentage of respondents.
Following the frequency recording and percentage calculation, the ‘Importance Index’
was used to find the relative importance and ranking of each variable. This could be
expressed as:
Where w is the weighting, ranging from 1 to 3, given to each factor; W is the highest
weight, that is, 3; f is the frequency of the response; and F is the total number of
respondents. When a tie occurs, ranking is in accordance with the percentage of
respondents rating the variable as very important (i.e. 2 or 3). A low importance index
indicates that the variable is perceived to be of a low importance, while a high importance
index indicates a high importance factor.
382 Sultan and Kajewski
The first interrogation asked the participants to give a ranking to the factors that they
thought were the major barriers to achieving development of the construction industry in
Yemen. Figure 1 summarizes the responses. In general it was found that there was
moderate agreement between professions and stakeholders to most factors.
Administrative problems and red-tape (including corruption) was ranked the first barrier
to the construction development. Excessive bureaucracy is a cause of project delays at all
phases, and is characterised by an abundance of laws and regulations, excessive
paperwork, too many permits and overlapping authority of government agencies.
The second ranked barrier is inadequate infrastructure, lack of infrastructure such paved
roads or electricity power and water supply, road access and associated damage to
vehicles, delay and difficulty of delivery of resources. This has inflated inner and urban
land prices and increased the load on existing infrastructure which already stating to
deteriorate.
The ineffective penalty on delay or damage and frustrating dispute resolution, which has
often been blamed on inefficient and ineffective law and construction legalisation is
ranked third.
Inadequacies of the finance system were ranked fourth. Clients, investors and contactors
often experience a lack of the financial support from institutions or the there are very
difficult conditions associated with getting a loan or assurance certificate. Often,
contractors have to carry out the project or investment using their on expenses and by
doing so they have to cut few corners in the attempts to reduce costs and risks.
Local problems in the construction of Yemen 383
The fifth factor highlights the existence and increasing dominance of the informal sector,
although section (B) of the survey indicates a high use of the informal sector by
stakeholders perhaps indicating its acceptance. This may be as a result of the absence of
regulations, difficulties in obtaining permission and the many difficulties and expenses
involved in using the formal sector.
This section of the survey investigates the reasons behind the lack of achieving
satisfactory manufacturing and production capacity in local building materials. The
factors were carefully chosen from a blend of work experience, extensive literature
reviews and international reports on developing countries. Theses are
1. Market problems
2. Difficulty in getting materials
3. Financing
4. Difficulties in acquiring skilled labour and technicians
5. Machinery lacking
6. Poor plant locations and land problems
7. Poor local conditions and infrastructure
8. Lack of studies and information
9. Administrative problems and Red tape
Administrative problems and Red tape (1) 70% Difficulty in getting materials (8)
60%
50%
40%
30%
20%
Lack of studies and information (3) Financing (4)
10%
0%
Poor plant locations and land problems (6) Machinery lacking (9)
The lack of information was the third ranked impediment to the development of an
appropriate building materials industry. The World Bank (2002) has already indicated
384 Sultan and Kajewski
Yemen’s less-developed market institutions, and how firms face specific uncertainties
due to lack of information. These include the inability to identify markets; insecurity and
unenforceability of contracts; and the lack of specialized business skills, such as
accounting and bookkeeping, marketing, exporting. Such factors increase the uncertainty
faced by the firms about its future earnings and prospects, and once again induce them to
indulge in low-risk, short-term activities. Reducing such firm-specific uncertainties would
require a range of institution-building, and the need to make available planning and
business resources to the firms.
In this section, participants were asked to give a ranking to the factors that they think
contribute most to high construction costs. It was agreed by most participants that the
most important factors causing high cost, from highest to lowest, were inflation and price
fluctuation, imported materials and excessive waste. Factors that emerged clearly as not
very important were labour cost and local materials cost. Figure 3 summaries the
responses.
Inflation and price fluctuations identified as the most important factor by stakeholder and
professions (97% Importance factor) and was ranked 1st as shown clearly in (figure 3 ).
The inflationary trend is probably due to: demand exceeding supply, artificial scarcity of
goods, unstable economy and political instability. Furthermore, fluctuation in prices
affects the prices of raw materials, labour and services and other ancillary materials.
The consequences of expensive imported construction materials came 2nd (over 79% of
the responses agreed upon and a score 93% in the Importance index) this always only
lead to the selection of cheap but poor quality and less durable materials. Additionally the
Local problems in the construction of Yemen 385
life-cycle cost required for maintenance and replacement will sharply increase, all this
can be avoided by the selection the correct and most durable materials for the job.
3rd excessive wastes due to lack of efficient execution and lack of skilled labour,
supervision, lack of management and planning of the project procurement and absence of
reuse mechanism. 4th factor was lack of cost effective methods, quantity surveyors and
accountants are hardly involved in the construction phases. Inefficient local construction
methods was ranked 5th, with an importance index of 72%, with 79% of respondents
giving it a medium causing ranking.
This section was used to rank the factors causing construction waste. Waste has been
defined as “any thing different from the absolute minimum amount of resources of
materials, equipment, and manpower necessary to add value to the product”. Alwai et al.
(2002) also indicated that waste is not only associated with waste of material in the
construction process but also other activities that do not add value, such as repair, waiting
time and delay.
In general, all construction activities that produce cost, direct or indirect, but do not add
value or progress to the product can be called waste. Any improvement effort should be
focused on identifying waste in the construction process, analysing the causes that
produce this waste, and acting over these causes to reduce or eliminate them. Any
improvement effort should be focused on identifying waste in the construction process,
analysing the causes that produce this waste, and acting over these causes to reduce or
eliminate them. (Serpell & Alarcon, 1998)
On ranking the factors which cause construction waste, professions agree on most factors
with the results ranging between 62% and 80% for the importance index values as
indicated in figure 4.
386 Sultan and Kajewski
80%
Inefficient procurement and
Resources misused (3)
transportations (7) 60%
40%
20%
0%
Unclear information and
Lack of control and
information quality problems
supervision (2)
(4)
Lack of early planning and poor contract management are ranked first. Good project
management entails planning, coordinating and controlling all aspects of the work and
could lead to significant improvement in productivity without necessarily increasing
input. Local formal and even more informal contractors lack any managerial skills that
can increase productivity and prevent time and cost overrun. Inadequate economic
analysis of the project or over estimation of the financial capacity of the owner is also
symptoms of poor planning. Adequate contract management is very important since most
other variables result from the lapses in the management of the contract by either the
client or the contractor. Lack of managerial skills has been highlighted by the World
Bank (1984) and Ofori (1991) as a major deficiency of local construction enterprises in
developing countries
The second ranked factor was lack of control and weak supervision of site activities
perhaps due to qualified engineers limiting their supervision to match fee rates or
deliberate underpayment. In addition, the market often uses unqualified supervisors and
technicians in the control of labour and minor works.
Resources misuse was ranked third, perhaps due to unnecessary or inefficiently managed
labour use onsite, and inappropriate materials storage and transportation. Unclear
information is ranked fourth, despite the fact that this factor is frequently used by
contractors as rationalization for delay or choice of low quality materials. This problem
can be improved if professions are more prudent in their design, and more knowledgeable
of material availability, suitability and usage.
Local problems in the construction of Yemen 387
The general conclusion for the barriers of development came as institutional and
administrative weakness, red-tape and corruption followed by the availability of
infrastructure required for economic activities and human settlement, third was law and
legal matters followed by and financial issues. Participants think that industry technical
problems are of lesser concern. They also indicated that economical stability is important
for any development because it creates less risk for investment. In addition, the most
important factors that caused high construction costs were identified as imported
materials, inflation and unstable economy and construction wastes. Factors that emerged
clearly as less important are labour cost, local materials cost, availability of local
materials and standardisation.
There exists demand for serious strategies and policies that should be implemented and
exercised by both public and private sectors; to initiate and sustain any economic
development. The adaptation of explicit strategies and policies to reduce the impact of
unemployment and consumption of foreign exchange should be implemented through
appropriate and more thoughtful labour employment and local materials protection
policies. There is most of all an urge for institutional and administrative development to
facilitate and monitor any required development.
REFERENCES
Nader Fergany (2001) Aspects of labor migration and unemployment in the arab region,
Almishkat Center for Research, egypt (www.almishkat.org)
http://www.worldbank.org/mdf/mdf4/papers/fergany.pdf
Ofori, G (1991) Programmes for improving the performance of contracting firms in
developing countries: A review of approaches and appropriate options.
Construction Management and Economics, 9, 19-38
Serpell A and Alarcon L F (1998) Construction process improvement methodology for
construction projects’, International journal of project management vol. 16, no 4,
pp 215-221, 1998
Tassios S (1992) “Structure & function of the construction industry with emphasis on
developing countries,” Paper ID/WG.528/1, 8 September 1992. Prepared for
meeting of UNIDO and UNCHS (Habitat), First Consultation on the Construction
industry, Tunis, Tunisia, 3-7 May 1993
United Nations centre for human settlements (UNCHS), (1984) a, small-scale building
materials production in the context of informal economy, Nairobi, HS/45/84/E
United Nations Centre for Human Settlements (UNCHS), (1984) b, ‘The construction
industry in developing countries. Contribution to socio-economic growth, Nairobi,
United Nations Economic and social Commission for West Asia (ESCWA) (1993), “the
Absorption of returnees in the Republic of Yemen”, in Return Migration profiles,
Impact and Absorption in Home Countries, E/ESCWA/SD/1993/12, ESCWA,
New York, 30 December 1993)
UNIDO/World Bank Cooperative Programme (1981), Yemen Arab Republic: The
Construction Industry, Report no. 17, Vienna, July 1981.
World Bank (1984) The Construction Industry: Issues and Strategies in Developing
Countries, International Bank for Reconstruction and Development, World Bank,
Washington, D.C.
World Bank (2002), The Republic of Yemen Economic Growth: Sources, Constraints and
Potentials Report No. 21418-YEM -31 May 2002, Social and Economic
World Bank group (2004), Yemen economic update, The World Bank Group, Sana’a
Office Social and Economic Development Group (MNSED), Middle East and
North Africa Region, prepared by Nadir Mohammed & Maria Handal.
READINESS ASSESSMENT OF THE CONSTRUCTION INDUSTRY FOR
GLOBAL TRADE IN SERVICES: THE INDONESIAN EXPERIENCES
ABSTRACT
Globalisation of business in term of economic, finance and trade has spread throughout
the globe. Many countries expect other countries to open their market access for global
trade in goods and services for all sectors. In this case, the International Trade
Organisation (WTO) has introduced the General Agreement on Trade in Services
(GATS), including all the different ways of providing an international service. Asean
countries also introduced the Asean Framework Agreement in Services (AFAS). The
construction industry both consulting and contracting services will be one of potential
sectors for both modes of liberalisation on trade in services, namely commercial presence
and movement or presence of natural persons. Domestic players of the industry have to be
ready for the global competition as more international players to involve. Assessing
readiness of the industry is required to review how best the industry players prepare
themselves for the global competition. This paper reports a readiness assessment of the
Indonesian construction industry for liberalisation on trade in services. The purpose is to
review the industry current performance reflecting its competitiveness, both in term of
company level and professional level. For this purpose, readiness indicators and their
parameter measures were developed. The industry survey in 4 major cities of the country
was conducted by in depth interviews and questionnaires. Nine contracting companies
participated in this survey. Findings of the survey show that readiness level of the
industry is 61.73%. The survey revealed that company readiness level is 56.2% and
professional readiness level is 67.2%. These readiness levels represent a relative grade
score of the industry competitiveness. As with these readiness levels, the Indonesian
construction industry needs to improve its performance through simultaneous and
strategic efforts, such as improving professional standards and skills level, corporate
development, culture of quality in contracting, and technological leadership.
INTRODUCTION
Globalisation of business in term of economic, finance and trade has spread throughout
the globe. Many countries expect other countries to open their market access for global
trade in goods and services for all sectors. In this case, the International Trade
Organisation (WTO) has introduced general agreement on trade in services (GATS),
390 Suraji, Parikesit and Mulyono
including all the different ways of providing an international trading in services. Asean
countries also introduced the Asean Framework Agreement in Services (AFAS).
Liberalisation of construction market is one of challenging sectors for many countries to
deal with. The industry both consulting and contracting services will be one of potential
sectors for both modes of liberalisation on trade, namely commercial presence and
movement or presence of natural persons. Domestic players of the industry have to be
ready for the global competition as more international players to involve. Construction
companies need a strategy to improve their competitiveness to enter global market. The
competitiveness issues of the industry have been addressed widely [Porter, (1990), Bond,
(1992), Grant, (1997), Warszawski, (1998), and Birgonul & Ozdogan, (2000)]. Assessing
readiness of the industry is required to review how best the industry players prepare
themselves for the global competition.
Since its position and role in the development process, the construction industry
competitiveness becomes a deep concern of most countries in the world to response
globalisation. Latham’s report entitled constructing the team has reflected the deep
concern on the British construction industry [Latham, (1994)]. A further study entitled
rethinking construction by Construction Task Force set up by the British Deputy Prime
Minister has been undertaken in response to the criticism of the industry performance in
failing to provide a client satisfaction and its inability to improve effectiveness and
efficiency [DETR, (1998)]. Singapore has also taken a serious measure toward the
construction industry by setting up reinventing construction well known as Construction
21 [S&P, (1999)]. It reflects the vision of the construction industry of Singapore for the
21st century to be a world-class builder in the knowledge age [Dulaimi et al, (2001)]. As
with the construction industry in developed countries, the Indonesian construction
industry needs to build progressively its strength in term of technology advancement,
professional and skill development for the global challenges [Suraji, (2003)].
This paper reports a readiness assessment of the Indonesian construction industry for
liberalisation on trade in services. The purpose is to review the industry current
performance reflecting its competitiveness, both in term of company level and
professional level. In this paper, readiness is defined as the state of competitiveness to
enter the global market. Readiness indicators were developed to measure current state of
the Indonesian construction industry in relation to its competitiveness. In this paper,
readiness indicators and their parameter measures are introduced and the construction
industry competitiveness is then discussed. Findings of the industry survey are also
presented. This may assist the industry shareholders to take appropriate actions in
improving their performance in order to stay competitive in the global market.
Readiness Indicator
The industry survey was conducted to measure the readiness level for both company and
professional level to enter the global market. A questionnaire consisting of those
readiness indicators and their parameter measures were developed (Suraji, 2003). In this
survey, nine construction companies from 4 different regions of the country participated.
The survey was conducted through interview and questionnaires to be completed by the
companies who participated in the industry survey. Firstly, a questionnaire package was
Readiness assessment of the construction industry 393
sent to each company and then followed by a direct interview. This questionnaire is to
identify current state of parameter measures of each indicator. In this case, each
parameter measures to indicate a performance level of a construction company to perform
its business. Scoring system to measure current state of each parameter measure was
used. This scoring system represents to what extent that a company is using a business
best practice for its competitiveness. For example, to measure current performance level
of ICT employed by a company, the company was asked to complete a question such as
“to what extent does your company use ICT to advance your deliverable businesses? The
answer could be very intensive or always used (assigned with 3 score), moderate or
seldom (assigned with 2 score), or even low or never (assigned with 1 score). Each
indicator contains more than one parameter measures to be assessed. For instance,
management system indicator contains 10 parameter measures; project delivery indicator
consists of 10 parameter measures, and organisational framework indicator has 8
parameter measures. The maximum score of each indicator is the total score of all
parameter measures with 3 score. In order to reduce bias of this questionnaire survey, the
interview may help clarify all the answers provided for the questionnaire by companies.
Summary of survey findings is presented in the following tables and figures. Table 2 and
table 3 describe readiness score of each company and professional respectively. The score
reflects current performance level of competitiveness of a surveyed construction
company. For the sake of intervention strategy to improve the industry competitiveness, a
readiness score with less than 70% is categorised as low level, 71% to 90% is categorised
as moderate level and 91% to 100% is categorised as high level.
The readiness indicators consist of different number of parameter measures. In this paper,
the composition of parameter measures of each readiness indicator is presented in Figure
1 and 2 respectively. Figure 6 shows the percentage of the composition of readiness
measures within the company level. In this case, the number of parameter measures
within each indicators and maximum score may cause the different portion of the
indicators composition. It can be seen that the management system adopted by the
companies has a major portion on the readiness level, while the ICT support has a minor
portion.
394 Suraji, Parikesit and Mulyono
As with the composition of company readiness indicators, figure 7 shows the percentage
of the composition of parameter measures of readiness indicators within professional
level. It can be seen that the client focus indicator has the larger portion followed by the
technical competence, while the teamwork development indicator is the smallest portion.
The comparison between average score of each indicator and maximum score shows the
industry readiness level gap. Figure 3 show the gap between maximum score (ideal level)
of readiness and existing condition measurement of company performance. It can be seen
that the ICT support indicator has the highest gap followed by the coordination support
indicator. In fact, the management system and marketing strategy indicator have the
lowest gap among the indicators. It was also found that most the companies participated
in the survey have not provided ICT support. The ICT investment is still regarded as
costly capital. Figure 4 describes the gap between maximum score (ideal level) of
readiness and existing condition measurement of professional competence within the
construction companies. It can be highlighted that the leadership and teamwork
development indicator have the highest gap among the readiness indicators of
professional. The togetherness indicator showing the working well together among
professional within the company organisation has the lowest gap. Another case shows
that togetherness is not in line with teamwork development. Further examination of this
gap may lead to understanding of improvement strategy for preparing global competition.
396 Suraji, Parikesit and Mulyono
40
Existing Condition
30 30 30
30 Maximum Score
27 27 27
26
24 24
21 21
20
Score
20 18
16 17
15 15
14
10 9
10 8 8
5 5
0
Management
ICT Support
Development
Design Facility
Marketing Strategy
Coordination
Project Delivery
Organisational
Construction
Responsiveness
Business Strategy
Quality Assurance
Technology
Research &
Framework
Support
System
Indicator
30
27
24 24 24
25
21
20 18 18
17
15
Score
14 14
15
10
10
0
Technical Teamw ork Leadership Discipline Client Focus Togetherness
Competence Development
Existing Condition
Indicator
Maximum Score
The following figure 4 and 5 describe average readiness score of company level (56.2%)
and professional level (67.2%). Whilst, figure 6 shows average readiness score of the
industry taking into account both company and professional level in aggregate (61.73%).
Based on the result above, the readiness level of the industry can be categorised into low
level.
100%
80%
56.2%
60%
40%
20%
0%
Marketing
Management
Project Delivery
Coordination
ICT Support
Design Facility
Organisational
Development
Construction
Responsiveness
Assurance
Business
Strategy
Technology
Strategy
Research &
Framework
Quality
Support
System
67.2%
Average 61.72%
CONCLUSIONS
The Indonesian construction industry is still facing some burdens to enter global
competition of construction business. Those burdens may affect the industry readiness
level for global trade in services under AFAS and GATS. These burdens can be
associated with the competitiveness of companies and also enabling factors such as
government policy, institutionalisation within the industry, professional and skill
development, project implementation practices, business culture and other industry
sectors. This study has revealed to what extent the industry ready to go into global
market. The survey revealed that company readiness level is 56.2% and professional
readiness level is 67.2%. These readiness levels represent a relative grade score of the
industry competitiveness. As with these readiness levels, the Indonesian construction
industry needs to improve its performance through simultaneous and strategic efforts,
such as improving professional standards and skills level, corporate development, culture
of quality in contracting, and technological leadership. Further strategic actions are
required to improve the competitiveness level of the industry. This can be achieved by
revitalising the construction industry through constructing the team.
ACKNOWLEGMENT
This research was a part of research project entitled the development of liberalisation
strategy for trade in construction services supported by the Construction and Investment
Development Board, the Ministry of Settlement and Regional Infrastructure. Thanks are
due to the Indonesian government for the financial support and all Indonesian
construction companies who participated in this research.
Readiness assessment of the construction industry 399
REFERENCES
S. O. OGUNLANA
School of Civil Engineering, Asian Institute of Technology, P.O. Box 4, Klong Luang,
Pathum Thani 12120, Thailand. ogunlana@ait.ac.th
ABSTRACT
Procurement is a topic that has engaged the attention of construction clients, consultants
and contractors principally because it has effects on both the processes and product of
construction. The research sought to investigate the level of awareness of Nigerian
construction industry participants about integrated procurement strategies. Such strategies
include design-and-build, package deal, turnkey, build-operate-transfer and their variants.
The study also investigated the disposition of construction industry participants towards
the use of such methods and strategies. Construction industry participants are
significantly supportive of such methods with the need for collaboration and involvement
among project participants ranks highest in accounting for the support. Call or clamour for
the use of the method by construction clients/customers is the least reason. It is
recommended that the tempo of awareness be sustained or increased as attitude change
depends on, amongst others, information and orientation.
INTRODUCTION
The construction client is faced with many needs that can vary over time and place
[Chinyio et al, (1998)]. The needs sometimes revolve around the procurement of the
building product. The options for meeting of those needs – strategies to evolve and
develop the construction product - are not unitary: options are available and more are
emerging. This development is strengthened further by the wave and gale of globalisation
which has been adjudged to be irreversible [Ogunlana and Chareonngam, (2003)].
The options for the procurement of the building product include but are not limited to the
traditional method, the integrated method, the collaborative method, and the management
oriented methods. None of these options is however a cure-all under all situations.
However, the perceived drawbacks of the traditional method have given a leeway for the
402 Dada, Oyediran and Ogunlana
call and utilization of the integrated procurement method. A major criticism of the
traditional procurement method is the separation of design from construction with the
attendant loss of single point responsibility. Integrated methods such as design-and-build,
package deal, turnkey, build-operate-transfer and their variants – emphasize the working
together of project participants from planning and design phase up to the construction
stage of the project. The development of the construction project is achieved under one
contractual and/or organizational umbrella. There have been recent calls for the departure
from the traditional method to the integrated method in some countries [Garza et al,
1994]. This research thus aims to investigate the level of awareness of Nigerian
construction industry participants about such methods and their disposition to the
adoption of such methods. It is hoped that such study will contribute to the body of
knowledge on procurement in the country and also be a source of relevant information for
any intervention programmes in the construction industry. Information, when concise,
precise, timely and adequate, has been rightly acknowledged as a tool for decision-
making.
There has been difficulty in securing an acceptable definition for procurement globally.
McDermott (1999, p.4), however, while citing an unpublished document, gave what he called
a harmless, broad and neutral definition that is applicable in all cultures as `the framework
within which construction is brought about, acquired or obtained’. The International Council
for Building Research and Documentation Working Group 92 (CIBW92) has been adopted
this definition. A similar definition had been given by Love, et al., (1998) earlier, who
asserted that procurement determines the overall framework and structure of responsibilities
and authorities for participants within the building process. [Harris and McCaffer (2001)]
succinctly capture the purpose of procurement: to ensure that all resources are acquired
effectively.
Love et al (1998) agree that numerous arrangements exist and that they are becoming
flexible. [Masterman (1992)] has hinted that there is a proliferation of procurement
methods and has suggested ways by which the different methods can be categorised. The
ways include but are not limited to:
(1) By the amount of risk taken by all of the participating parties
(2) By the extent to which design and construction are integrated.
(3) On the basis of the way in which the contractor is reimbursed.
In essence, literature posits that the procurement methods available in the construction
industry vary from separated methods, integrated and collaborative methods to
management oriented methods. Literature also recognizes the possibility of the existence
of hybrids and variants of some of these methods [Masterman, (1992); Ashworth, (1996);
Edun-Fotwe et al., 1999, Harris & McCaffer, (2001)]. [Ashworth (1996)] particularly
opines that new procurement methods would continue to evolve to meet new
circumstances and situations. [Gerard and Houn (1999)] specifically categorized
procurement methods into traditional lump sum, non-traditional, single source and
collaborative. They classified non-traditional into construction management, project
management, and design and-construct. They further classified single source procurement
into turnkey and build-own-operate-transfer (BOOT) with its variants. Collaborative
Stakeholders’ awareness and disposition in integrated project procurement 403
methods include partnering, joint venture and alliancing. The choice and use of
procurement methods can vary and can depend on an intricate or complex web of
considerations that ranged from client characteristics, objectives and purpose, and project
characteristics. Authors have proposed a link between these variables and choice of
procurement methods. Sometimes results confirm or disconfirm the relationship between
one or more or some of these variables and procurement choice.
RESEARCH METHODOLOGY
The method used for the sampling works were the purposive and snowballing techniques.
Many reasons account for this development. There was no available and reliable record of
construction industry contractors and their areas of focus or market orientation in the
country. Many are not registered with the contractors’ association. The three
questionnaires used for the study were similar except that each asked for detailed
judgment peculiar to the organization. The three sets of questionnaires sought to know the
personal data of respondents viz: age group of respondent, profession, grade of
membership in professional body, highest educational qualification, years of experience
in construction industry or service. The second subdivision sought information on their
organizations: head office location, number of employees, annual turnover range for the
last five years where applicable, ownership structure of organization, age of organization,
frequency of commissioning of construction works, number of construction professionals,
and major area of focus. The questionnaire further asked respondents about their
awareness and use of integrated and collaborative project procurement methods and also
on their disposition towards the use of such methods. Respondents were asked to assess
the reasons on a scale from ‘1’ to ‘4’ (of 1 = no contribution; 4 = very high contribution)
respondents were to assess reasons contributing to such disposition.
Table 1 shows the classification of respondent organizations used in the study. Contractor
organizations and client organizations were 34 (32%) each respectively while consulting
404 Dada, Oyediran and Ogunlana
organizations were 31 (34%). The numbers chosen are relatively close together and each
grouping is judged to be fairly representative in view of a similar approach by Mills and
Skitmore (1999).
Hypothesis 1
The questionnaire item for this hypothesis required respondents to indicate their level of
awareness on a scale of 1-4 (1 = ‘not aware’, 2 = ‘somewhat aware’, 3 = ‘moderately
aware’ and 4 = ‘aware’). To test this hypothesis, the level of awareness was set thus: a
hypothetical mean value was set at 2.0. Any value less than the hypothetical mean value
was taken as being ‘unaware’ while values above it implied ‘aware.’ Table 2 shows the
results of the computation using the one sample T test.
(N = 97)
Issue t d. f S*
___________________________________________________________________________
The t calculated at d. f of 96 is 8.931, which is more than the table value of t at degrees of
freedom of 96, which is 1.98. The decision is to reject the null hypothesis that
construction professionals are not aware of integrated procurement methods in favour of
the alternative hypothesis that construction industry participants are significantly aware of
teambuilding methods.
Granted that the professionals are aware of integrated procurement methods, are they
supportive? A second hypothesis was set to test this.
Hypothesis 2
This hypothesis was tested by the goodness of fit test for nominal data. The data was
obtained by response of yes or no to the question of whether the respondent organizations
are supportive of the use of integrated procurement methods.
Table 3: Goodness of fit test results on organisations’ support for the use of teambuilding
procurement methods.
___________________________________________________________________________
From table 3 above, p value is 0.001 implying that the result is significant. In essence
since the p value is less than 0.05 the null hypothesis is rejected. The alternative
hypothesis that project participants - client, consulting and contracting organizations - are
significantly supportive of the use of teambuilding procurement strategies is accepted.
There are possible explanations for the support of the use of integrated project
procurement method. The responses of the reasons for support are shown in table 4.
While some of these reasons tally with those adduced for the use of such methods in the
United Kingdom and USA especially economic issues warranting more competitiveness,
the results on a study in Finland point in the opposite direction. Design and build was
more popular in Finland in the period of economic boom [Lahdenpera, et al., 1999]. The
trend in Nigeria for the use or support of integrated methods seems to indicate more
popularity in consonance with the economic performance of the country. The trend in the
country since the 1980s has been that of austerity measures. This was then followed by
structural adjustment programmes, then privatization and most recently, (from 1999),
liberalization and deregulation of the economy. While this research has not been able to
pin down and isolate all the reasons for the support of integrated methods to the macro-
economic variables, the macro-economy nonetheless presents an environment for
understanding, locating and possible explanation of this research. At least in the country
for public sector projects government has already mooted the idea of integrated
procurement that also has the underlying potential of relieving the government of the
economic burden of implementing public projects [New Age, 2004]. Table 4 shows the
reasons accounting for support of the use or adoption of integrated method. The table also
406 Dada, Oyediran and Ogunlana
shows the mean item scores and rankings of the reasons accounting for the support for
integrated methods.
Table 4: Reasons contributing to the support of the use or adoption of integrated method
(1 = low contribution, 4 = very major contribution)
Table 4 shows that the overriding reason for the support for integrated procurement
methods is the perceived ‘benefits/need for collaboration and involvement among project
participants’. The research however did not investigate the specific benefits being referred
to whether qualitative or quantitative. The feeling that such methods will give ‘best
results among other alternatives’ followed this. The least contributory reason is ‘some of
the construction clients /customers call for the method’. The results in the table, at least
the last two items, seem to suggest that project participants, other than the clients, might
moot the use of integrated methods for project procurement. It could be interpreted to
mean that Nigerian construction clients may not be championing efficiency in project
execution. Even though there is growing awareness of the integrated methods, clients do
not seem to be empowered to jointly affect issues. This is in contradistinction to reports
regarding the UK construction industry where the voice and influence of clients, as it
were, is corporately heard and felt in the industry. This is manifested in such
organizations as the British Property Federation sometimes having such things as
procurement methods or their conditions of contract.
Stakeholders’ awareness and disposition in integrated project procurement 407
The study has revealed that construction industry professionals are significantly aware of
integrated procurement strategies. The implication is that the Nigerian construction
professionals are getting more enlightened and having knowledge of alternative
procurement methods. As far as human capital is concerned, the Nigerian construction
industry participants have come of age. This knowledge implies further a keen and
positively critical and discerning spirit in procurement choice. That may also be a launch-
pad to position them for competitiveness in the international market. There is significant
support for the use of integrated methods. Industry professionals – clients, consultants and
contractor - support integrated methods primarily because they offer the advantage of
collaboration and involvement among project participants.
REFERENCES
ABSTRACT
The process for handling claims and dispute may be inefficient if the employer and or the
contractor perceives injustice in that process. But, the third party’s involvement in the
process can play a significant role in ensuring smooth and expeditious claims resolution.
However, the third party’s involvement may also be perceived as unfair. This study
examines the third party’s attributes that influence the employer and contractor’s
perceived fairness. A conceptual framework is developed and illustrated by fusing
knowledge gained from a review of literature and analysis of two litigated cases relating
to claims by contractors for delay. The results demonstrate how the following third
party’s attributes influenced perceived fairness: third party’s professional expertise; third
party’s personal qualities; third party’s appropriate power; third party’s knowledge; and
third party’s neutrality and impartiality. One of the interesting results is that in order to
ensure that parties perceive the process for handling claims/dispute as fair, neutrality of
the third party in terms of independence is important but it is not enough. The process for
handling claims can still be perceived as unfair if the third party fails to demonstrate
professionalism in that process. The results provide vital information for establishing
third party claims certifier and conflict intervener on construction projects.
INTRODUCTION
Over the last three decades, the construction industry has experienced an increase in
claims liability exposures and disputes along with an increasing difficulty in reaching
reasonable settlement of claims in an effective, economical, and timely manner [Barrie
and Paulson, (1992)]. The submission of claims by the contractor for delay does not itself
create entitlement to additional time and or additional money. In order to decide the
contractor’s entitlement and the quantum of the entitlement, the claims must first be
assessed and ascertained. A preliminary review of some litigated cases involving
contractors’ claims suggests that the process for handling claims may generates conflict
and escalates into protracted dispute if the employer or the contractor perceives injustice
hence become unsatisfied with the process and the outcome. The perception of injustice
may influence the ability of the parties to resolve the claims expeditiously and within the
410 Aibinu
on-site machinery for handling claims. The involvement of the third party could
deescalate conflict, break deadlock in claims negotiation, reduce dispute, and should be
cheaper and faster than litigation [Spittler and Jentzen, (1992), Aubert, (1963)]. However,
the third party intervention may also be ineffective and may escalate conflict, protract
dispute and become costly if one or both parties (the employer and contractor) perceive
the third party’s role and decision as unfair [Tyler and Bladder, (2000)]. There is
therefore need for a suitable third party, which is perceived as fair by the employer and
the contractor. To achieve this, the position, characteristic and the role of the third party
and his relationship with the employer and the contractor is a critical factor that must be
considered when designing mechanism to govern the process for handling claims and
when appointing the third party claims certifier and conflict intervener at the project
planning stage. Based on these highlights, it will be useful to understand what third
party’s attributes and roles influence the parties’ perceived fairness of the process for
handling claims. Accordingly, the objective of the paper is:
• to study the attributes of the third party that influence the employer and
contractor’s perceived fairness of the process for handling claims.
The results will provide useful insight based on which to establish a suitable third party
for the handling of claims. Additionally, it will form a useful basis upon which to create
claims and conflict handling schemes that are experienced by the employer and contractor
as fair.
cost, the continental model provide for direct negotiation and agreement between
employer and the contractor. This is usually based on the provision of the contract. If they
fail to reach agreement, they may later (at the end of project) refer the matter to court of
arbitration or a state court (third party).
In the English model, the third party claims certifying and quasi-arbitral role of the
engineer has been subject of heated discussion in the past [Mortimer-Hackwins, (1984),
Westring, (1984) ristensen, (1985),nd Nicklisch, (1990)] The main theme of the
conflicting views is in respect of fairness of the engineer’s role in the claims process
hence fairness of his/her decision. The continental model has also been subject to
criticism in that it does not satisfy the need for a third party decision-making authority in
claims and dispute matters during the construction phase. The weakness of the two
models in terms of intervention of third party, the identity, role and timing of the third
party intervention have led to the advent of alternative dispute resolution techniques such
as mediation, arbitration, dispute review boards (DRB) or claims review board (CRB),
standing neutral or dispute resolution adviser (DRAd), and dispute adjudication board
(DAB). These alternative dispute resolution techniques are now used as complements of
the English and the Continental Europe models.
FAIRNESS – The goal of the process for handling claims and dispute
The goal of the process for handling claims is examined from the principle of a claim.
The principle of claim is that: a claim allowed in order for the contractor to balance his
losses for the excusable delay and compensable delay, and additional work; and the
contractor must not gain more from it [Sims, (1975)]. Based on this principle, the
contractor must be left in no worse position as the consequence of the genuine delay than
he would have been had the delay not occurred. On the other, the contractor should also
be left in no better position than he would otherwise have been; he should not benefit as a
result of the delay. The process of handling claims should aim at putting the injured party
back to the position he held before the breach or compensate that party for the loss
[Turner and Turner, (1999)]. For these reasons, ‘equity’ appears to be one of the essential
goals of the process of handling claims. Based on these highlights, fairness appears to be
an important primary goal of the process for handling claims. The requirement of most
general conditions of construction contracts is line with this notion [see for example, JCT
98, Clause (25.3), PSSCCOC (1999), Clause (14.3.3)]. However, issues influencing the
attainment of this goal in practice need to be addressed.
According to [Ross (1977)], the best way to determine the fairness of any process is to
examine the judgments, attitudes and the perception of the participants. Based on a
review of socio psychology literature, the third party’s attributes that could influence
perceived fairness of the process for handling claims span five areas [Walton, (1969);
Thibaut and Walker, (1975, 1978), Aubert (1963)]: Third party’s professional expertise;
412 Aibinu
third party’s personal qualities; third party’s appropriate power; third party’s
knowledge; and third party’s neutrality and impartiality. These attributes are now
discussed:
The professional expertise and personal qualities of the third party that can influence the
perceived fairness of the claims process include diagnostic skill, behavioural skill in
breaking possible escalation of conflict or a deadlock in reaching agreement, acceptance
and concern for the parties concerns and capacity to provide support and assurance to the
parties [Walton, (1969)]. The third party must be knowledgeable in the particular field
and fully capable of evaluating the claims and perhaps translating the claims into ways
that is understandable by both parties [Thibaut and Walker, (1978)]. Even if the third
party has the authority to decide the claims, a lack of technical understanding can impair
the third party’s effective control over the decision stage, thereby forcing the third party
to make decisions based on considerations other than the technical merits of the claims
[Thibaut and Walker, (1978)]. An uninformed decision will be inaccurate, and can be
perceived as unfair, thus impairing the process for handling the claims.
The third party’s prior knowledge of the nature of the claims and conflict issues is an
advantage, in that it not only enhances the third party’s credibility with the parties, but
also increases the likelihood that the third party’s intervention will be on target [Walton,
1969)]. It is advantageous for the third party to have little or no power over the future of
the parties in conflict. This third-party power increases the conflicting parties’ sense of
risk in confronting issues candidly and or is likely to induce them to behave in ways
which are calculated to elicit the approval of the third party. Another type of power that
can influence the parties’ perceived fairness is the perceived expertise of the third party in
controlling the administrative process of claims assessment and resolution. This is usually
responded to by the parties’ acceptance of the third party’s direction during the claims
resolution process.
While third party’s impartiality refers to the third party’s behaviour, neutrality refers to
questions of interests such as any existing relationships between the third party and the
parties, any interest of the third party in the outcome of the claims, any present or future
conflict of interest that may prevent the third party from acting impartially. When the
parties believe that the third party is biased against them, they are likely to be less
receptive to claims resolution process [Rubin et al, (1994); Welton and Pruitt, (1987)].
Asymmetry in third party’s relationship with the parties could influence the perceived
fairness. Three different types of third-party symmetry are important: Is he neutral with
respect to the outcome? Is he equally close to or distant from the parties? Does he avoid
behaviour that would inadvertently operate to the advantage of one and disadvantage of
the other party? [Walton, (1969)]. The third party’s symmetry may be helpful but not
always necessary [Zartman and Touval, (1985)]. On the other hand, asymmetry in third-
Third party’s attributes in perceived fairness of handling claims and disputes 413
party roles or intervention can be more effective, especially, when they offset basic power
or skill asymmetry between the conflicting parties. Irrespective of the personal relation
asymmetry between the third party and the parties, both parties might still respect the
third-party’s intervention, where the third party displays professionalism in resolving
issues of fact in the claims. Where the basic trust in the third party is high, it might still be
productive for the third party to give asymmetric support to one party’s ideas,
perceptions, feelings and actions. The third party is less likely to be seen by either of the
parties as having negative intentions toward that party to whom the third party gives less
support or whom he/she actively opposes. Where the third party has much better
relationship with one party, he/she is better able to confront that party effectively. The
third party is also better able to make interventions that interrupt and interfere with that
party’s conflict approach and behaviour. Figure 1 show the conceptualised variables.
414 Aibinu
Figure 1 Conceptualised Third Party’s Attributes that Influence Perceived Fairness of the
Process for Handling Claims and Dispute
Method
In order to further illustrate and study the influence of the conceptualised variables, two
litigated cases were studied. The decision transcripts of the cases were obtained from
relevant law reports. The cases are: Bernhard’s Rugby Landscapes Ltd v. Stockley Park
Consortium Ltd (1998) (herein referred to as ‘BRL’ case) and John Barker Construction
Ltd. v. London Portman Hotel Ltd. (1995) (herein referred to as ‘JBC’ case). Content
analysis of the judicial decision transcripts of the selected cases was conducted. The
analysis is organised around the five key aspects of the conceptual framework (the third
party’s professional expertise; the third party’s personal qualities; the third party’s
appropriate power; third party’s knowledge; and third party’s neutrality and
impartiality. In each of the selected cases, the events during the claims process were
examined, and by synthesizing the evidences and the facts, how each of the five attributes
influenced the parties’ perceived fairness of the claims process was investigated. The
background and overview of the selected cases precede the analysis and discussion of
findings.
Third party’s attributes in perceived fairness of handling claims and disputes 415
In the ‘BRL’ case, the project made use of ICE 5th edition with the construction managers
being given the powers which the engineer usually exercises under the ICE conditions.
The construction managers were designated contract administrator and third party
certifier and quasi arbitrator in matters relating to claims and dispute respectively. The
works were delayed by employers’ preventive acts and variations. The construction
managers and the employers consistently rejected the contractors’ claim prior to any
objective assessment. The contractors lost confidence in the contractual machinery for
claims and dispute resolution and as a result asserted claims at litigation. The employers
argued that the court had no jurisdiction to entertain the contractors’ claims because the
contractors had not allowed the construction managers to decide on the claims before
referring the claims for litigation. However, the contractors, among other things, argued
that the contract machinery for resolving the claims had broken down and that the clause
relating to dispute resolution had become inoperable as a result of construction managers’
failure to administer the contracts properly and to give decisions on the disputed claims.
The contract in the ‘JBC’ case made use of JCT 1980 standard terms but with the deletion
of clause 41 (the arbitration clause) and replaced by the words ‘the proper law of the
agreements shall be English law and the English courts shall have jurisdiction’. The
architect is the designated third party claims certifier and quasi arbitrator. The works were
carried out under two contracts. The dispute in the case is in respect of the second
contract (herein referred to as Block B). There were delays and it was apparent to all
concerned that the contractors were entitled to some extension of time, the exact amount
of which was open to argument. Afterwards, the parties negotiated and entered into
acceleration agreement and with agreement to pay additional sums of £50,000 to the
contractors. After the acceleration agreement, there were further delays and further
instructions to the contractors from the Architect. About 3 weeks after the works were
supposed to have been completed; the contractors’ managing director wrote a letter to the
project managers enclosing a schedule of variations that had taken place since the
acceleration agreement was made. The contractors’ managing director stated in the letter
that if the contactors had known that there was going to be high level of variation, they
would not have committed themselves to the dates in the acceleration agreement. By the
letter, the contractors gave notice of intention to seek an extension of time. About 7
weeks after the contractors notice, the architect certified that practical completion of all
sections of the block B contract had taken place 6 weeks beyond the contract completion
time. Eight weeks later, the architect sent to the contractors, notices giving about 1 week
extensions of time. The architect’s decision implied that the contractors are liable to
payment of liquidated damages of about 5 weeks. The contractors were not satisfied with
the decision of the architect and they asserted claims at litigation. The contractors claimed
that they were, and are, entitled to a longer extension of time than was granted by the
architect. The contractors also argued that the architect’s decisions were not fair and
reasonable. The employers contended that the architect's determination of the claim for
extension of time is conclusive and that the court has no jurisdiction to inquire into it. The
court reviewed the decision the architect by applying ‘fairness test’. The findings of the
court showed how some of the conceptualised attributes and roles of the third party
416 Aibinu
influenced the contractors’ perceived fairness of the process for handling the claims hence
the contractor’s decision to litigate the claims.
Analysis
In the ‘JBC’ case, the contractors contended that the architect erred both in the allowance,
which he made for some of the delay events, and in failing to make allowance for some
other delay events. The court reviewed, in detail, the architect’s decision on some of the
events. In particular, how the architect generally approached the assessment of the
contractors’ claims was investigated. The court found that there was little record by way
of contemporaneous notes. The extension of time report prepared by the architect gave no
indication how the architect arrived at some of the extension of time granted for the delay
events. The court fundamentally flawed the architect’s assessment of the extension of
time. It was found that no calculated, logical analysis in a methodical way had been
conducted. The architect had not considered the impact of the delay events on the
contractors’ programme. Where the architect allowed extension of time for relevant
events, the allowance made bore no logical or reasonable relation to the delay caused.
Evidence further showed that the employers’ project manager had noted that the
extension of time granted by the architect did not address the specific points raised by the
contractors in his application for an extension of time, and that the architect had
considered items not raised by the contractors. The project manager reported the mistake
to the employers' parent company. According to the project manager’s evidence, it was
planned that the mistake would be rectified in such a way as to analyze the contractors’
claim in a methodical way, taking into account the contractors’ stated programme, the
progress of work at the time and the effect of the incidents on any subsequent works.
However, the employers did not seek to have detailed analysis of the contractors’ claims
despite the employers’ awareness of the architect’s mistake.
In conflicting evidence, the architect said that he had done an analysis of the contractors’
claim in a methodical way, taking into account the contractor's stated programme, the
progress of the works at the time and the effect of the relevant events on subsequent
works. The architect also said that the possible methodical analysis to which the project
manager was referring to was a ‘very high tech solution'. However, there was no
documentary evidence to support the architect’s evidence that such an exercise was
conducted or to indicate what form it took. When it came to the details of individual delay
events, the architect was in difficulty in recalling how he assessed and determined some
of the extension of time granted. Other decisions of the architect which were thoroughly
reviewed by the court were found to be illogical and inconsistent. The learned judge
concluded that the architect had made an impressionistic, rather than a calculated
assessment of the time that he thought was reasonable for the various delay events.
Evidence showed that the contractors wrote to the architects enclosing various bar charts
and an accompanying narrative, suggesting that the effect of the instructions issued after
acceleration agreement on the contractors' planned programme of work was such as to
justify an extension of time of about six weeks. The contractors also submitted, in support
of their claim, lists, or copies of architects’ instructions (AIs) and confirmations of verbal
Third party’s attributes in perceived fairness of handling claims and disputes 417
instructions (CVIs). While the architect demonstrated a weak professional expertise in the
assessment of the claims, the contractors' case was supported by an expert witness, who
produced charts demonstrating the logical links between the various activities shown in
the programme prepared at the time of the acceleration agreement and further charts
seeking to show the effect on those programmes of the subsequent variations.
Although under the contract, the architect had authority to assess and decide on the
contractors’ claims; however, the architect’s display of weak professional expertise and
lack of technical understanding of the claims appear to have impaired the architect’s
exercise of effective control over the decision stage of the claims procedure. That appears
to have forced the architect to decide based on subjective criteria rather than on the
technical merit of the contractors’ claims. As earlier discussed in the conceptual
framework, an uninformed decision by the third party decision-maker will be inaccurate,
thus impairing the attainment of a fair decision. This provides wide latitude for perceived
injustice and confrontation.
An examination of the ‘BRL’ case also shows that the construction managers (the
designated third party) did not exercise professional expertise and personal qualities
needed to hold the balance between the contractors and the employers. The construction
managers failed to assess the contractors’ claims and failed to make its own inquiries into
the claims. The court observed that the failure might have been due to the inexperience of
the construction managers’ personnel in administering a contract. Evidence revealed that
one of the construction managers’ key personnel had never acted under such a contract as
a contract administrator. It was also revealed at the trial that prior to the commencement
of the proceedings, the construction managers in one of its correspondences sought
direction from the employers on what action to take in respect of the dispute arising from
the contractors’ claims. In reply to the construction managers, the employers expressed
disappointment in the construction managers’ inability to take appropriate steps necessary
to resolve the claims and mitigate the dispute.
The conceptual framework suggests that the third party’s prior knowledge of the
circumstances of the claims, and the issues in the conflict enhances the third party’s
credibility with the contracting parties and increases the likelihood that the third party’s
intervention will be on target. In ‘BRL’ case, lack of thorough understanding of the
contractors’ claims by those appointed to conduct the assessment and decide on the
claims appeared to have influenced the contractors’ perceived credibility of the
assessment and the decision-making process, leading to contractors’ non-satisfaction with
the outcome of the assessment and consequent decision to litigate. The evidence at the
trial reinforced this inference. A claims consultant was engaged by the construction
managers to assess the contractors’ claims shortly before the commencement of the court
proceeding. The claims consultant had little knowledge of the events and circumstances
surrounding the contractor’s claims. Furthermore, other construction managers’ personnel
who assisted the claims consultant in the assessment of the contractors’ claims were in
some instances appointed after the commencement of the court proceedings; they were
not familiar with course of the project. They only had passing on knowledge of the delay
events and the contractors’ account. The possession of little knowledge of the contractor’s
claims, by the claims consultant and the construction managers’ personnel appeared to
418 Aibinu
have influenced the ability of the construction managers to demonstrate objectivity in the
assessment of the claims and hence the contractors’ loss of confidence in the claims
assessment and decision making process.
In addition, the highest degree of control over the assessment and decision making
process was exhibited by the employers through the terms of the construction managers’
contract of engagement, which limited the construction managers’ powers to grant
extension of time. The contractors were not aware of the terms until disclosed during the
proceedings. In particular, one of the terms stipulated that the construction managers had
no authority to grant any extension of time or agree to accept any financial claim of any
kind without first consulting the design team leader and reporting to the employers. These
terms were found to have fettered the construction managers’ control over the claims
assessment. The trial judge concluded that the limiting terms affected the attitude of the
construction managers as a result of which the contractual machinery for claims was not
operated, as it ought to have been operated. The construction managers appeared not to
have had appropriate powers. This again provides a wide attitude for perceived injustice.
In the ‘JBC’ case, the court found that the architect misapplied the contract provisions in
some instances. In addition, because of the architect’s unfamiliarity with Standard
Method of Measurement, 7th edition, the architect did not pay sufficient attention to the
content of the bills, which was vital for claims assessment in the case of JCT contract
with quantities. This reveals the influence of third party’s knowledge on fairness.
In the JBC and BRL cases there also appear to be power imbalances in terms of
information possessed by the parties. It appears that the contractor has more information
than do the employers. This could have led to the employer’s consistent lack of trust in
the contractor’s claims and consequent unwillingness to accept the contractor’s claims.
Although under the traditional contracting system information asymmetry is expected
since the contractor usually is the party in greater control of actual execution of the
works. However, in both cases the active control over the gathering of contemporaneous
record by the third party construction managers and the architect could perhaps have
redressed the problem. In both cases, the inability of the third parties to elicit facts,
harmonize the interest of the employer and contractor and generating a convincing
decision led to the perceived injustice hence inability to effect settlement within the
contractual machinery.
The lack of neutrality displayed by the construction managers provide latitude for
contractors’ perceived injustice and hence contractors non-satisfaction with the claims
process and the construction managers decision. Again, the contractors’ decision to
litigate the claims is not unexpected.
In ‘JBC’ case, the court observed that the architect endeavored to exercise his judgment
independently. However, the architect’s assessment of the amount of extension of time
due to the contractor was unfair and irrational. In addition, it was found that the architect
discussed the proposed award with the employers and gave the employers the opportunity
to comment on it. However, as agreed in evidence by the architect at the trial, the same
opportunity was not given to the contractors. Although contractually, acting as a
professional man, the architect is not bound to discuss the decision on his assessment with
either party, but in ‘JBC’ case, since the architect had discussed with the employer it
would have been better if equal opportunity had been given to the contractor. The
architect’s asymmetric attitude, among other things, in relation to the employers and the
contractors appeared to have contributed to the contractors’ perceived injustice of the
decision-making process. The problem was exacerbated by the architect’s lack of display
of professional and technical expertise.
Five important attributes of a third party that can influence the employer and contractors
perceived fairness of the process for handling claims has been identified. Analysis of two
cases demonstrates how the attributes influence the parties’ perceived fairness. In
particular, one of the interesting results is that in order to ensure fairness and smooth
claims and dispute resolution, neutrality in terms of independence of the third party is
important but it is not enough. The process for handling claims can still be perceived as
unfair if the third party fails to demonstrate professionalism in the decision-making
process. It is recommended that the attributes be further investigated by statistical
analysis of information obtained from many cases in order to understand the relative
significance of each attribute and perhaps the dynamics of their influence.
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ESTABLISHMENT OF FOREIGN CONSTRUCTION COMPANIES IN KOREA
AND THE KOREAN CONSTRUCTION INDUSTRY IN A FOREIGN
PERSPECTIVE: AN INDUSTRY ANALYSIS FOR MARKET ENTRY
KOO JA-KYUNG
Department of Civil- and Environmental Engineering, e-Construction Laboratory, Han-
yang University, Sa-1 Dong, Kyonggi-do, 425-791, Ansan, Korea
ABSTRACT
INTRODUCTION
The Korean construction industry has been in depression since the Asian financial crisis
in 1997/98 and the intervention of the International Monetary Fund (IMF). Yet it is con-
solidating and recovering. The recession is reflected in a decrease of incoming orders
from the public and private sectors and a high number of bankruptcies. The structural
change in the Korean construction industry towards internationalization and full engage-
ment of information technologies (IT) into the construction process and management is
driven by newly emerging companies as well as the financially and technologically strong
construction branches of the conglomerates (Chaebols). Even though Korean construction
422 Sachs, Kong and Ja-Kyung
companies are strong in pricing and construction execution, the design of international
projects and supervision is yet provided and performed by overseas engineering consult-
ants. In this course, the prevailing research questions are:
- What is the current stage of and development in the Korean construction industry
and environment?
- How can foreign construction companies and engineering consultants enter and
survive in the Korean market?
- How do Korean construction companies operate internationally?
For this investigation, fourteen interviews with Korean and foreign construction compa-
nies and engineering consultants in conjunction with a market analysis were conducted.
The results are presented in the following.
Economic overview
In 2003, Korea’s GDP ranked 12th in the world (before the crises it ranked 11th) and
amounted to 620.3 billion US$. The economy is recovering but still, market and structural
reforms are taking place for consolidation. Korea is recovering quicker than expected and
is repaying its debt to the IMF ahead of schedule.
The Korean economy is dominated by Chaebols. Chaebols are conglomerate firms such
as Hyundai, Samsung or LG. The 30 leading Chaebols make up to 30% of Korea’s indus-
trial production. These Chaebols exert a strong bargaining power against suppliers. This
results in dependencies of the suppliers of up to 70% in their turnover on one client. This
client might influence the supplier to purchase its products for being awarded with a con-
tract in return. If one of these big players collapses, the whole supply chain may collapse
as well due to the unbalanced portfolio of clients.
Transparency International (2003) ranks Korea at 53 in the Corruption Perceptions Index
2003 and at 18 in the Bribe Payers Index. In general, public works and construction are
ranked lowest of all sectors worldwide.
Establishment of foreign construction companies in Korea 423
The breakdown of foreign construction orders in 2000 has been attributed to the bank-
ruptcy of Dong-A Construction as well as the liquidity constraints with Hyundai Engi-
neering & Construction, which is now recovering. Both companies were together with
Samsung Engineering & Construction the three leading Korean contractors in interna-
tional construction.
As a political counteraction to the large number of bankruptcies in the course of the cri-
ses, regulations on the formation of construction companies were eased. The number of
construction companies tripled since 1996. The newly established companies draw on the
assets of bankrupt companies. The effect is a harsh fight for the lowest bid resulting in a
decrease of 65% in the average order volume (Table 3).
Number of sub- 21842 24167 25432 29704 31823 35572 36665 37120
contractors
Number of bank- 607 1061 1579 354 449 430 373 383
ruptcy (subcontr.)
Average order vol- 18.9 17.6 9.8 8.5 6.5 4.8 5.6 6.8
ume [mil. $]
[MOCT 2004]
424 Sachs, Kong and Ja-Kyung
The Korean construction industry therefore can be characterized as fragmented [cp. Porter
1998, p. 191] in which no single company emerged as market leader and the industry is
comprises a large number of small and medium-sized companies with tough competition
at the lower end.
How can foreign companies find their niche in such a competitive environment and sur-
vive?
The role and position of foreign construction companies and engineering consultants in
the Korean construction industry is investigated by applying the concept of a Strength-
Weakness-Opportunity-Threat Analysis (SWOT) with respect to Porters [cp. Porter 1998,
p. 4] five competitive forces (i.e. affecting a company’s competitive edge are its suppli-
ers, clients, the threat of potentially new entrants and substitute products and services as
well as the immediate rivalry with competitors) and competitive strategies (i.e. cost lead-
ership, differentiation, and focus) [cp. Porter 1998, p 35].
These underlying theories were incorporated into fourteen interviews conducted with for-
eign and indigenous companies in Korea on their operation in Korea and overseas. The
companies were mainly involved in three major projects. In the following, these projects
are introduced and the competitive position of the foreigners with respect to the culture
specific characteristics in Korean construction is discussed.
The interviews were conducted with DE-Consult, Bovis, Clestra, Black&Veatch, Solen-
tanche Pumyang, Dywidag, Eukorail, Bechtel, Fluor Daniel, DLiA, and Hanmi Parsons.
The foreign companies in Korea export high-end construction technologies, engineering
and consulting services. Due to the big number of domestic contractors and the harsh ri-
valry at the lower end of the industry, none of these foreign construction companies oper-
ates as a building contractor. They are specialised service providers.Each company was/is
involved in one of the following projects.
The Korea Train Express (KTX) is linking Seoul, the capital, with Busan, a harbour city
in the southeast. 71% of Korea’s population live along the 412km track. Changes in the
tracks, changes in the construction method by employing the Precast-Span-Method
(PSM) and lack of experience by the Korean contractors in such complex engineering
works led to tripled costs of construction and exceeded the project duration by twelve
years. The projected costs amount to 15.3 bill. US$ and project delivery will be in 2010.
Since 1994, Bechtel from the USA has been engaged as project manager and among oth-
ers, DE-Consult from Germany as supervisors and checking engineers. The Korean con-
tractors are interested in the technology transfer provided by the foreign consultants. Ko-
rea chose to have the work executed by Korean companies and not by experienced for-
eign contractors. Thereby, they managed to build up their own expertise on high-speed
Establishment of foreign construction companies in Korea 425
rail construction. The first payoff can be witnessed with Hyundai and Samsung, both con-
tractors in the high-speed rail construction in Taiwan.
The Incheon International Airport (IIA) was erected off-shore between two islands in the
west of Seoul that were connected with dikes. The spare volume was refilled with 80%
soil from the sea and 20% from the adjacent mountains. The first construction phase be-
gan in 1992 and ended with the opening of the Airport in 2001.The cost amounted to
484.3 million US$ and the fee for the construction management to 69.8 million US$. The
foreign consultants were Parsons, Turner, and ICT.
According to the Project Management Team (PMT), the greatest problems they encoun-
tered in executing the project were to match the work breakdown structure (WBS) with
the contract structure and cost breakdown structure (CBS). Due to the inexperience of
contractors in executing such a mega project, sections were split up among companies so
that they could train each other on the job and transfer the knowledge to other sections
they also contracted for. One reason for this structure which causes a conflict of interest
in the management was the initial segregation of the cost, schedule and quality depart-
ment. They were competing by nature to report the best numbers respectively. The na-
tional regulation on construction contracts favours lump-sum and unit-price contracts but
forbids homogenous cost-schedule packages. Therefore, the control of cost vs. schedule
was a major problem in this project.
The construction of the stadiums for the world cup soccer championship in 2002 was also
shadowed by the financial crises of 1996/97. Since the discussion was to even blow off
Korea’s participation, planning for the stadiums and acquisition of the building ground
was delayed. Consequently, supplier constraints emerged for certain materials because the
local suppliers were limited in their production capacity. Also, unsettled was the utiliza-
tion of the stadiums after the championship. The construction amounted to 1,703 million
US$ in total.
Future projects
For each 0.8 billion US$ of investment into construction, 35,000 new jobs are created. By
investments into housing, 200,000 new jobs were created. The government plans on con-
structing seven new north-south and nine new east-west expressways by 2020. It is
aimed, that from any point in Korea, one can reach an expressway within 20 to 30 min-
utes. Thereby, the existing expressways of 1,889 km are to be expended to 5,642 km. In
addition, five new domestic and international airports, an expansion of the high-speed rail
system and domestic ports and hub ports are planned. Also, the rail links to North Korea
are being reopened, allowing the export of goods by land.
426 Sachs, Kong and Ja-Kyung
The most predominant difference between foreign and Korean companies is in the attribu-
tion of clear responsibilities and positions. In Korean companies, even small decisions
often need the approval of the superior. This leads to the delegation of the decision in a
circle and results in long decision processes. The foreign company therefore needs to
know the exact contact person when approaching a Korean company. On the other hand,
due to the Confucian background and hierarchic social structure, that is reflected in the
companies, decisions are quickly executed, once they are made. One foreign interviewee
stated: “Koreans tend to be weak in forward planning, but once they aim at a target, they
act so fast, that one easily looses track.” For foreign companies in Korea, this implies
keeping in close touch with their JV partner. They should impose on him the main admin-
istrative work and daily dealings and focus instead on their expertise and core compe-
tences.
Apart from technical problems, all companies experienced difficulty in transferring their
objectives to the Korean clients and subcontractors. Therefore, most companies operate in
Joint Ventures to let their local partner deal with the locals. Yet, misunderstandings be-
tween the Korean and foreign counterparts arise due to the differing socio-cultural value-
set they base their actions on. Following Gunnerson and Scott-Stevens (1989), the reasons
for the misunderstanding can be summed as in Table 4.
Table 4. Socio-cultural differences between Korea and Westerners that lead to mis-
understandings
Korean Western
Roles and Status
Status Hereditary, gender, age, education Position, education background by
background dependent on attended skills and knowledge, experience
schools, family, employer
Problem-Solving
Emphasis Harmony, the older person decides Majority rule
Approach Proposals with consideration of not Economic and technical most feasi-
confronting the decision maker to ble, direct communication across
loose face with a solution he does not hierarchy, derive from principles
understand; use of previous cases
Communication of Information held back and only punc- Open to generate broad understand-
information tual attributed, small number in- ing for the decision so it is carried by
formed, command-and-control the members
Knowledge & Information
Means “May be” Surely
Education Adaptation, little reflection, search Discovery, create something new
for exemplary cases contributing to the situation
Education purpose Social status, chance for job and Social status, career, self fulfillment
adequate marriage partner, follow
expectations
Premises
Emphasis Confucianism Christian, Enlightenment
Development War driven, occupied, being shaped Maker, shaping the environment
Establishment of foreign construction companies in Korea 427
by other nations
World view Social, material Social, material
Time (but changing in Little separation of private and pro- Clear distinction between private and
Korea towards western) fessional life professional life
Motivation (but changing Ambitious, “we can do it!”, follow Self-satisfied, over-cautious
in Korea towards west- order
ern)
Society Collective, group oriented, age mat- Individualism
ters
Communication
Mechanism According to social status and age According to matter and position
Process From top to bottom easy, but only Cross-functional and vertial
stepwise up
Work Ethics
Planning Stand-by, ad-hoc Preplanning, follow and execute the
plan, only little adjustments
Accomplishment Do it in group; one stays at work until Individual fulfillment of task
the colleagues leave
Mistakes Cover up, but do it again; no individ- Discussion about mistake, avoid next
ual blame, group carries responsibil- time; individual is blamed and held
ity responsible
Claims Dealt with by negotiation, arbitration; Clear laws to assign responsibilities,
dependency on client → avoid claim identify reliable counterpart
for “good relationship” to acquire
follow-up order
Performance “Good-enough” spirit Precision
Table 5 sums up the previous table and discusses the most important perceived dif-
ferences and commonalities between Koreans and Westerners.
Table 5. Differences and commonalities in the background
Korean Western
group-oriented individualistic
island, isolated migration and ex-
change
Differences conglomerates small & medium
sized enterprises
Constant search for Open for conflict
harmony
Diligence
Respect of age
Experience of war
Commonalities
Divided territories
Reconstruction and economic miracle
In order to overcome these socio-cultural market entry barriers, the foreign companies
form Joint-Ventures (JVs).
Most foreign companies entered the Korean construction market via a target project.
Through the initial project, follow-up projects are acquired for long term establishment.
428 Sachs, Kong and Ja-Kyung
One company exists only for a one-off project whereas the other is owned 51% by the
foreign partner but the JV is run 100% by Koreans. Yet another company started as a one-
man-enterprise and employed Korean staff. In general, foreigners mark the minority of
staff and they focus on management and specialized engineering expertise.
They experience support in their establishment through the embassies, chambers of com-
merce and industry as well as through the Korea Investment Service Centre.
Even though technology transfer is favoured, the foreigners experience suspicion towards
newly developed construction and management methods. They then either face costly and
time consuming persuasion and training or they are forced to employ tested, traditional
methods that are less efficient.
For example, the introduction of the Earned Value Management System (EVMS), which
is a transparent project management and control tool, showing the correlation between
schedule and cost and therefore is a powerful tool in claim management, is not favoured
by all participants. The subcontractors tend to cover up deficiencies towards the general
contractor (GC) to appear in good shape. They also are hesitant in reporting mistakes
done by the GC to the GC in order to stay in his trust and favour for receiving follow-up
contracts. But also the general contractor and clients return deficiency reports from check
engineers unopened so that deficiencies can not be tracked in their books in case of site-
checks by the audit. The GC faces difficulty tracking, which reports are true or forged and
what the exact situation on site is. It is in the GC’s interest to rework project critical defi-
ciencies, but yet not reporting them to the client. And again, clients as well as GCs are
reluctant to keep evidence that could be held against them by the audit. Therefore, even
though EVMS is understood by management to be a powerful controlling tool, it is diffi-
cult to exercise the theory in practice due to the inherent conflict of interests. Even though
EVMS is not executed properly, yet it is well documented on paper and in contracts.
Same mechanism applies to the concept of Guaranteed Maximum Price (GMP).
Reason may be found in the cultural perception of business relations but also in the weak
construction laws that leave room for interpretation and therefore do not serve as a plan-
ning tool and firm basis in claim preparation.
General remarks
neering companies that are familiar with the international standards. Also in their man-
agement capacity, unlike HOCHTIEF, they lack the experience and knowledge to run
lifecycle oriented projects such as Build-Operate-Transfer (BOT) projects on an interna-
tional basis. Yet, they want to export the experiences they gain with BOT projects in the
Korean market overseas.
Samsung and Hyundai are strongly engaged in Hong Kong, Singapore, the Middle East,
and India. When entering a market for the first time, they determine their competitive
position by dispatching two to three employees. Their task is to establish a branch office
and to observe the market, identify potential rivals and partners, look for potential pro-
jects, clients and suppliers. They acquire information from embassies, chambers of com-
merce and industry, trade associations, and consultants. They experience a competitive
advantage against other foreign contractors in drawing on the experience and information
of other regional offices from one of the other branches within their conglomerate. There-
fore, the initial set-up costs are decreased.
Both contractors emphasize on the importance of the price level of labour. Thereupon the
decision is based whether to use local labour, own labour or labour from a third country.
Samsung and Hyundai generally act through joint ventures for entering a new market.
They differentiate in the selection of the JV partner between the case of new entry and
after establishment. The motives in the selection of the JV partners can be divided and
ranked by priority into four categories.
a) Technology transfer: That is for bridging gaps in expert knowledge, specialization
and resources. That applies to projects that are challenging to the technical compe-
tence. The aim is to learn from the partner’s expertise and utilize it in other pro-
jects later.
b) Capacity: This applies to large capacities that cannot be acquired by outsourcing.
It also applies to machinery, equipment, tools, labour, and financial resources that
one can either not provide or does not want to provide.
c) Pricing: In order to achieve a higher price on the project, one co-operates with the
strongest rival in order to cut out the lowest bid and avoid unprofitable competi-
tion.
d) Network effect: The partner’s network is used to acquire a larger market share and
risk is better distributed. The network effect is the most important criteria when
entering a new market.
430 Sachs, Kong and Ja-Kyung
Table 6 ranks these motives of JV partner selection according to their priority when ei-
ther entering a market or after establishment.
As indicated in table 6, the general aspects in the partner selection are the technology
transfer and bridging capacities. These aspects are predominant when entering a market
for the first time. They are dealt with by laying the strongest emphasis on the network
effect. In the case of entry to new market, the high risk of failure is compensated by limit-
ing its own engagement and thereby not binding too many resources at once but having a
strong partner to carry them. Pricing is in both cases relevant but more relevant after es-
tablishment and the following competition with local contractors. At first entry, the
network provided by the partner is most important for sustained success. After successful
establishment, the network effect becomes less important due to own established network.
CONCLUSION
The ongoing opening of the Korean construction market since the economic crisis in
1996/97 and the planned projects until 2020 will lead to an increased presence of foreign
companies in Korea. Since Korea’s construction industry is horizontally fragmented and
has unused capacities within the industry, competition is harsh for building contractors.
The field of construction execution is, for foreign companies, impossible to penetrate.
The demand for foreign companies however will increase with respect to consulting engi-
neers, specialized construction methods and technologies, and the training of local staff.
Even though Korean contractors operate internationally, they lack the expertise for so-
phisticated design on international standards because the standards are not applied in Ko-
rea and therefore the expertise is not developed indigenously. International construction
companies and engineering consultants exploit that niche and turn this asymmetric distri-
bution of information, knowledge and expertise into their profit margin.
On the long run, Korean contractors thrive for internationalization and taking over com-
plex projects such as BOT projects. Consequently, they will need to cooperate with ex-
perienced international contractors for compensating own deficits, learn from the partner
and eventually act as a new alternative contractor for complex projects.
Due to the strong restructuring effort in the Korean economy after the economic crisis of
1996/97, foreign investors have regained trust in the economy. For many Asian countries,
Korea is the role model.
Establishment of foreign construction companies in Korea 431
REFERENCES
I. R. WILCO TIJHUIS
Ass.-professor at University of Twente, Faculty of Engineering Technology, Department of Civil
Engineering; P.O.Box 217, NL 7500 AE, Enschede; The Netherlands; www.utwente.nl;
w.tijhuis@utwente.nl
Joint coordinator of CIB Task Group TG 23, ‘Culture in Construction’
Managing partner at WT/Beheer BV – Participations-Management-Real Estate, P.O.Box
110, NL 7460 AC Rijssen - The Netherlands; www.wtbeheer.com; tijhuis@wtbeheer.com
ABSTRACT
INTRODUCTION
Within the so called ‘modern world’ there are strong forces, trying to engage parties to
act in what they believe is the right way. This means that the way of ‘western thinking’
has settled into the construction industry as a strong driver for technological
improvement. But has this modern western construction industry a satisfying way of
working? When considering recent developments and actions in e.g. the European areas,
there are several examples which may indicate the opposite [ICE, 1993; Ogunlana et al,
1999; Vos et al, 2002; Werner & Pastor, 1986]:
434 Tijhuis
It became clear that the most important party in construction industry, the client, is
complaining due e.g. to cost- and time-overruns, untransparant procurement-procedures,
price/quality levels are difficult to handle, etc.
Therefore, the modern construction industry has taken up the challenge and started to
change several years ago, e.g. stimulated by British reports like Latham’s and Egan’s.
Also other countries did take up the challenge, and learnt from the lessons of the British
construction industry. But has anything really changed?
As discussed, the challenge to change the construction industry has been taken up for
several years now. Some outcomes of these action may be listed below sorted as
positively [see e.g.: CIB, 1998; EEIG, 1999; Eekhout et al, 1993] and negatively [see e.g.:
Ofori & Ling, 2003; Tijhuis, 2002; Vos et al, 2002]:
In general, one can see that the main initiatives of modernizing the western construction
industry have been quite succesful on the technological level. However, on the human
(culture/behaviour) level it is still difficult to handle and solve the existing problems.
Modernizing a globalizing construction industry: Changing the way of changing? 435
As a basis for modernization, the harmonization activities in the European Union (EU)
are obviously a very important issue. Especially now while the EU has been enlarged
recently with ten new member-states in the former Eastern parts of Europe. This would be
nearly impossible without good and fast exchange of information, moreover as the
harmonization has to do with regulations, especially (information…!). So, information
technology in the EU assists people and their businesses opportunities for easier
expanding and improving their markets, processes and products. In construction related
areas this is the case with the harmonized procurement-regulations [see e.g. EU, 1993].
The effects of this harmonization can be quite varied. Harmonization can lead to a more
open and competive market, creating chances for (new) business opportunities but it is
still not an absolute guarantee that the local and/or newly established firms do have the
profit of these harmonized systems; it even can result in stimulating the established
(foreign) firms at the one hand to enter those (still underdeveloped) new markets, making
it more difficult for the new (local) firms to survive! A fair play and control of the
behaviour of the people involved is then absolutely necessary, especially during the first
years of the harmonized markets operation.
Remarks:
(See e.g. the strong influence of the ‘old existing’ European companies, settling
themselves in the new European countries, controlling these ‘new’ markets). A
gradual integration should then be a good scenario for opening and/or further
developing such markets. This applies, not only in the field of expanding companies,
but also in the field of transfer of low-cost labour: This can increase the risk for
‘labour-dumping’ in the existing ‘old’ markets.
Lessons learnt
As one of the results of the recent expansion of the EU, there are forces now coming up
wanting to block the entrance of low-cost labour coming from these new member
countries into the own existing ‘old’ labour market. Although the EU has set a certain
period of about seven years to gradually integrate the total internal labour markets, it still
generates a lot of unsatisfied and even angry parties like the labour unions. This means, in
essence, that the use of only technology for improving or developing new and/or
underdeveloped markets, processes or products cannot be succesful for all participants
without a thorough influence and control of the people involved. At least a good and
gradual integration and adaptation (i.e. communication!) towards the new situation is
necessary. Figure 1 represents the importance of this human factor in modernizing
construction activities schematically.
436 Tijhuis
However, focussing on the process level within the EU, there seems to be still a lot of
things to improve; especially on the level of human (culture) issues.
A gradually change?
If the above described European stuation is put into a more global context, it should be
clear that the use of a strategy of change on a gradual basis could be an effective
approach (although on a company level, a quick change may be more effective). This
gives all the parties involved time to change, and to adapt themselves. Therefore:
• The strategy of change should have a gradual approach to give the people
involved sufficient time to adapt themselves to the new situations .
This is a good approach for changing an industry, especially when there are a lot of
people involved in it (as is in construction industry!). It can lead to a more ‘natural’ way
of new ways of developing markets.
A quick change?
However, gradual change can still be totally wrong when there are e.g. serious reasons for
a quick process of change. One of those reasons can be the situation in which
construction industries (or parts of it) are being influenced by criminal activities: Think of
situations of illegal construction activities, cost-manipulations, falsification of documents
and certificates, and do not forget situations of bribery/corruption, etc. The recent Dutch
Modernizing a globalizing construction industry: Changing the way of changing? 437
• If there are illegal activities in an industry, quick and rigourous change and
control are necessary to create new behaviour of parties as soon as possible.
However, also then the human factor plays the important role: stimulation of new
accepted behaviour according the accepted ethics (culture!).
A local change!
Apart from the discussion of whether the way of changing should be a gradually one or a
quick one, the main theme still is that is has to do with people! Not only in the modern
world, but, especially in the (under)developed world, including the still underdeveloped
new EU-member countries. As an example, figure 2 gives an impression of a recent low-
cost labour situation in one of those new EU-countries: Labour intensified manually
digging and building foundations with only a small scale of technology available.
There labour and employment plays a much stronger role, apart from the technology
(which is often not available…). But of course, situations in e.g. Central Africa or in
Middle Europe etc. are not the same as they are in e.g. Asia or Australia, etc.
Therefore:
• Changing an industry starts with a local approach, taking into account: Why does
the industry need to change, and will the right people profit from this change?
DISCUSSION
438 Tijhuis
a. Should the changing of construction industries take place with or without the use
of a technology-push/pull?
(i.e.: Choosing for modernizing labour, using modern technology? Or choosing
for just creating -a lot of- labour, not using –modern- technology?).
The described local based approach by e.g. stimulating the smaller/weaker parties in
construction (often SME’s) may be an important strategy [see, for a South African case,
Rwelamila, Tijhuis et al, (2003)]. Nevertheless, such a stimulating approach does not
guarantee a succesful development of the local/regional/national construction industry, as
the people involved are still the most important key-issue; e.g. a bad entrepreneur will
stay a bad entrepreneur….if not educated and trained properly and sufficiently! This
raises the following discussion-theme:
Conclusions
1 Changing the construction industry should not be done through one unique
approach. Diversification with adaptation according to local situations and
approaches is necessary. (Also: Now it is time to learn from examples from both
the ‘western’ developed and other developing areas.)
3 Modernizing the construction industry can be done with the use of modern
technology. However, there is an absolute need for integrating this with good and
sufficient professional training of the people involved.
Recommendations
Modernizing a globalizing construction industry: Changing the way of changing? 439
2 Developed regions should not only just rethink or revalue their construction
industries. It is especially a matter of people and their (built) environment. An
important task, therefore, in the present and near future, is trying to attract the
right people to keep the construction industry attractive for all the parties
involved.
REFERENCES
CIB (1998) ‘Agenda 21 on sustainable construction’; CIB Report; Publication nr. 237;
Rotterdam.
EEIG (1999) ‘EITO - European Technology Observatory 1999’; report; European
Economic Interest Grouping (EEIG); Frankfurt am Main.
Eekhout M. et al (1992) ‘The Glass Envelope’; proceedings; Ed.: M. Eekhout; 6th of
March, 1992; Product Development in Architecture; Delft University of
Technology; Delft.
Egan J. (1998) ‘Rethinking Construction: The Report of the Construction Industry
Task Force’; Commission-Report; HMSO; London.
EU (1993) “Richtlijn 93/37/EEG van 14 juni 1993 betreffende de coördinatie van de
procedures voor het plaatsen van overheidsopdrachten voor de uitvoering van
werken”; coordination regulations; European Union; Brussels/Luxemburg.
ICE (1993) ‘The Channel Tunnel’; report; proceedings of the Institution of Civil
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440 Tijhuis
Werner U.& W.Pastor (1986) ‘Der Bauprozess: Prozessuale und materielle Probleme des zivilen
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CONSTRUCTION: A COLONISED INDUSTRY
(Identifying the agent of retardation in construction process development)
BOB HINDLE
ProjCore: Construction Business Development Consultancy
PO Box 848, Howard Place, Cape Town 7450, South Africa, projcore@mweb.co.za
ABSTRACT
Around the world there is a growing awareness of the need for construction industries to
develop or be developed in order to deliver improved value for money. It is understood
that the construction delivery process is flawed, most frequently blamed upon the
separation of design from production and the phenomenon known as fragmentation.
(Explained as the great number of individual specialist service providers who engage with
each other to deliver a bespoke product). However, this is not a unique situation, there
are other project driven industries, such as film making, that works very well in this way
and many manufacturing industries have a very wide range of outsourced component and
service providers. These industries do not suffer from fragmentation, in the construction
sense or in the sense that [Porter (1995)] described, (though Porters description does fit
construction), so it would seem to suggest that there is something more than
fragmentation that is the root-cause of the problems, perhaps a type of retarding agent.
Several authors have, suggested that the problems of construction are rooted in its unusual
social structure. This paper supports this argument but suggests that the social structure
can be likened to that of a country that has been colonised. It compares several of the
problems found in construction with those found in countries at the time that they were
colonised. Strong correlation is found and this leads to the identity of the colonial power
that has been the retarding agent of construction development for more than a century.
IINTRODUCTION
The idea that the unusual social structure, found amongst the role-players in the
construction delivery process, is a major contributory factor and a reason why it is
difficult to obtain value for money for customers who invest in bespoke buildings, has
been suggested by many authors. Amongst them: [Higgin & Jessop (1965), Mariane
Bowley (1966), Wells (1986:10), Ball (1988), Lewis & Cheetham (1993), Latham (1994),
Hindle (1997)].
[Bowley (1966:351)] describe the damaging impact that the social structure within and
between the construction role-players had had on the industry. She found that it was caused
442 Hindle
by the peculiar circumstances that had existed in Britain at the time of its development into
its present form. She believed that it was the only form of the system that building owners
concerned with culture or social prestige would accept at that time. She went on to describe
how the power vested in those at the head of the social hierarchy had allowed them to
maintain control for more than a century.
This is a view that was expanded upon by [Root & Thorpe (2002)] who contended that the
culture of construction was the primary barrier to the uptake of process development, a
legacy of its evolution in the 19th Century and the embedding of craft production values
of practice improvement, rather than process improvement. It was also seen to be a force
that had maintained its power to resist change until the present time, a phenomenon noted
by other researchers and writers, such as:
[Ball (1988:33&54)] who asked why forces had not changed the structure and procedures of
the industry and then answered the question himself:
Social constraints imposed by the contracting system …have limited the ability of
building contractors to initiate changes in technique and organisation that arise from
a breakdown of the social divisions.
[Lewis & Cheetham (1993)] who whilst attempting to trace the historical roots of current
problems with building procurement systems concluded, thus:
The new methods have failed to alter the social hierarchy in the industry and
relationships between its principal groups, which are hangovers from former times,
and remain as barriers to a truly efficient industry.
In South Africa a review of the role of the professions by the National Department of Public
Works aroused some one sided debate. One sided because the traditional built environment
professions mobilised their forces to stifle debate, resist change, and persuade the policy
designers to ‘see things their way’, in a discrete or ‘behind-closed-doors’ way. During this
time a small number of academics published their views and research findings, hoping to
engender some debate. They were as one in describing the power of the professions, at the
head of the social hierarchy, as the major force behind the retardation of process
development in construction. They had suggestions concerning ways of achieving this,
primarily to abolish the Acts that sheltered them from market forces and allowed them to
resist change. Amongst the papers and articles of note were; [Hindle & Muller (1997);
Rwelamila (1997a & b); Hindle (1997); Hindle & Rwelamila (1998); Hindle (1998 a, b &
c); Pearl (2001 a, b & c)]. It was as a result of this process that the similarities between
colonial masters and construction design consultant behaviour was noted and the thesis of
this paper was developed.
This paper offers the view that the traditional built environment professions behave in ways
quite similar to colonial masters at the height of the British Empire. In particular, the
attitude, demeanour and strategies employed by the design professions has had a similar
impact on the construction industry as did the British and European colonial masters on
African and other colonies in their Empires. It compares colonial practices with construction
industry practices.
[Johnson (2003:11)], studied British Imperialism and noted that colonial powers brought to
those who were colonised a need to adopt, a foreign language, belief system and new
Construction: A colonised industry 443
procedures and standards. The colonists held the view that they were superior to the natives
of the colonised land. This mantle of superiority brought with it racism, separation,
categorisation, dehumanisation and exclusion, reinforced through a set of ideas and rules.
All of these were used as tools of control but this control brought with it, oppression and
humiliation. As consequence, development of the country and its peoples was retarded or
reversed and the economy denuded during the period of colonisation.
Despite the fact that both participate in the same process, it is obvious that there is a great
difference between the business models used by contractors and consultants. One has a
typical consultant trust/advice/opinion orientated mode and the other a production,
process and profit driven model. Both are profit motivated but the professions would
seem to be hidden behind a vale of status and mystique, whilst the contractors is quite
direct about it and considered vulgar by the other. The professions are an ancient and
complicated form of organisation but they have been studied and are described in the
sociology literature.
[MacDonald (1995)] building upon the work of others, particularly [Larson (1977)]
described a phenomenon described as ‘the Professional Project’. One, that aims to gain
monopoly over a body of knowledge in order to achieve legal monopoly over its
application, whilst, gaining high status and respectability in order to win the trust of
clients. To achieve this they need to have a special arrangement with, and enjoy the
support of, government. Its application and impact on the construction process was
described by [Hindle, (1997) & (1998a)].
Several of these ‘objectives’ were also found amongst colonial rulers; A ruling class with
high status supported by government; in a structure that embodied elitism and a rigid
hierarchy; governance over a body of people who were not allowed to participate and
who were thought of as ‘second class’ citizens. The construction social system and
traditional procurements system evolved in Britain during the age of colonialism. In
construction the client takes the place of the nobility, the traditional professions being
gentlemen, able to fit into the social norms of the client and to communicate with them,
whilst the balance of the role-players are seen to be less worthy mortals or working class.
The latter held in place through master servant relationships and the mind-set of the age.
[Cain & Hopkins (1987)] described the phenomenon as ‘Gentlemanly Capitalism’, a
commercial elite who emulated the aristocracy (which merged with the old landed gentry
and their value system of respectability and class). A system that was also imposed upon
many countries, during the period of British Empire building.
A UNIQUE MODEL
The architecture profession has a business model that is quite unique amongst
professions. Other professions, that are involved in complicated processes that may be
considered ‘industrial’, include accountants who are clearly involved at several levels as
consultants or in commerce and industry. Others have a rather more tenuous link, such as
444 Hindle
attorneys, medical doctors, ministers of religion and teachers. Consider the similarities
and differences here:
Attorneys and medical doctors are at the entrance of a market, which is accessed by
private individuals seeking advice from a specialist, usually when they are in a vulnerable
state and in need of urgent help. Help, in the form of advice and some form of
intervention to heal the body or guide the ‘client’ through a process that he or she may not
access alone. (not just because of a lack of knowledge but because the rules of the game
preclude it)
• In the case of the attorney he will lead a process that may require the individual to
appear in court and subsequently to be incarcerated in a prison. Both the court and
the prison being institutions set-up and managed by the government.
• In the case of the medical doctor it is again a service for an individual that may result
in hospitalisation and care in a state-run or private hospital, managed by people with
administration and management skills. (changes here are relatively recent)
It could be argued that the courts and hospitals are in some way controlled by the
professions concerned. However, in both cases there is no end product or manufacturing
process involved.
• Ministers of religion and teachers are employees who offer ‘upliftment’ to
individuals. One offers to heal the soul and keep the individual on the ‘straight and
narrow path’ whilst the other offers to help the candidate to acquire knowledge and,
sometimes, skill.
Once again, the services provided are for the betterment of the individual and there is no
manufacturing process involved and no material end product.
Then there is another sub-category that would seem to most resemble the model that the
built environment professions, they are artists who may interpret their patrons or clients
wishes and deliver a painting or sculpture which is a material product that was, in some
sense, manufactured. However, the ‘manufacture’ was undertaken by the artist in person,
perhaps, with the assistance of apprentices or helpers. We can see that this model does
resemble the service offered by architects with the major difference being, the size and
scale of the finished ‘work of art’.
In the architecture profession we have a unique situation. Its members are, in effect,
artists who have diversified ‘upstream’ and ‘downstream’ to control the market for, and
delivery of, buildings. Upstream, to engage with ‘clients’ in the same way as the more
distinguished professions of law and medicine have. In effect to control the entry point
Construction: A colonised industry 445
into the construction market for buildings. Downstream, to control the manufacturing
process, even though they do not necessarily understand the technologies involved. They
are appointed as clients agent and provided with the powers of a ‘masters’ in a ‘master
servant’ relationship that is embedded into the traditional building procurement system
and the typical contracts entered into by client/customer and contractor. Incredibly, they
are not at risk in this process, except for aspects of the design.
Most construction contractors allocate power and responsibility to those with
no corresponding accountability or liability for their actions. [Cox &
Thompson (1998:326)].
In this way it can be seen that the profession of architecture has effected control over
access to markets and a very large manufacturing process, consisting of general
contractors, specialist contractors, associated suppliers, materials manufacturers and
equipment companies. Beyond this, in a way that provides them with exceptional powers
that can be likened to that of colonial powers, over the people of a colonised country. No
other industry is dominated or controlled by a profession or professions in this way.
Most people in the construction industry are familiar with the phrase, ‘professionals and
contractors’ but few perceive it as a discriminatory phrase because of tradition. Use of
the word ‘professionals’ to describe members of a profession is common in society at
large, however, it is not common within industry. Some may believe that it simply
separates those who were educated at university from those who were not but it has the
effect, by implication, of categorising those who are not in the camp of ‘professionals’ as
something less than professional in the way that they execute their work; that
‘professionals’ are superior in rank, status and intelligence. This of course, is similar to
the way that colonial masters demanded recognition that accentuated their authority.
Clearly, use of the word ‘professional’ in this way is elitist and is used to elevate one
group above others, in a typical colonial discriminatory manner.
This elitism and its discriminatory impact is inherent in the arrangement of role-players in
the
construction delivery process. It would seem to have originated in Britain but is found in
many other countries, particularly those which were colonised by Britain. A distinct
social structure, or as [Bowley (1966)] described it, ‘the system’, is discernable. It is a
social structure that mirrored that found in Britain at the time that it developed, some two
hundred years ago. It is hierarchal, as described in Figure 1. The first two levels
considered themselves to be ‘gentlemen’ and ‘professionals’ whilst the rest were
considered to be ‘working class’ or ‘commoners’ (presumably colonised ‘natives’ or
subjects).
[Von Albertini (1982)] described a similar phenomenon found during European colonial
rule. He noted that unlike other invading forces that had become the rulers of various
countries and had
assimilated with the population, the European colonists maintained a distinct line between
the
446 Hindle
A R C H IT E C T V ertical
H orizontal g aps ex ist
betw een com petitors fragm entatio n
in a single b an d OTHER ga ps
C O N S U LT A N T S
G ENERAL
C O N T R A C T O RS
S U B -C O N T RA C T O R S
A R T IS A N S / C R A F TS M E N
LABO UR FO RCE
In construction this relationship was reinforced through the conditions of the various
forms of contract that were used for each project. [Cox & Thompson (1998)] described
the system as a strange one, where two parties to a contract allowed a third party to
administer control over the implementation of that contract. By controlling the entrance
to the markets and the power that was vested in them through the contract, they were
indeed the ‘masters’ of the industry and contractors were their servants. One strategy that
the ‘masters’ have used over the centuries, in order to maintain their position at the
entrance to the market, was to warn their potential clients that contractors were charlatans
who would rob them unless they used the professions to ‘keep them in place’.
In this way they kept the customer and the contractor apart in a divide and conquer
strategy. Communication between the groups was kept to a minimum during a project,
whilst communication between all of the role-player organisations, outside of the project
were unheard of be they, regional or national. Whilst the consulting professions had such
meetings, on occasion, but never were contractors invited to discuss issues pertinent to
design or the delivery process. In effect, contractors were marginalized and confined to a
bit players role because the consulting professions controlled the market, procurement
system and delivery processes.
The situation became so bad that the various role-players acknowledge that a ‘virtual
fence’ exists between consultants and contractors. Terminology such as “They are on the
Construction: A colonised industry 447
other side of the fence” is commonplace in the industry, as is the practice of character
assassination amongst and between, role-players, even those who might be ‘on the same
side of the fence’. Proof of the fact that isolation and separation strategies are effective.
Another way that colonists maintained the separation of groups was through inequality in
things such as, education, access to opportunities, human rights and benefits. This was
achieved through such things as separate education, job reservation, quotas, denial of
access and unequal legislation, methods that, once again, are found and used in
construction. One example is to be found in the fact that education of the various role-
player types is completely separate, despite one or two pioneering attempts. [Bowley
(1966)] described how the architecture profession caused the separation of education for
builders and designers, limiting those who wished to be builders to trade apprenticeship
training. This was the case for almost a hundred years, until builders were able to
establish ‘building science and construction management’ programmes at tertiary
education institutions in the 1970’s. Using these and other strategies to maintain the
status quo, design consultants effectively blocked process innovation and neglected
everyone else in the process, including the customer. [Bowley (1966), Rwelamila (1997a
& b), Pearl (2001) & (2004)].
So effective was the strategy that no other role-players have been able to make changes to
the system, in terms of industry relationships and process. There have been several
attempts at change, made by customer groupings, particularly governments but most have
failed. [Ofori (1991)] There are several attempts underway at present that may produce
some results though this is by no means certain, because most of them are aimed at
contractors only, as in the case of South Africa. In Britain though, the emphasis of
industry development initiatives flowing from Latham and Egan has been on the
integration of role-player inputs and this is having some success, despite resistance from
many.
PROFESSIONAL CONGESTION
Another unique feature that supports the colonisation theory is the fact that there are a
greater number of independent professions involved in construction than in any other
discipline other than, perhaps, medicine. Certainly, more than in any other industrial
process.
This phenomenon has been described as ‘professional congestion’ because of the barrier
to process innovation and change that they represent. [Hindle, (1998a)]. Other industries
also have numerous specialists but they are integrated into, and oriented with, a single
delivery process. This phenomenon in construction does seem to demonstrate their
448 Hindle
powerful position and provides them with the critical mass needed to maintain position in
a colonised industry,
Criticism about the poor performance of construction delivery began some fifty years
ago, rather intermittently and low key for the first twenty years but building in
momentum since then. Culminating in the number of critical reports in many countries
around the world, at the turn of the century. [Egan (1998)] would seem to be the
watershed point between denial and acceptance by many, though, there is still great
ignorance of the criticisms amongst the role-players in construction. [Hindle (2001)].
Despite this, there have not been any industry based initiatives of change of note.
Certainly none by the supposed leaders of the construction procurement process. Indeed,
the architectural profession has studiously ignored the demands for change, even
designing strategies to resist it. [Crinson & Lubock (1994), Rwelamila & Hindle (1998),
Hindle (1998c), Pearl (2004)]. As a result of this, construction industries in many parts of
the world are faced with a virtual customer revolt. Government procurement agencies
and major private-sector customers are demanding changes in the way that the
construction role-players engage with each other. Despite this there are no signs that the
professions are trying to change or even to accept that there is a problem.
Surely, only the most stupid or arrogant or powerful entities would ignore such calls for
change? Perhaps it is easier to explain by comparing this attitude with the attitude of a
typical Colonial power, who simply refused to change and ‘put-down’ any protests or
insurrection but had to give way eventually through insurrection and warfare motivated
by freedom fighters (or terrorists as Bush and Blair would have it). Change does not
come easily to such powerful entities with centuries of tradition behind them. Indeed, one
social scientist cited the architecture profession as one that is suffering from an incurable
condition known as ‘professional regression’. [Abbott (1988:118), Hindle (2001)].
CONCLUSION
It would seem that the comparison between the attitudes, objectives and strategies of
colonial rulers and their impact on the colonised subjects, on the one hand and the role
players in the construction delivery process, on the other, reveals alarming similarities.
Architects and other built environment consulting professions can be likened to
colonising powers with other role players as the colonised subjects. Similar attitudes,
strategies and impacts are found and the result is experienced by customers as ‘poor value
for money’ through the traditional construction delivery process.
It has also been shown that the construction industry structure is unique amongst
industries,
that it demonstrates a complete mismatch of business models and has more individual
professions than any other. The industry demonstrates discriminatory language and
ancient illogical procedures that are still conditioning the minds of the role-players and
preventing them from seeing that it is hampering industry development. Despite the fact,
Construction: A colonised industry 449
that customers are demanding change. It does indeed seem to be an industry that is
‘stuck’ and incapable of self engendered change.
Whilst Mariane Bowley may not have seen the parallels between colonialism and what
she called the strange arrangement of the social structure in the building industry, she did
say that no amount of tinkering with the symptoms of the problems would succeed. She
argued that it would only be achieved if the pattern of relationships between the role-
players could be fundamentally changed. The findings of this paper would support this
observation.
It would seem that the retarding agents of construction process development are those
who behave like colonial masters. Therefore, in order to ‘move on’ it will be necessary to
achieve independence. The ‘oppressed’ need to ‘throw of the yolk’ and take
responsibility for the whole construction delivery process if there is to be meaningful
development from within.
REFERENCES
Abbott, A (1998) The System of the Professions: An Essay on the Division of Expert
Labour,
The University of Chicago Press.
Ball, M (1988) Rebuilding Construction: economic change in the British Construction
Industry, Routledge.
Bowley, M (1966) The British Building Industry: four studies in response and resistance to
change, Cambridge, 1966.
Cain, PJ & Hopkins, KG (1987) Gentlemanly Capitalism and British Expansion Overseas:
1) The Old Colonial System, 1688-1850 and 2) New Imperialism 1850-1914,
Economic History Review, (1986) 501-25 and (1987) 1-26.
Cox, A & Thompson, I (1998) Contracting for Business Success, Thomas Telford
Crinson, M & Lubbock, J (1994) Architecture Art or Profession? Three Hundred Years of
Architectural Education in Britain. Prince of Wales’s Institute of Architecture,
Manchester University Press, UK.
Egan, J Sir (1998) Rethinking Construction: The report of the construction task force to the
deputy Prime Minister, John Prescott, on the scope for improving the quality and
efficiency of UK construction, Department of the Environment, Transport and the
Regions, HMSO.
Foster, C Sir. (1990) Construction: Restructure to Win, Memo to the NEDC Construction
Industry Sector Group, National Economic Development Council, 19 December,
pp.21.
Higgin, GW & Jessop, N (1965) Communications in the Building Industry – the Report of a
Pilot Study, Tavistock Publications, London.
Hindle, RD (1997) Two Construction Industry Characteristics that are Hindering its
Development, Proceedings of 1st International Conference On Construction Industry
Development: Building The Future Together, National University of Singapore, 9-11
December 1997, pp 324-331.
Hindle, RD and Muller, M (1997) The Role of Education as an Agent of Change: A Two
Fold
Effect, Journal of Construction Procurement, UK, pp.56-69.
450 Hindle
ABSTRACT
A research project has been carried out with the general objective of proposing a generic
application methodology of supply chain management (SCM) to the construction sector
by adapting the manufacturing SCM experience and development to the particular
characteristics of construction. As part of this research, a survey was carried out to more
than 50 companies that participate in the construction sector. The purpose of this survey
was to obtain a diagnosis about the current situation of the supply chain in the Chilean
construction industry. The paper presents the main results of the survey and highlights the
problems and restrictions that exist in the local construction supply chains as well as their
main causes. Also, a set of solutions is suggested to address the identified problems and
improve the supply chain performance. By using the data obtained from the survey and
the knowledge available in the literature, the paper proposes a framework for
implementing the concepts and principles of supply chain management in construction
companies and, in this way, to take advantage of the benefits that SCM can provide. One
of the principal conclusions of the paper is that the application of SCM in the local
construction sector will require the introduction of several changes in the way that
participants of the supply chain interact currently. Some of these changes are analyzed
and discussed.
INTRODUCTION
Management of materials and information flows are key strategic priorities for
construction companies. A good performance in these areas can provide them with
significant benefits and allow the adding of greater value for clients.
Supply Chain Management (SCM) can be a very useful approach for construction
companies on this regard. This is especially attractive if we consider that the construction
activity is a process characterized by high levels of fragmentation and where the effective
integration, coordination and management of the chain, from suppliers to final clients, is a
necessary condition to obtain good results.
This paper presents the main results of a diagnostic study about the relationships between
the participants of the supply of construction in Chile. It also provides a general
456 Serpell and Heredia
methodology for the application of SCM in construction. Finally, it discusses about its
main application problems and their causes, its benefits and the requirements for its
effective application in this sector.
The supply chain is a network of organizations involved, from the supplier of the supplier
until the client of the client, on the different processes and activities that produce value in
the form of products and services for the final client. Its major components are the
suppliers’ network, the transformation unit and the clients’ network. The effective
management of the supply chain is necessary for successful competition in today’s global
markets.
SCM is a philosophy that describes how organizations should manage their supply chains
to achieve strategic advantages. Its goal is to synchronize the client requirements with the
materials and information flows along the supply chain, until reaching a balance between
the client satisfaction and the cost. It refers then to the coordination of the activities of all
that participate in the supply chain, to knowing the production requirements with the
purpose of satisfying the client, to delivering of products of higher value and to reducing
the costs of the organization that apply these principles.
The application of the SCM, mainly in the manufacturing industry, has been successful
and has achieved the expected benefits [Roth and Martin, (2000), Proverbs and Holt,
(2000), Landry, (1998), Christopher, (1992)]. Some of these benefits are: cost reduction,
competitive advantages, productivity improvement, value creation and better relationships
between parties. This can be achieved by four proposed critical factors that were
determined after an analysis of the SCM literature: information integration of the whole
company, operational coordination and collaboration, focus on the client and
development of general strategies in the whole chain [Ross, (1998), La Londe, (1998),
Lee and Whang (2001), Roth and Martin, (2000)]. These four factors are shown in figure
1.
Strategy and
Information
action plan
Objectives Organizational technology
and goals structure
Information
Strategic
integration
planning
Management
Application of Outsourcing
commitment
SCM
Training and
Requirements Pull production education
analysis system Communication
Although the construction process is different, SCM can be useful and effective in
construction [O’Brien, (1999)]. Besides, construction is a process with strong
fragmentation evidenced by the lack of integration of its supply chain, a fact that makes
SCM a very appealing approach to achieve integration between internal and external
suppliers, designers, contractors, subcontractors and internal and external clients. Figure 2
presents a conceptual representation of the construction supply chain and the way that all
of its participants interact.
Design and
Need Management
studies
Parts
Fabrication
production
Site Materials
Use Capacity
construction production
Fig. 2 General model of the supply chain in construction (adapted from Vrijhoef y
Koskela, 1999)
Given this configuration of the construction supply chain, a construction company has as
many supply chains as it has construction projects, because for each project the client’s
needs and the project’s characteristics might be different. As shown in figure 2, the
supply chain in construction represents a system of multiple supplier – client relationships
that are needed to complete the project. Besides, every supply activity (i.e., purchase,
storing, transportation, inventory management, etc.) ends at the site, where the
construction is carried out. Another particularity is the number of clients. Compared to
the manufacturing supply chain, the number of clients in construction is very limited and,
besides the housing sector, generally is only one.
458 Serpell and Heredia
The construction supply chain is affected by many problems as has been reported by
several authors [Vrijhoef and Koskela, (1999), Vrijhoef, (1998), Hong-Minh et al.,
(2000); Akintoye et al., (2000), O’Brien, (1999), Ofori, (2000)]. Most of these problems
are not generated in the conversion process but in the different interfaces that exist within
the supply chain. Some of the general problems are as follows:
The purpose of incorporating the principles of SCM to construction can be stated as:
obtaining competitive and comparative advantages through value generation, cost
reduction and the integration of all the parties that intervene in project management and
construction processes, with the goal of satisfying both the internal and the external
clients.
RESEARCH METHODOLOGY
The methodology used for carrying out the diagnostic of the construction supply chain in
Chile, consisted in the application of a survey to more than 300 organizations that
involved construction companies, suppliers, subcontractors and clients [Heredia, (2003)].
The population analyzed was all the companies that belong to the construction sector that
develop their activities in Santiago, the capital of Chile. A total of 50 valid surveys were
obtained during the study. The composition of the sample is shown in table 1.
In addition to the answering instructions, the survey was structured in four sections with
the following objectives:
• To identify and understand the more relevant aspects of the relationships between
construction companies internal clients and suppliers especially between construction
sites and the main office.
The survey was answered mainly by companies’ general or area managers that have a
direct relationship with their clients and suppliers.
In the next sections, concise summaries of the major findings of the diagnostic of the
supply chain are presented.
Regarding the criteria for suppliers’ selection, price ranked as the most important factor
taking into account when choosing a supplier by an 84% of the respondents, followed by
quality (78%) and efficiency and effectiveness of delivery (37%).
Concerning problems in the relationships with suppliers, the major categories were: not
conforming to agreed delivery time (72.6%) followed by non conformance with quality
requirements (52.2%), lack of adequate communication (34.8%) and lack of suppliers’
capacity or availability (30.4%).
When asked about causes of these problems with suppliers, the most mentioned by the
answerers were: lack of planning of own company (38.3%), lack of planning by suppliers
(34%), lack of control by suppliers (34%), insufficient communication (34%) and lack of
training and competence of suppliers’ personnel (34%). Design changes were also
mentioned as a cause but only by 27.7% of the respondents.
Respondents also referred to the main barriers in the relationships with suppliers:
differences in objectives and goals were mentioned by 52.8% of respondents; also the
same percentage indicated the lack of management skills of suppliers, 43.2% referred to
the inadequate organizational structure of suppliers and 36% to the inability of suppliers
to consider long-range benefits.
Regarding the benefits of keeping good relationships with suppliers, the major benefits
were: better quality (67.4% of answerers), better productivity (57.2%), cost reduction
(44.9%) and lower inventories (32.6%).
Finally, when asked about the ways used of measuring suppliers’ performance, cost was
mentioned as the most important factor by an 86% of them, quality (82%), timing (58%)
and service (40%).
460 Serpell and Heredia
Respondents indicated that the main problems with clients are as follows: design
problems (86.7% of respondents), quality requirements (49.2%), and communication
problems (46.9%) and contracts problems (46.9%). Regarding the causes of these
problems, they indicated that changes in requirements is by far the most important cause
marked by 65.7% of the respondents, followed by the participation of third parties
(inspection, engineering firms, etc) mentioned by 39% of the respondents and insufficient
communication (35%).
When asked about barriers to good relationships with clients, respondents indicated the
following: deficient communication channels (90.6%), insufficient management skills of
their own company (46.9%) and inappropriate organizational structure of their own
company (46.9%).
Contractors and subcontractors were asked about issues related to the relationship
between their main offices and construction sites. The main difficulties mentioned by
respondents were: problems with design information (96.4%), communication problems
(53.6%), quality failures of supplied items (53.6%) and lack of knowledge of
requirements (39.3%). According to the respondents, the main causes of these problems
were: lack of planning (83.3%), lack of control (62.5%) and insufficient communication
(58.3%).
Regarding the main barriers to keep good internal relationships between main offices and
construction sites, the answers were as follows: lack of appropriate communication
channels (100%), inappropriate organizational structure (71.2%), lack of knowledge of
information technologies (55.9%) and inadequate management skills (55.9%). They also
mentioned the following benefits of keeping good internal relationships: cost reduction
(75.9%), better quality (75.9%), productivity increase (41.3%) and greater profits
(34.5%).
The brief review of the answers obtained from the survey is an evidence of the many
problems that exist in the supply chain at the local construction industry and demonstrates
that many of these problems should be solved before SCM may be effectively applied.
Deficiencies of integration and coordination, price-based supply decisions and different
short-term goals are critical issues that should be addressed before implementing SCM.
One of the manifestations of this inadequate attitude of the parties is the fact that most of
Supply chain management in construction 461
the companies assign the responsibility of supply problems to their suppliers without
looking at their own internal deficiencies, like the lack of planning and control, changes
of their supplying needs, inadequate communication and so on. No intention of creating
long-term relationships and promoting integration and collaboration with suppliers was
clearly proposed by most of the companies.
Construction clients also have an important role in improving the specific relationships
with their contractors, with especial emphasis on three issues: to provide clear
requirements, to avoid continuous changes of designs and supplies needs and to create
adequate communication channels to improve the critical conversations with their
suppliers.
In general, it can be said that there is a poor understanding of the way each of the parties
participates in the supply chain. It adds to this, the insufficient application of sound
management principles and methodologies for managing their respective companies. This
is also an issue that should be addressed if it is hoped to be successful in the application
of SCM in the local construction industry. The effective application of SCM would
provide many benefits that should act as incentives for all the parties as it is recognized
by most of the answerers of the survey.
Knowing the current situation of the local construction supply chain, a generic
methodology is proposed to implement SCM, taking into account the problems previously
identified. This methodology is addressed mainly to construction companies. However it
can also be applied by the other parties of the supply chain.
The methodology is based on the cycle known as the Deming cycle, also known as the
PDCA cycle (plan – do – check – act). The fundaments of this cycle and its application to
every activity or process of the organization are essential to achieve a continuous
improvement of its supply chains. The main steps of the implementation methodology are
shown in figure 3.
Monitoring, control
and improvement
The objective of this stage is to define the supply chain of the organization and to know
the problems that are present as well as their causes. With this analysis, a wide vision of
what is going on with clients-suppliers relationships within the chain can be obtained. The
actions and expected results of this stage are summarized in figure 4.
Main activities
Expected results
During this second stage, objectives and actions needed to eliminate or reduce the main
causes of the problems found during the analysis stage are planned. Also, improvement
opportunities are proposed. The activities in this stage are focused on designing a new
structure of the supply chain of the organization that will improve competitiveness
through value generation for clients and cost reduction through waste elimination. This is
shown in figure 5.
Supply chain management in construction 463
ACTIONS IMPLEMENTATION
In this stage, the purpose is to carry out the activities or strategies defined in the planning
stage. It also considers the construction of the necessary capacities related to the use and
management of technology, capital, people and resources to assure an effective
implementation.
In this stage, the obtained results are compared against planned results using performance
measurements. If this comparison is not positive, then corrective actions should be taken.
If results are okay, then new actions are planned to continue improving the supply chain.
The application of the methodology should be supported by several tools and methods.
Figure 6 presents some of these tools and methods that may be complemented with
additional ones.
464 Serpell and Heredia
CONCLUSIONS
The analysis presented in this paper suggests that the principles of SCM can be applied to
the Chilean construction industry despite of the existence of several inadequate conditions
currently in the industry, as shown by the survey’s results. Some of this adverse
conditions are: the short-term approach of management decisions in the construction
sector, the lack of managers’ commitment with the required changes, the absence of
sound communication channels between construction participants and the lack of
management’ training, between others. Therefore, it is proposed that to achieve the
benefits of SCM it is necessary to apply a very systematic but flexible approach and with
a long-term planning horizon so that many of these conditions can be changed effectively.
Some of the major benefits that construction organizations can achieve by means of
applying SCM principles are: (i) the development of internal capacities to carry out their
processes in a more effective and efficient way than that of their competitors; (ii) the
development of strategies that will allow them to deliver better products and services to
their targeted market segments and (iii) the effective organization and handling of the
information and resources flows needed to improve the performance of their suppliers.
Supply chain management in construction 465
REFERENCES
Akintoye, A., Macintosh, G., Fitzgerald, E. (2000) A survey of supply chain collaboration
and management in the UK construction industry, European Journal of Purchasing
and Supply Management, Special Issue.
Christopher, M. (1992) Logistics and supply chain management: strategies for reducing
costs and improving service, Pitman Publishing, London, UK.
Heredia, B. (2003) Diagnóstico y metodología de aplicación de la administración de la
cadena de aprovisionamiento en la construcción. (Diagnostic and a methodology
of application of supply chain management in construction) M. Sc. Thesis,
Departamento de Ingeniería y Gestión de la Construcción, Pontificia Universidad
Católica de Chile, Santiago, Chile.
La Londe, B. (1998) Building a Supply Chain Relationship, Supply Chain Management
Review. http://fisher.osu.edu/supplychain/pdf-files/scmr.
Landry, J. (1998) Supply Chain Management, Harvard Business Review, Nov – Dec.
Lee, H., Whang, S. (2001) E-Business and Supply Chain Integration, Stanford Global
Supply Chain Management Forum, SGSCMF-W2-2001, E-business and Supply
Chain Management, Stanford University. USA.
O’Brien, W. (1999) Construction supply chain management: a vision for advanced
coordination, costing and control, http://www.ce.berkeley.edu/~
tommelein/CEMworkshop.htm
Ofori, G. (2000) Greening the construction supply chain in Singapore, European Journal
of Purchasing and Supply Management, Special Issue.
Proverbs, D., Holt, G.D. (2000) Reducing construction costs: European best practice
supply chain implications, European Journal of Purchasing and Supply
Management, Special Issue.
Ross, F. (1998) Competing Through Supply Chain Management, Kluwer Academic
Publishers, USA.
Roth, R., Martin, J. (2000) Supply Chain Management Development Strategy. ECRU
Technologies Publisher.
Vrijhoef, R., Koskela, L. (1999) Roles of supply chain management in construction, 7th
Conference of the International Group for Lean Construction, Berkeley, USA.
Vrijhoef, R. (1998) Co-makership in construction: towards construction supply chain
management, Graduate Thesis, Technical Research Centre of Finland, Espoo.
466 Serpell and Heredia
ELECTRONIC PROJECT MANAGEMENT INFORMATION SYSTEMS FOR
CONSTRUCTION PROJECTS IN DEVELOPING COUNTRIES
P. NITITHAMYONG
Construction Engineering and Management Program, Malaysia University of Science and
Technology, Unit GL33, Block C, Kelana Square, 17 Jalan SS7/26, Petaling Jaya, Selangor
47301, Malaysia. nititham_p@yahoo.com
M. J. SKIBNIEWSKI
School of Civil Engineering, Purdue University, 550 Stadium Mall Drive, West Lafayette,
IN 47907-2051, USA
B.Y. RYOO
Department of Construction Management, Florida International University, 10555 West
Flagler Street, Miami, FL 33174, USA.
ABSTRACT
This paper presents an Information Technology (IT) concept called “Electronic Project
Management Information Systems (e-PMIS),” which has proven practically useful in
enhancing the management of construction projects worldwide. The paper discusses
technical and implementation concepts of commercially available e-PMIS and identifies
important issues that still require further investigations before the maximum benefits of
e-PMIS can be reaped. The paper then proposes a methodology that can be used to develop
an integrated web-based e-PMIS. It is envisaged that such a system can help construction
firms in developing countries manage projects more effectively and efficiently, thereby
facilitating the globalization process in construction.
INTRODUCTION
E-PMIS are basically systems that use Internet, World Wide Web (WWW), and related
communication technologies to manage project information. Such a system provides a
centralized and reliable means of transmitting and storing project information, which is
only accessible by a project team, but team members can be located in different
organizations [O’Brien, (2000)]. Project information is stored on a server and a standard
Web browser is used as a gateway to exchange this information, eliminating geographic
and boundary hardware platforms differences. Figure 1 shows a basic functional scheme of
a generic e-PMIS [Skibniewski and Nitithamyong, (2004)].
There are generally four types of information that are carried out through e-PMIS: project,
design, management, and financial information [Mead, (1997)]. Project information
includes details about the project (i.e., project participants, project e-mail directory, project
description, and photos of the project’s progress). Design information includes any
information generated by the design team (i.e., drawings, specifications, clarifications and
changes, and punch lists). Management information includes meeting minutes, submittals
and shop drawings, change order status logs, as-built drawings, requests for information
(RFIs), requests for quotation (RFQs), contract status logs, safety information, daily logs,
and project schedules. Financial information includes cash flow, projections, requisition
Electronic project management systems 469
status, general ledger, and contract status reports. As any of this information changes, the
database on the server can be easily updated with new data. Since a closed network is
generally used where no one is allowed to access the system without permission and
everyone is identified (through an individual user ID and password), the system can
automatically track who has seen what, and what comments or changes if any, they made.
It is also possible to introduce a project hierarchy into the system, which allows documents
or areas of the project to be restricted to only people at certain levels of responsibility, etc.
Firewall
Internet
Owner
Extranet
User Interface Information Database
Design
Management
Engineer Module
Project data
Procurement
Management
Module
Contractor
User data
…
Project
Collaboration
Module
Subcontractor
Facilities Etc.
Management
Module
Supplier
Currently, there are more than 200 commercial e-PMIS systems that are developed
specifically for the construction industry [Cyon Research Corporation, (2004)]. Features
supported by these systems usually vary depending on target customers of the companies
developing the systems and target phases in a construction project that such a system is
intended to be used. Table 1 illustrates some examples of these systems as well as their
current offering features as reported by Nitithamyong and Skibniewski, (2004a). Readers
are referred to Alshawi and Ingirige (2003) for additional examples.
Although the concept of e-PMIS is practically useful for construction project management,
some important issues still require further investigations before the maximize benefits of
commercial e-PMIS systems can be realized by practitioners in developing countries.
According to a recent survey conducted by the authors, several characteristics of the
project, the project team, the e-PMIS service provider, and the selected e-PMIS can have
significant impacts on the effectiveness of e-PMIS used in a construction project. The
survey also shows that most commercially available e-PMIS systems still focus on the
integration of management functions at a project level [Nitithamyong and Skibniewski
(2004b)]. In fact, most of these systems are tailored only for a construction phase, with the
major goal of facilitating the management of documents and information at project sites.
An integration of such systems with other management systems generally used by
470 Nittithamyong, Skibniewski and Ryoo
Table 1. Examples of commercial e-PMIS for the construction industry (Nitithamyong and Skibniewski 2004a)
Website Customization
Schedule & Calendar
Threaded Discussion
Advanced Searching
Wireless Integration
Information Service
Project Workflow
Financial Service
Project Directory
Printing Service
File Conversion
Project Camera
Offline Access
Type of e-PMIS Example Products
Project BuzzsawTM X X X X X X X X X X X X
Collaboration CitadonTM X X X X X X X X X X X X X
Network (PCN) Constructw@reTM X X X X X X X X X X X X
e-BuilderTM X X X X X X X X X X X X X X X
Project TalkTM X X X X X X X X X X X X X
Project 4Specs.com X X
Information Biw.co.uk X X X X
Portal (PIP) BuildingOnline.com X X X
Project BidExpress.com X X
Procurement BuildPoint.com X X
Exchange (PPE) BidA/E/C.com X X X
PCN+PIP BIW Technologies X X X X X X X X X X X X X X X
IronSpire JobSiteTM X X X X X X X X X X X X X X
Bricnets® X X X X X X X X X X X
PCN+PPE HomeSphereTM X X X X X X X X X X X
PIP+PPE ConstructionSweetsTM X X X X X
Full Service PrimeContractTM X X X X X X X X X X X X
Portals Causeway Solutions X X X X X X X X X X X X X X X X X X
(PCN+PIP+PPE) CXTM X X X X X X X X X X X X X X
472 Nittithamyong, Skibniewski and Ryoo
This section proposes a methodology that can be used to develop an integrated e-PIMS
system. The methodology considers both functional and technical integrations of the
system. Functional integration considers the dependency and relationships among systems,
and technical integration considers appropriate IT tools that can be used to develop an
interface for system integration. Nevertheless, it should be noted that functional
integration must always precede technical integration.
Functional Integration
1. Identify types of business processes conducted in main offices and construction project
sites.
2. For each business process, define and group activities associated it. (i.e., activities
associated with marketing and sales, planning, bid and awards, design, procurement,
construction, closeout, operation and maintenance).
3. Categorize business processes and activities based on scope and capability of each
management system (i.e., what system can handle what types of activities?). In this
step, activities associated with each management system must be clearly defined.
4. Define the dependency and relationships among systems (i.e., what activities can be
shared among management systems?).
Once the above steps are complete, an interface as shown in Figure 2 can then be
developed.
Electronic project management information systems 473
CRM
SD FI ERP
MM CO
PP AM
Management
QM Systems PS
PM WF KMS
HR IS
Project
Interface Administration
To be developed
SCM
Contract Schedule
Management Management
e-PMIS
Quality Cost
Management Management
Safety
Management
In addition, KMS can also be integrated with e-PIMS and other management systems
mentioned above. Unlike other systems, KMS serve as an information repository.
Therefore, any information produced by e-PIMS or other systems should be stored in KMS.
An integration of KMS with other systems is possible since a groupware is commonly
installed and used as a backbone of integrated systems within an enterprise.
Technical Integration
CONCLUSIONS
This paper has introduced a concept of e-PIMS, which can help construction firms in
developing countries manage projects more effectively and efficiently. The paper has
illustrated some examples of currently available e-PMIS systems developed for the
construction industry and suggested that an integration of such systems with other
management systems commonly used by construction firms has not yet been accomplished.
An integration methodology is then proposed in order to communicate e-PMIS with other
management systems. Based on the proposed methodology, an integrated e-PMIS system
is currently being developed. This system will be tested with actual construction projects
in the U.S. and its resulting performance will be reported in future publications by the
authors.
REFERENCES
HEDLEY SMYTH
Construction and Project Management, the Bartlett School of Graduate Studies,
University College London, Gower Street, London WC1E 6BT
h.smyth@ucl.ac.uk
ABSTRACT
There has been frequent need for information at short notice on projects to solve problems,
due to high levels of uncertainty – a primary reason to select ‘the project’ as the delivery
mode. The demand for information and managed knowledge will increase as the
construction becomes increasingly global and construction projects become more
complex with higher levels of added value.
Leonard-Barton [1995] identified learning outside of the organisation as one of four areas
of organisational activity giving rise to the application of knowledge. The paper will
review internal versus external sources and formal and informal enterprise-project
systems in the application of cement and concrete technologies for international
construction projects.
The global market provides particular challenges for information and knowledge
management. The work of [Madsen (1989)] is instructive and has been applied to
international management for construction [Smyth and Stockerl (1998)], which will be
applied to analyse the global context.
INTRODUCTION
This paper considers an emergent area of knowledge management (KM). It considers the
external provision of KM as an additional source to internal sources, which are inherently
limited by strategy and the resource base of a contractor. Therefore externally provided
KM is a growth market for all industry. However, the project environment poses
particular challenges. This issue will be explored theoretically by examining the types of
476 Smyth
market for KM. It will look at both information and KM provision in order to analyse the
market dynamics. The implications of international projects will then be considered,
looking at the relationship between the corporate centre and the international project.
Finally, a synthesis of the type of KM market and geographical factors are provided in the
context of international construction projects. The theoretical understanding is then
explored in the light of a case study concerning the cement and concrete supply industries.
The paper concludes with some lessons for the future development of external KM
internationally.
At the project level there has been frequent need for information at short notice on
projects to solve problems, due to high levels of uncertainty – a primary reason to select
‘the project’ as the delivery mode. The demand for information and managed knowledge
is rising and will continue to rise as the construction sector becomes increasingly global
and construction projects become more complex with clients demanding improved levels
of added value. Satisfying these rising demands will not always be possible within the
confines of the knowledge and expertise held within contracting organisations, nor the
project coalition.
Leonard-Barton [1995] identified four general areas of organisational activity giving rise
to the sourcing and application of knowledge:
Learning outside of the organisation includes external sourcing, that is, buying in
information and knowledge for internal application. External knowledge may be pre-
packaged or tailor-made. Internal knowledge management (KM) is constrained by the
areas in which an organisation has strengths and strategically by the allocation of scarce
resources to the development of new areas. Therefore there are applications that cannot
be sourced internally, hence the demand for external sources. The external sourcing of
knowledge can be applied in the construction context. At the project level, the scope may
be marginally amended according to injection from other project team organisations and
by the project strategy. Yet the speed of response demanded at the project level will be
Information and knowledge management for international projects 477
rapid for the application of KM will tend to be problem solving [Smyth, (2004a)].
External sources will be used where the value added is greater than the marginal cost to
the service or product or where the organisation secures a competitive advantage relative
to the costs. In the first case external sourcing serves project effectiveness and indirectly
the international standing of the contractor, whereas in the second case the contracting
organisation is served directly.
The demands of projects pose particular problems for the external provision of
information and knowledge. Information has to be processed and hence converted to
knowledge. Information, once converted into knowledge and knowledge that has been
bought in has to be applied. In projects the uniqueness and uncertainties will often
require evaluation and interpretation for application in the particular context. At the level
of the organisation, ‘head office’ or corporate centre, effective KM requires formal
systems. These systems combine human systems and IT systems. These systems are
formal. Such systems may not ‘reach down’ to the project level. This may be due to the
costs of necessary investment, but these barriers are being reduced all the time. Corporate
and project intranets and other IT protocols are growing in significance and will continue
to have major impacts upon the management of projects. However, IT provision is only
as effective as the people who use it. How people use systems requires organisation to
maximise effectiveness and efficiency – a human system. In the KM context human
systems vary, yet it has been shown do not necessarily function effectively. In
effectiveness arises where gatekeepers act as a constraint because they are overcommitted
or because they use the position of power to reinforce their own interests rather than the
best interests of the firm [Smyth, (2004a)]. These tendencies, in addition to the
temporary nature of the project team [Cherns and Bryant, (1983)], induce a more informal
approach to sourcing information and knowledge, although informality can also operate
in a highly effective way. The point about informal systems is that they are difficult to
control. This works well when by-passing the controls speeds up the process and works
badly when the interests being served are corrupted. A matrix can be constructed to
illustrate the permutations of sourcing information and knowledge [see Figure 1.].
478 Smyth
The temporary nature of project teams, both within many projects [Smyth, (2000; 2004b)
Pryke and Smyth (2005 forthcoming)] and as an organisational entity [Cherns and Bryant
(1983)], tends to produce informality. The rigorous application of project management
tools can be seen as both a response to the informal system and the demands they impose
can serve to preserve the informal system ‘beyond’ their application. There are problems
with accessing external information and knowledge in the project market. First is the
general issue of market awareness of a source [Smyth, (2000; 2004a)]. Second is the
problem of information quality and symmetry [Akerlof, (1970), Milgrom and Roberts
(1992)]. Third is the nature of international projects. Construction projects are physically
dislocated from their corporate centre. The dislocation can take two forms:
The dislocation can create difficulties in dissemination and access of information and KM,
hence a lack of support from top management and through the systems. Such constrains
are critical where speed of response is important for problem solving on a large project.
Those on a project need awareness of the available resources. The corporate centre has a
role in creating awareness. This can be facilitated where there is a local office acting as
the go-between. However, the local office can also pose a double constraint, whereby
those working on a project are dislocated from the local office and also from the
corporate centre. Dislocation tends to encourage systems being more informal at a
project level. While international projects are frequently compensated by teams that have
learnt to identify and mobilise resources as needed, the main problem is that external
provision requires knowledge to be explicit, yet informal systems at a project or local
office level are not conducive to managing information and knowledge. Therefore
international projects are typically located in the external-informal segment [see Figure
1.]. It is this feature that may inhibit the potential for project KM on international
construction projects, the market being latent. An external-formal position would be
more conducive. Before pursuing this analysis in the context of a case of external KM it
is important to address whether an informal approach is justified from a broader
perspective of strategic management.
On large and complex international construction projects the local circumstances are
Even though labour and materials are frequently sourced from the world market, local
legal, cultural and political factors are important. Alliances and joint ventures are
frequently necessary, and often demanded, in order to conform to local requirements.
Therefore informal systems are more appropriate, even in distant markets, construction
acting more in the character of regional markets [cf. Smyth and Stockerl (1998)].
However, it has been demonstrated that the global market is changing. The knowledge
480 Smyth
and expertise cited by Linder [1994] and Flanagan [1994] as critical to international
success cannot be assumed to be internal to the organisation and therefore competitive
advantage will increasingly rely on effective and efficient sourcing of external KM,
which requires a formal system and therefore closer adherence to Madsen’s high
performance position in distant markets based upon top management support [1989].
What are the implications for the strategic management of large contracting organisations
for international projects? First it is instructive to consider the scope for internal KM and
systems to be developed. Considering internally sourced knowledge, studies of structural
change through international acquisition have shown that one-way transfer from the
corporate centre is rapidly imposed, but two-way transfers take longer [Bresman et al
(1999)]. Applying this lesson to international projects, a two-way transfer is needed for
top management support to be mobilized from the centre to respond to local project needs
for information and KM. The time necessary to generate two-way transfer, especially
concerning awareness of and demand for KM sources, will be beyond the life of many
projects. Therefore the scope for internal KM from the point on the project of being
aware of the potential for the corporate centre to source relevant information and KM to
the point where there are formal systems to mobilise the KM for application there appears
to highly constrained.
Second, Fenton and Pettigrew [2000] found culture and market factors to be key variables
concerning knowledge transfer within construction. Bröchner et al [2004] show that
geographical, along with legal and technical, factors provide the main barriers to
knowledge transfer in construction [cf. Huovinen and Kiiras (1994)]. Although these
studies have looked at internal sourcing of information and knowledge in a global market,
their findings add support to the decentralised management approach with informal
systems. The decentralised-informal combination is not conducive to internal KM [see
Figures 1. and 2.].
Bröchner et al [2004], following Lengel and Daft [1988] apply two forms of
communication – rich and lean communication. Rich communication involves close
relationships and includes face-to-face communication, whereas lean communication
includes email. Lean media are best suited to routine functions, from which it can be
concluded that formal systems tend to handle routine functions best. The international
project market needs formal systems for the effective knowledge transfer and
management. As has been shown, this is not a feature of international projects and local
offices.
Thus the solution for formal systems may not lie with the contractor. If the external
information and KM provider can provide the system that can easily interface with the
local informal one, then the decentralised-informal combination can stand [see Figures 1.
and 2.]. In effect a surrogate for the external-formal position [Figure 1.], described above
as more conducive, would have been created. If the external provider provides the system,
then a formal system is best suited to handling a lean medium. The provision of KM
services through the internet would be a lean medium. These issues will be illustrated
through the case of information and KM services developed by the UK cement and
concrete sector.
Information and knowledge management for international projects 481
Research has recently been completed on the services of Concrete Information Limited
(CIL) in the UK (Smyth 2004a). CIL was formerly the library and information services
of the British Cement Association (BCA). It has been restructured as a joint venture
company, owned by the BCA and the Concrete Society. It has been set up on a
commercial basis as an external organisation responsible for supplying highly specialist
technical information – frequently the sole source – to those responsible for design,
specification and to other consultants and contractors delivering projects within a
complex field of business-to-business social networks (Smyth 2004a). The structural
change provides scope for new services to be develop, transforming a purely knowledge
based service to the public and members to a service that combines information and
knowledge provision. CIL has developed it services along several lines:
• Publication of research
• Provision of technical information
• Developing KM packages for generic application
• Creating tailor-made KM services for specific customers.
Publications and a range of technical information are available on the open market. The
remaining services are delivered through a range of membership packages. The provision
of KM services is developing in an incremental fashion. It is expected that the services
will be under regular review and new additions will emerge in relation to demand. The
demand is difficult to estimate as the markets themselves are under development too.
CIL has developed its markets along several lines:
The last of these three implicitly recognises the informal systems operated amongst
contractors, especially at the project level. The latent market theoretically identified in
the external-informal position in the knowledge matrix [see Figure 1.] by nature is
unquantifiable and needs to be in part tapped into and in part created by providers. For
the case of CIL in the light of the preceding analysis a formal system is needed as part of
the equation to convert latent into effective demand.
CIL’s Marketing Plan [2003] set the international market as a future target. The cement
sector has become global in ownership patterns as well as contractors operating globally,
hence the need to be present in the global market. The potential has been set up by
linking with the BCA and the Building Research Establishment in their web development
plans through funding under a Partners in Innovation project (PII). The CIL website
[2004] offers a formal system, a lean medium, to be accessed on construction sites
wherever located in the world. The technical data is applicable for many projects, even
482 Smyth
where British and European standards are applied for these are applied on many
international projects outside Europe.
Other countries have counterparts, the American Concrete Institute, the Cement &
Concrete Association of South Africa being notable, which are both competitors and
complimentary providers having grown up in response in response to different demand
patterns and market structures in relation to both concrete and cement producers and the
panoply of trade bodies [cf. Smyth (2004a)]. CIL, along any comparative measure, have
been international leaders in terms of the range and depth of library resources in former
incarnations and under the current commercial form.
Information and knowledge management for international projects 483
CONCLUSION
The paper has considered external KM. The market has been explored in terms of the
types of services and geographical location in order to bring together an analysis for
construction. It was found theoretically that the optimum combination was external-
formal, supported by top management from the centre. In practice international
construction projects operate with informal systems and are decentralised in terms of
management. However, the analysis also showed that if the provider provides the formal
system through delivery, using lean media, the problems are overcome. CIL was used as
a case study to demonstrate that how they have started to provide the system and service.
From this case study a number of lessons can be demonstrated in the light of the analysis.
The market has growth potential. There are two barriers that remain, which the CIL case
highlights. First, awareness of sources remains and issue. Word of mouth is important
and the temporary nature of project teams, the strong industry networks within
construction and the rise of a younger generation of managers to top management
positions will accelerate awareness. However, the responsibility in the short and long
term rests with top management to create awareness at the project level of external KM
sources. It is in their interests in order to remain competitive, yet keep costs down.
Second, many of these services will only be sustainable through membership and
subscription schemes in order that providers can continue to develop the KM resources.
Therefore the onus rests with corporate centres to invest in subscriptions to providers,
thus reversing the current practices of making projects pay out of project budgets.
Subscriptions are minimal in terms of corporate expenditure, yet have been easy targets
for cost cutting historically. This trend needs reversal not only because it ‘seems good’,
but also because it has been shown it yields benefits in terms of competitive advantage;
and also because it is cost effective for problem solving.
REFERENCES
Akerlof, G (1970) The Market for Lemons: qualitative uncertainty and the market
mechanism, Quarterly Journal of Economics, Vol. 84, pp. 488-500.
Bresman, H, Birkinshaw, J and Nobel, R (1999) Knowledge Transfer in International
Acquisition, Journal of Management Studies, Vol. 30, No.3, pp. 439-462.
Bröchner, J, Rosander, S and Waara, F (2004) Cross-border Post-acquisition Knowledge
Transfer among Construction Consultants, Construction Management and
Economics, Vol. 22, pp. 421-427.
484 Smyth
TAYYAB MAQSOOD
CRC for Construction Innovation, RMIT University, Victoria Australia
tayyab.maqsood@rmit.edu.au
DEREK H. T. WALKER
Project Management, RMIT University, Victoria, Australia
ANDREW D. FINEGAN
Charles Darwin University, NT, Australia.
ABSTRACT
The leading Australian construction organizations have ventured into the adoption of ICT
(information and communication technologies) to cope with their heavy communication
needs. However, the organization-wide use and the diffusion of these technologies have
not been as successful as might be expected. It is becoming important to investigate the
issues that are acting as barriers to the successful diffusion process.
This research uses soft systems methodology (SSM) to investigate the underlying
diffusion issues. SSM has been used in the domain of information systems (IS) and
management for over 30 years to explore complex situations. It can give structure to
messy problems and aids in understanding the nature of the problem that is helpful in
devising a solution to rectify these situations. This paper describes an investigation of the
ICT diffusion issues in a major Australian construction contractor where the widespread
use of recently adopted ICT is problematic.
INTRODUCTION
story’ as thoroughly documented by various researchers [Poon et al. (2001); Walker and
Hampson, (2002)].
The strategies to adopt ICT and then diffuse the technology vary from organization to
organization. [Peansupap and Walker (2004)] argue that successful ICT adoption requires
detailed strategic planning and an appropriate strategic ICT adoption strategy. Strategic
planning is required for the long-term application of ICT that reinforces the vision of the
core business delivery strategy for an organization, and links it to a competitive
information system strategy [Björnsson and Lundegård (1993)]. Within an organization
the strategic ICT adoption strategy contains the sub-processes that allows an organization
to become aware of, search for, select, and finally decide to adopt an ICT initiative.
A major construction process demands heavy exchange of data and information between
project participants on a daily basis. It is essential to provide clear construction-related
information to project participants to avoid unnecessary problems. [Duyshart (1997)]
notes that much of the paper-based information exchange during the construction phase
involves duplication, continual translation and transcription from one medium or form to
another, as well as the loss of information. The use of ICT minimizes such problems. Fig.
1 describes the diverse types of data flows in the various construction stages.
ICT applications can help improve project planning, scheduling and cost control
[Abudayyeh et al. (2001), Sriprasert and Dawood (2002)]. [Tam (1999)] demonstrates
that the development of a total information transfer system for project management can
save considerable time and cost for document transfer. ICT can improve database
distribution by the use of a web-based electronic document management system (EDMS),
with all documents stored in central database and accessed from other locations [Björk
(2002)]. ICT can encourage information integration between construction processes and
help to reduce errors from data re-entry and support real time construction project
monitoring [Björk (2002); Anumba (2000)]. Integrated electronic communication
exchange provides various tangible benefits such as reduction in cost and time, and
intangible benefits that include improved and effective service delivery [Duyshart et al.
(2003)].
An investigation of ICT diffusion issues 487
ICT has not only been used to decrease these integration problems, but also is used as an
effective way for experts to share knowledge and jointly solve problems. The BP virtual
office is one example where complex problems were solved using the expertise of a
global network of experts linked electronically [Prokesch (1997)]. Even e-mail, which is
considered information-poor due to being context-minimalist, is shown to be more
effective than expected when used as a tool for low-level knowledge in a knowledge
intensive firm where staff are familiar with it [Robertson, et al. (2001)].
Evaluation of
Preliminary Design of
the Project
Deign Team
Design Stage
Selection of the
Detail Design includes: Contractor
Detail Drawings & Specs Storage of Data
Base
Through
Internet and/or
Approved Final Owners intranet
Estimation CAD system Description
Construction Task Planning
Site Investigation
Regional Resource Planning
Detail Product Identification
Construction Management
Contractor
Construction Stage
Design Documents
Design Documents Terms of Functional Service
Project Cost & Cash Flows Project Cost and Cash Flow
Schedule Networks Schedule Network
Design and Site Changes Coordinate Teams Work
General Change Orders Construction Strategies
Material and Labour Availability Evaluation of Change Orders
Construction Strategies
Notes:
Solid Line representing how the date is sending to or receiving from the database storage
Dash line representing the interaction between the parties
However, the interconnection between the processes are taking place into one database
Soft systems thinking seeks to explore the ‘messy’ problematic situations that arise in
human activity. It strives to learn from the different perceptions that exist in the minds of
the different people involved in the situation [Andrews, (2000)]. This interpretive
approach is strongly influenced by Vickers’ (1968, pp. 59, 176) description of the
importance of appreciative systems in dealing with human complexity. [Checkland
(1999), and Checkland and Scholes (1990)] have attempted to transform these ideas from
systems theory into a practical methodology that is called Soft Systems Methodology
(SSM). Checkland’s premise is that systems analysts need to apply their craft to problems
of complexity that are not well defined, and that SSM attempts to understand the wicked
and fuzzy world of complex organizations. This is achieved with the core paradigm of
learning [Checkland (1999, p. 258)], and is described as a logical sequence of seven steps
[Checkland (1999, pp. 162-183)]. These are illustrated in Fig. 2.
It is most important to note that the sequence is not imposed upon the practitioner; a study
can commence at any stage, with iteration and backtracking as essential components.
SSM encourages investigators to view organizations from a cultural perspective.
Therefore, the component parts that are human beings determine the essential
characteristics of organizations. These ‘people-components’ can attribute meaning to their
situation and define their own purpose for the organization.
An investigation of ICT diffusion issues 489
Industries with entrenched traditional structures, including the building, construction and
engineering industries, are under particular pressure to review their working practices. In
this context, [Elliman and Orange (2000)] recommend SSM as an approach to facilitate
effective change and to improve work practice. In particular, SSM is able to stimulate
debate and capture the vision for the future of participants. They observe that a soft
systems approach allows the exploitation of individual and socially constructed group
knowledge and experience. [Green (1999)] also identifies difficult problems in the
building and construction industries and suggests that the potential of SSM lies in the
early stages of a project to assist stakeholders to achieve a common understanding of the
problem situation. To help understand the complex, multi-disciplinary activity found in
the construction industry, [Cushman et al. (2002)] have used SSM’s rich pictures and root
definitions to identify responsible actors, key transformations, and the knowledge
resources that are appropriate to the needs of a construction company. Venters et al.
(2002) further describes how SSM can be used to develop conceptual models that identify
patterns in knowledge activities as a basis for technical design and organizational and
social intervention. Based upon the need to learn about the problems in the construction
industry, a model to apply SSM has been developed (Fig. 3) and is being incorporated
into investigations into the adoption of innovation and knowledge management in the
construction and building industry.
ENVIRONMENT Produces:
(External Constraints)
Rich Root Conceptual Further
Pictures Definitions Models Analysis
Understanding of the Identification
organisational context Identification of of patterns
and culture. Identification of in
the Stakeholders key
OUTPUTS transformations knowledge
and Actors activities
The case study, illustrated in the Rich Picture (Fig. 4) shows the structure, processes and
especially the beliefs and concerns of the key players. Given the wide variety of
participants in this diffusion of ICT innovation – from head office, the construction site,
and third party organizations – the Rich Picture portrays the complexity and conflict
associated with different priorities, knowledge and skills, access to training, reporting
relationships, and service delivery. From the Rich Picture it can be seen that there are
major differences between the expectation of head office, and the operational practice of
490 Maqsood, Walker and Finegan
site office staff and the construction site supervisors. In particular, there is frustration with
the reliability and performance of the ICT systems, with some staff choosing to avoid it
and revert to the use of manual reports. This suggests that the reliability and accessibility
of the ICT system is a major issue. However, on the positive side there is knowledge
sharing taking place, particularly in the sit office, and some staff are encouraged by the
realization the new ICT system has definite advantages.
This rich picture is followed by the development of the root definition that provides the
central transformation of the “ideal” diffusion of innovation system.
Head Office
In this case study the transformation is defined as: ‘Knowledge, processes and ICT are
used to provide accessible, reliable, timely and useful communication services and
knowledge sharing’. This is underpinned by a significant worldview - Weltanschauung -
that ‘access by all the stakeholders in a construction project to reliable, timely and useful
communication system is essential to the success of the project’. This transformation is
the basis for the development of the conceptual model of pre-tendering (Fig. 5). This is
expressed as a model of human activity where there are nine high-level key activities
necessary to achieve the transformation.
Fig. 5 Root Definition, CATWOE and Conceptual Model for ICT Diffusion
492 Maqsood, Walker and Finegan
ISSUES ANALYSIS
The conceptual model illustrated in Fig. 5 provides a set of activities that can be used to
learn more about the situation, and in the case study of ICT diffusion it provides a
framework for undertaking an issues analysis.
Two activities – ‘acquire and implement ICT’ and ‘know the needs of the various
stakeholders’ – have a strong focus upon knowledge management, and especially the
essential step of sense-making, in what is often a complex and confusing business
environment. These activities, together with ‘undertake needs analysis’ and ‘maintain
support of management’ provide the inputs into the essential planning processes for
successful ICT diffusion. The support of senior management is an essential component of
the adoption of any innovation into an organization, and in the case of ICT diffusion it is
a critical success factor [Belassi and Fadlalla (1998); Kim and Galliers (2004)].
The activity – ‘set the criteria needed to define reliability, timeliness and usability’ –
defines all the performance measures and milestones for the diffusion process. This
planning activity presents a challenge as it relies heavily upon the knowledge and
estimation skills of the project staff. Inaccurate estimates will impact the support and
operational activities of the diffusion process. For example, both the supporting activities
‘develop a training plan ‘ and ‘provide user support and training’ can only be successfully
achieved where knowledge building, and then knowledge deployment, been integrated
into the estimation and planning activity [Damsgaard and Scheepers (1999)].
‘Deliver communication services’ is the activity that delivers the desired outcome -
provision of communication services that meets needs of the construction company, it
projects and stakeholders. This is the operational core upon which all the other activities
focus and provide inputs. It is essential that this activity provide the process
transformation to ensure that the initiative to adopt ICT is successful [Chabrow (2003)].
This activity is a system in its own right, and can be modeled in greater detail.
‘Monitor and control participation of all users’ is the management and decision-making
activity that provides the monitoring and control loop to observe the performance of the
delivery of communication services, and provides feedback to control via the criteria
setting activity as necessary. It is within this activity that another important process -
provide innovation directives [Damsgaard and Scheepers (1999)] – must be undertaken.
CONCLUSION
The paper examines the technology diffusion issues associated with the adoption of ICT
in a construction company, and provides an insight into the barriers of the diffusion
process. The investigation was conducted through a framework of SSM. Being a system
approach, SSM provides deeper insights into the issues regarding the application of
project histories in the organisation. SSM is particularly useful where there is
organisational complexity and the challenge of effective knowledge management and
decision-making. The conceptual model derived by applying SSM indicated various sets
of activities that would help to achieve the successful adoption of ICT in an organisation.
An investigation of ICT diffusion issues 493
A number of important underlying processes that is essential for the diffusion activities
have been identified. Knowledge management, particularly sense-making, knowledge
building, and knowledge deployment, underpin the success of the diffusion process.
Similarly, management support, and especially the provision of innovation directives as
part of the feedback and control process, must also be undertaken. Importantly, the
organizational initiative to adopt ICT must be matched by an activity the provides the
process transformation that delivers the operation objectives of the project – in this case
the provision of communication services that meets needs of the construction company.
Finally, the model developed in this study has the potential to be investigated in greater
detail, especially within the context of knowledge management and process
transformation.
REFERENCES
ABSTRACT
An overview of two R&D projects provides summarised case studies of the ongoing
development of two distinct performance improvement systems that can help empower
different segments of the industry. The first project focuses on a Management Support
System (MSS) for large clients (LCs); while the second aims at Information and
Knowledge Management Systems (IKMSs) for Small & Medium Contractors (SMCs).
Finally, the paper points to the potential for an integrated system that can provide useful
linkages across these extremities of the construction supply chain by proposing a LC
based Project Information & Knowledge Management Platform (PIKMAP). The latter
could serve specific projects by providing useful seamless interfaces with all
stakeholders, including the LC, its consultants, contractors and suppliers, as well as SMCs
involved. Certain issues will of course need to be carefully addressed e.g. in terms of
confidentiality, security levels and legal liabilities in respect of each stakeholder.
INTRODUCTION
This paper commences with a ‘tale of two projects’ that summarises the main thrusts and
status of two ongoing R&D projects. Each project aims at enhancing opposite corners of
the construction industry supply chain, namely Large Clients (LCs) and Small & Medium
Contractors (SMCs). However, they both focus on supporting management through better
information & knowledge management and decision support systems. The paper
concludes with a basic conceptual proposal for an integrated Project Information &
Knowledge Management Platform (PIKMAP) that should accelerate the exchange of
information, the development of broader knowledge bases, and thereby empower better
decisions in the construction industry.
The first R&D project aims to develop an integrated framework and sample working
modules of a knowledge-based MSS that will empower the formulation of more effective
and efficient construction project procurement and delivery systems – for innovative and
improved ‘total’ management of construction projects – from a large client’s viewpoint.
The objectives include developing: (A) rich knowledge-bases for selecting and optimising
construction procurement and operational/ delivery sub-systems, in the context of both
client priorities and project contextual conditions; and (B) prototype modules – to
498 Kumaraswamy et. al
Both projects are based in Hong Kong, and include inputs from overseas bodies and
experts, as well as strong participation from local organisations, including clients,
contractors, government-sponsored bodies and trade associations. The projects were
conceived, proposed and funded separately, with the first started about a year before the
second. However, it is not surprising that the possibilities of an eventually seamless
solution are now being envisioned. Such an over-arching initiative could integrate
improved ‘decision support’ and ‘information and knowledge management’ across
complex construction supply chains. This would in turn help to accelerate technology
diffusion and construction industry development.
This project is funded by a grant from the Research Grants Council of Hong Kong. It was
launched in September 2002 and planned for a three year duration. The proposal was
strongly endorsed by two large construction clients (one being a private developer and the
other a railway corporation). It also involved two overseas co-investigators, one based in
the UK, and the other originally in Singapore.
The objectives are to develop: (1) rich knowledge-bases of sound principles, best
practices and innovations, in optimising selected construction procurement and
operational/ delivery sub-systems, in the context of both client priorities and project
contextual conditions; (2) an MSS framework and (3) prototype working modules – to
provide management support, including decision aids in the following sample areas: (a) in
incorporating ‘relational contracting’ principles in more sustainable partnering and
alliancing arrangements in construction projects e.g. by adapting proven ‘joint risk
Top-down and bottom-up construction industry development 499
Present status
The framework and two of the sample modules are presently being developed. A wide
literature review, interviews, two questionnaire surveys and two project case studies have
been completed. A third questionnaire survey and three more project case studies are now
underway. The first two questionnaires focused on: (1) ‘innovations and their
implementation, including barriers, and lessons learned’ - surveyed in both Hong Kong
and Singapore, using the same questionnaire, to enable comparisons within the same
region and a somewhat similar setting; and (2) ‘barriers to, and prospects for mutual
technology transfers’ and ‘relational integration in Joint Venture teams’ – surveyed in
Hong Kong only, this being an additional survey, also linked to another research exercise.
The two completed case studies were on: (1) ‘partnering’ in a housing estate construction
project of the Hong Kong Housing Society; and (2) ‘extended partnering’ in a building
refurbishment project of the Hong Kong Housing Authority. The three other case studies
that have commenced are on: (3) relational contracting and joint risk management
approaches on a MTRC (Mass Transit Railway Corporation) station extension project; (4)
‘partnering’ on a foundations project of the Housing Authority; and (5) a recently
commenced public-private partnership type project of the MTRC.
These questionnaire surveys and case studies are yielding interesting outcomes, for
example on a proposed structure and sample contents of a ‘partnering knowledge-base’
that would form part of the ‘relational contracting’ module (Kumaraswamy et al., 2003),
weak links in the partnering supply chain [Sze et al., (2003)] and on potential for
relational approaches and technology exchange in joint ventures [Kumaraswamy et al.,
(2004a)] while analysis is in progress on other material. The framework and related
principles for structuring the findings of the case-studies, are being drawn from both the
case interviews and literature on previous research and theories e.g. [Cheng and Li,
(2001); Chan et al., (2002); Luu et al., (2003); ESCAP, (1994); Carrillo, (1995)]. These
are being consolidated and framed in the context of improving procurement and delivery
sub-systems.
The third questionnaire survey is on the potential for developing a relational contracting
culture. It was launched in five countries. 86 responses have been received from Hong
Kong and another 96 from Singapore. A smaller cluster of high quality responses has
been received from the Netherlands. Surveys using the same questionnaire in UK and
Australia have not yielded many responses to date, apparently the victims of a
questionnaire-weary industry. Analysis has commenced on the Singapore and Hong Kong
samples and the eventual cross-country comparison is expected to yield interesting
outcomes.
definition of procurement & delivery systems terminology has commenced, along with
the formulation of a basic decision support tool for procurement system selection.
Basic conceptualisations
CM
Interactive TM QM
WP
initial
strategic
decisions SHM CDM
FG CC
IPS CDS
HRM ICM
SM PM Monitoring
& feedback VM RM
for joint im- PA
provement
Integrated Procurement System (IPS) Collaborative Delivery System (CDS)
IPS sub-systems CDS sub-systems
CC – Contract Conditions TM – Time Management
FG – Functional Groupings CM – Cost Management
PM – Payment Modalities QM – Quality Management
SM – Selection Methodologies VM – Value Management
WP – Work Packaging RM – Risk Management
PA – Performance Appraisal
HRM – Human Resources Management
SHM – Safety & Health Management
CDM – Claims & Disputes Management
ICM – Information & Communications Management
Figure 1 Collaborative Procurement and Delivery Systems in proposed MSS
This second R&D project aims for ‘bottom-up’ improvements through the development
of Small and Medium Contractors (SMCs), by providing a SMC-friendly framework and
innovative tools for boosting productivity, quality and image, through strategic
information and knowledge management. For example, savings are envisaged through
more efficient and timely information flows, enhanced ‘business knowledge’, reduced
wastage (of resources) and less rework (in rectifying substandard or defective works).
Quality and image improvements will be derived from guidelines based on good/ best
practice examples. These will be made available/ accessible through various modules of
the proposed SMILE system.
The SMILE-SMC project is funded by a grant from the Small and Medium Enterprises
Fund of the Hong Kong SAR Trade and Industry Department, with support funding from
the Faculties of Engineering and Architecture of The University of Hong Kong. The
proposal for this project, which commenced in November 2003, was strongly endorsed by
the Provisional Construction Industry Co-ordination Board of the Hong Kong SAR, as
well as the Hong Kong Federation of Electrical and Mechanical Contractors; and
supported from the outset by both the Hong Kong Construction Association (HKCA) and
the Construction Industry Training Authority (CITA), as collaborating organizations; five
‘partner contractors’ (PCs) in Hong Kong; and five overseas Universities/ R&D Centres
from the UK (two), Australia (two) and Singapore (one) as collaborators/ advisors. The
interest and momentum generated have led to 9 more SMCs joining as PCs on this
project; and strong support has been enlisted from two other contractor associations: the
Hong Kong General Building Contractors Association (HKGBCA) and the Hong Kong
Construction Sub-contractors Association (HKCSA), both of which represent many
SMCs. Representatives of these associations and our PCs share their views and
experiences and provide feedback for improving system development at Team Meetings
and follow-up opportunities.
This project focuses on developing a suite of ICT-aided tools for up-grading Small and
Medium Contractors (SMCs) who form the ‘back-bone’ of the construction industry in
most countries. The benefits expected from the project outcomes will be particularly
valuable to Hong Kong, where extensive multi-layered sub-contracting perpetuates a
large number of SMCs. There is a special emphasis on dissemination, to penetrate further
- to the many who can benefit. The planned project deliverables include: (a) a web-based
information library; (b) a collaborative information and knowledge management
framework; (c) a ‘strategic information and knowledge manager’; (d) templates and initial
issues of periodical (e.g. quarterly) newsletters/ e-bulletins; (e) a basic training workshop
package and a self-learning package.
The initial exercises aimed at the ‘R’ part of this ‘R&D’ project. Firstly structured
interviews were held with senior staff of the 14 PCs. These were supplemented with
general information and knowledge derived from monthly ‘full’ team meetings that
included the PCs and representatives of the local collaborating organisations. These
interviews, joint meetings and follow-up have helped to identify a preliminary profile of
502 Kumaraswamy et. al
the information ‘needs’ of SMCs and to formulate the presently proposed framework for
the web-based information and knowledge management systems which comprise:
1. ‘Wanted Zone’ (for ‘Services Wanted’)
2. SMILE Members Register (‘Available Zone’ to convey ‘Services Available’)
3. Discussion Forum (to exchange information on useful topics)
4. Information and Knowledge Management Modules (includes web-based zones and
tools/ formats for enhanced communications within and between organisations e.g.
site office & head office; and sub-contractor & contractor, or contractor & consultant)
5. Performance Improvement Module (to help improve productivity, quality, etc.)
6. Benchmarking Club (to share and compare performance indicators, where so desired).
Figure 2 indicates potential SMILE services and the envisaged broad range of potential
users, given the information and knowledge that may be derived from the web-site. A
temporary SMILE website has been set up to provide a pilot platform for testing such
systems.
In order to capture wider collective industry perceptions, and to validate and prioritise
identified ‘user needs’, a questionnaire was developed on the basis of initial findings.
This questionnaire was issued to a wide range of contractors, 100 responses have been
received up to now, and analysis has commenced.
Top-down and bottom-up construction industry development 503
A ‘workflow analysis’ exercise is also in progress to capture some of the critical SMC
business processes through interviewing the site staff and senior management of PCs.
Typical workflow and information transmission patterns are being analysed. Outcomes
are expected to provide pointers to better ways of structuring some common and/or
critical processes and information flows e.g. even in the transmission cycle of ‘requests
for information’ (RFIs). ‘Use cases’ are being modelled using UML (unified modelling
language) in order to visualise and streamline the present flow patterns.
After analysing and consolidating the incoming data, it is expected to propose better ways
to help streamline / improve some prioritised (more important/ common) business
processes by making use of increasingly available, but under-utilised information and
communication technology (ICT) tools (including basic web-based systems and mobile
communication technology). Lack of time and resources presently restrict SMCs from
developing and using such ICT tools, whether in Hong Kong or elsewhere [Rahman et al.,
(2004); Caillaud and Passemad, (2001); Keeble and Wilkinson, (1999)]. It is hoped that
SMILE-SMC will help these SMCs to make a good start in this direction towards
continuous improvement.
Plans for maintaining and up-dating the SMILE-SMC system beyond the two year
development period presently rely on collecting minimal/ nominal post-development
subscriptions from users to sustain a research/ project assistant for basic tasks. However,
if interest is demonstrated and users seek up-grading and/or extra services, it is possible to
raise the system operation & maintenance levels and even hand it over to an interested
independent body, such as a government or professional organisation.
There have been many previous exercises to develop integrated project management
systems. However, most have not been truly integrated. For example, (a) some large
clients like the Hong Kong Works Bureau (now the Environment, Transport and Work
Bureau) developed a Project Information Management System for tracking costs and
progress of their extensive portfolio of projects across many Works Departments; while
(b) some large contractors have tried out commercially available or specially developed
‘project management systems’. However, interviews in Hong Kong have indicated that
some of the latter have been found to be glorified ‘document management systems’.
What is targeted in the two reported R&D exercises delves deeper and spans wider: (1)
into knowledge-based decision support for critical project procurement and delivery
choices of large clients (LCs) in the top-down exercise; and (2) for more efficient and
504 Kumaraswamy et. al
effective information & knowledge flows that will lubricate and accelerate the
development of SMCs in the bottom-up exercise.
Collaborative
Delivery
System
SMILE compatible
interface for SMCs
on Project P
General SMILE-SMC uses e.g. in (a) sourcing ‘available’ services & ‘information’,
(b) posting ‘wanted’ notices, and (c) improving ‘performance
CONCLUDING OBSERVATIONS
The collaborative information, knowledge-sharing and decision support systems that are
being developed in the two reported R&D projects target different ends of the
construction supply chain. Appropriate links and protocols are seen to be useful in
generating valuable synergies and wider coverage across the entire supply chain. The
planned top-down and bottom-up industry development can be both extended and
effectively ‘connected’ – by a project-specific Project Information & Knowledge
Management Platform (PIKMAP) that provides appropriate interfaces and mutual
benefits to all project participants.
Specific groups of participants will receive information on a ‘need to know/ share’ basis,
guided by a principle of getting the right amounts of the right information to the right
people at the right time. Different security level settings will enable control, while each
information ‘originator’ may also screen out potential recipients who would have no
particular interest in that piece of information. This will minimise the ‘information
overload’ that can easily arise from each participant sending every bit of information
generated to all other authorized participants. Security and legal liability issues will need
addressing if sub-contractors and suppliers are to access consultants’ design changes
directly, rather than through their ‘parent’ contractors. While this saves time, it does not
mean a supplier can act on the changes without authorisation from its ‘contracting party’.
On the other hand, the collaborative working arrangements envisaged in ‘partnering’ and
‘alliancing’ projects would benefit from such an inter-participant PIKMAP. Second and
third generation partnering and alliancing arrangements increasingly advocate such
collaborative interactions and information sharing but lack the mechanisms to enable
them. Most existing project/ document management systems are geared towards
facilitating the traditionally restricted/ guarded communications in ‘adversarial’ scenarios.
PIKMAP could address this shortfall e.g. in facilitating group inputs where needed, better
informed decisions and faster dissemination. Given the choices to be made and the issues
to be addressed it is envisaged that each PIKMAP will be client-driven, i.e. the
information flow, specific interfaces and access protocols will be designed into the
‘collaborative delivery system’ set up by the client and his principal adviser/ consultant.
ACKNOWLEDGEMENTS
Grant HKU/7011/02E from the Hong Kong Research Grants Council and D02 002 074
from the Hong Kong Trade & Industry Department are gratefully acknowledged, for
enabling R&D work on the MSS and SMILE-SMC projects respectively.
506 Kumaraswamy et. al
REFERENCES
Anderson, S. and Oyetunji, A (2003) Selection Procedure for Project Delivery and
Contract Strategy, Proceedings of the 2003 ASCE Construction Research Congress,
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508 Kumaraswamy et. al
CONSTRAINTS ON THE ICT DIFFUSION WITHIN LARGE AUSTRALIAN
CONSTRUCTION FIRMS
ABSTRACT
INTRODUCTION
The research reported upon here differs from previous IT innovation research in two
ways. First, we make the assumption that organisation-wide ICT diffusion (such as
groupware or intranet applications) may differ from stand-alone ICT innovation (such as
CAD systems or non-integrated project planning and scheduling). One reason for this is
that organisation-wide ICT innovation requires a commitment from a greater number of
510 Peansupap and Walker
Before going into details, it is essential to answer why innovation diffusion is useful in
explaining ICT implementation. ICT implementation is a complex rather than simple task
involving both technical and social issues. Many practitioners believed that ICT failures
occur because of technical issues rather than social issues. However, [Songer et al.
(2001)] argues that corporate culture is one the main implementation barriers to
information technology systems rather than technology issues. This supports general
innovation diffusion theory where it is held that the major reason for innovation failure is
poor implementation. It has also been argued that implementation needs to be managed
and structured because it is the critical process in successful ICT innovation diffusion
[Green & Hevner (2000)]. Thus, overlooking the importance of ICT initiative
implementation may cause ICT failure.
Even though several studies argue that the main cause of ICT implementation failure
relates to social issues, many practitioners still neglect the important of social issues in
regard to ICT implementation. [Griffith et al. (1999)] provide evidence in their study of
ten technology projects from a Fortune 300 manufacturing organisation. They found that
project managers tend to overlook social issues when developing their innovation
initiative project budgets. For example, in five out of ten cases there was no budget
allocation for social issues and in another four cases the budget allocation for social issues
was only 1%-2%. [Griffith et al. (1999)] also showed that MIS students and MBA
students hold different views of allocating ICT budgets. They found that MIS students
allocated a larger budget for people development than MBA students who allocated
greater amounts for technical development. They reasoned that both replacement of
technology and people movement may cause ICT implementation budget allocation
problems because people can choose to leave a firm whereas a technology investment
remains on its books, thus people investment can be potentially ineffective. People-
related ICT implementation support is an internal activity that will often have a lower
budget priority compared to investment in technology systems [Griffith et al. (1999)].
Thus, an unclear understanding of the implementation process can cause ineffective ICT
implementation that may eventually lead to implementation failure.
This paper identifies ICT implementation constraints from the diffusion perspective to
improve understanding of the importance of ICT implementation. We define constraints
and diffusion terms and then discuss adoption, implementation and diffusion aspects. We
then use a casual loop diagram [Senge, P. et al. (1999); Senge, P. M. (1992)] tool to
explain common ICT diffusion constraints to highlight interesting issues from the an
organisational perspective.
Constraints on the ICT diffusion within large Australian construction firms 511
DEFINITION OF TERMS
In this paper, we use the term ICT diffusion constraint to refer to resistance to drivers of
change that occurs in organisations during ICT adoption and implementation. We define
ICT diffusion as a process where organisations introduce ICT initiatives for adoption by
expected users. Resistance may occur at organisational, group and/or personal levels.
Therefore, an understanding of constraints could help construction firms manage ICT
diffusion by focusing on possible ICT implementation diffusion barriers and finding ways
to militate against these problems.
Different organisations have their own specific process and culture, which in turn causes
an inconsistent outcome of innovation diffusion so that it is difficult to generalise any
case studies of innovation diffusion with certainty. However, a general understanding can
emerge from individual case studies and so the more case studies that can be undertaken,
the greater is the chance of patterns being identified that stabilise into something
approaching a general theory.
512 Peansupap and Walker
This paper focuses on the qualitative data analysis on constraints that occurs during ICT
diffusion within three contractors’ organisations from the top ten Australian construction
contractors with an annual turnover in excess of one billion Australian dollars. These
companies are experienced ICT users with a history of decades of ICT initiative
deployment ranging from accounting and planning information technology (IT)
applications during the 1980s to groupware applications today such as email and
intranets. Further details about the contractors can be found elsewhere (Peansupap et al
2003) as the space limit in this paper does not permit us to provide this information. We
chose a descriptive case study approach to obtain rich information from the participant’s
viewpoint using multiple sources of data that helped us understand what was happening
as well as how and why it followed a particular trajectory [Yin (1994)]. Case study
qualitative research can be grouped into three broad categories: exploratory, descriptive,
and explanatory [Neuman (1997)]. We used quatitative research to identify factors
influencing ICT diffusion within construction organisations and explain how they
influence the ICT diffusion processes.
Data collection started with discussions with senior IT managers from the three
organisations Case study contractor A, B and C to understand the strategic adoption of
ICT applications at the organisational level. We followed that up with interviews
conducted with the ICT implementer or ICT manager involve in rolling out the ICT
application at the organisation, group or individual level. Experienced ICT users were
requested to discuss their impression of drivers and barriers influencing their adoption
and use of ICT application. Our analysis followed casual loop diagram [Senge, P. et al.
(1999); Senge, P. M. (1992)] to explain the constraints that occur at the: organisational
level, individual and group levels. Finally, we conducted seminars to feed back and
validate our analysis and to stimulation further debate.
Many studies have identified various factors influencing ICT implementation but few can
adequately explain the ICT diffusion constraints for construction firms. Results from two
case studies of web-based document management and one case study of an Intranet
document management system are used to support our explanation. These are illustrated
in Figure 1 and show that the influencing forces comprise one driving (positive impact)
Constraints on the ICT diffusion within large Australian construction firms 513
cycle of organisational support at the organisational level and three barriers (negative
impact) that constraint the ICT diffusion initiative.
Figure 1 illustrates the drivers and barrier forces that act upon the diffusion of this ICT
initiative at the organisational level during the initial adoption phase. The dashed line
indicates the construction organisation’s boundary in which ICT is adopted and diffused.
Factors that drive the initial adoption of the ICT initiative into the construction
organisations start with the firm’s policy that relates to the way in which its core ICT
competencies will be grown. A champion will emerge with varying degrees of
enthusiasm and influence within the organisation. Key people in the organisation will act
as gatekeepers who help filter messages about their impression of the ICT diffusion
initiative as well as bring additional knowledge to potential ICT users depending upon the
level of resources available to them. The ICT initiative investment decision is then made
and the adoption of the initiative proceeds and this results in perceptions of the business
result of the ICT initiative’s deployment.
Each driver has its own function in influencing ICT diffusion within a construction
organisation. Firstly, the company’s vision and policy have a direct influence on strategic
ICT adoption and implementation within a construction organisation. The company’s
vision functions as a long-term strategic objective of ICT adoption while the company’s
policy enhances ICT implementation by determining the framework for employee
behaviour. Secondly, support from top management has a key role in the ICT adoption
decision because this support is essential for development of infrastructure and people for
ICT adoption within the organisation. Without management support, ICT adoption is hard
to accomplish. Top management, who commit to the ICT adoption, allocates financial
expenditure. Thus, to obtain adequate funding, it is necessary to provide clear potential
benefits of the ICT investment to gain commitment from senior management. Thirdly, the
technology champion will also influence ICT diffusion at the organisational level as this
champion is considered as the source of ICT information to be distributed to employees
throughout the organisation. Fourthly, the firm should develop people’s knowledge of
how to effectively apply ICT to their work practices because successful use and adoption
of ICT diffusion is required to support their work processes. Without effective ICT
adoption by expected users, the firm cannot gain full benefit from its investment. Thus,
sharing and building internal group knowledge (both of how the ICT initiative works
technically and how it is applied to enhance construction practice) can facilitate ICT
diffusion because it can ensure that ICT will be effectively used. Finally, the company
should develop a knowledge network with professional institutions and/or university
academics to be able to maintain additional channels of advice and support. This
networking can increase interlinking with the firm to others with ICT knowledge to feed
updated ICT knowledge back into the intra-organisation supply chain network. This
information network can be an essential part of the innovation diffusion process for the
company because ICT information can be effectively transferred from the
industry/professional level to the organisational level.
Although the organisation attempts to encourage ICT diffusion during the initial ICT
adoption phase, some constraining barriers may develop. These constraints can be
categorised into three main groups: (a) ICT investment decision gaps, (b) organisational
adoption gaps, and (c) business result/outcome gaps.
In Figure 1, the first constraint loop (C1a) illustrates ICT investment decision gaps at the
organisational level. These stem from several issues such as: lack of technology
awareness; a complex construction environment; immaturity of the technology to be used;
unsuited technology for organisation needs; and financial constraints.
benefits. Lack of technology awareness may also obscure the ICT investment opportunity
because knowledge about a construction process (such as estimating or cost control) may
be limited to more conventional methods rather than how ICT may be applied to more
effectively re-engineer these processes.
The nature of the construction environment is complex and this may influence the ICT
investment decision. For example, the IT developer in Case B mentioned that the
construction industry is slow in its adoption of most new technologies. Many construction
people are very conservative in their thinking. Similarly, the IT senior manager in Case A
said that the construction industry culture is a key constraint on ICT investment because
construction subcontractors and smaller scale suppliers find it hard to change their way of
working with contractors, especially in the area of ICT innovation which needs
commitment from many other project participants in a supply chain to fully realise the
benefits of e-commerce and extranet technologies. In addition to the people and
construction culture barriers, the process of construction is also complex requiring many
different supply chain partners of different organisational size and sophistication each
often using their own documentation processing standards. ICT investment decisions
would benefit from an industrial standard. However as noted by the IT manager in Case
C, while several ICT construction applications for e-business have been recently
developed there is as yet no standard platform for the Australian construction industry.
Engineering consultants who have to adopt and use several ICT platforms that are used by
different main contractors also made this statement. Thus, ICT investment decisions
should be made in the context of constraints that exist in the current construction
environment.
Immaturity of technology
Immaturity of technology may cause reluctance to invest. For example, the IT senior
manager in Case C mentioned that ICT groupware applications were immature. However,
he decided to adopt one of the many available ICT portals for documentation sharing
instead of developing an in-house solution that would better integrate with other
organisational ICT systems. He commented that the development of in-house ICT might
lead to incompatibility with a future system that may become an industry standard. Thus,
immature technology may require a lot of resources including technical specialists and
hardware and software development for integration with legacy systems that in turn might
demand high ICT development investment. This may be the reason why many small-
medium construction organisations are slow to adopt ICT innovation. Immaturity of
technology, therefore, may be seen as an investment risk because of potential high costs
and possible incompatibility.
In both Case A and Case B the reason given for adopting in-house ICT development was
that at the time there was no commercial ICT application suitable for their organisation.
While immature technology can lead to incomplete ICT functions, technological benefits
516 Peansupap and Walker
that do not fit with the organisation’s needs have a similar negative impact but it focuses
more on the functions or benefits that fail to adequately fit technology within construction
organisations. This constraint may obstruct the investment decision because
fundamentally ICT adoption should support construction work processes. Thus, if ICT
applications are not supported with organisational work processes, it will be hard for the
company to gain benefits from its investment. For example to function optimally a
groupware application may require high band width access for all sites regardless of size,
this may not suit using this technology on small projects where the cost of establishing
the ICT infrastructure may be uneconomical.
Financial constraint
Senior IT managers agreed that financial considerations are a major ICT investment
decisions constraint. This can cause ICT investment decision delays. This is especially
true if the organisation decides to develop its own ICT technology with a requirement for
a lot of people and funding resources. The ICT investment needs commitment from senior
management to provide the necessary budget and support. Where there are financial
constraints, the investment decision of in-house ICT application should be based on a
long-term ICT strategy that allows the organisation to develop ICT in several modules.
Furthermore, financial constraints may result in a lack of budget for hardware, operation,
training, and maintenance.
The second constraint loop (C1b) is the organisational level adoption gap. Lack of ICT
adoption implementation experience of senior managers introducing ICT into an
organisation and user resistance (possibly as a result of this) may contribute to this gap.
There was evidence that there may be a link between lack of confidence and user
resistance.
The third constraint loop (C1c) at the organisational level is the business result gap. The
business result means the actual tangible outcome of the ICT investment though
intangible results may be recognised as of value. However, the actual result may not
match expected organisation needs and be devalued as a result. The perceived value of a
business result may be hindered by an overestimation of expected ICT benefits.
One way to minimise unrealistic estimates of ICT benefits, is for the organisation to trial
ICT pilot projects and learn from them. However, it is natural for IT managers to select
projects with enough support and resources to be successful [Songer et al. 2001)]. Thus,
success of an ICT application in one project may not guarantee success in another.
Therefore, an understanding of the pilot project’s characteristics will help the IT manager
to adjust investment plans of actual ICT investments to reflect reality.
DISCUSSION
[Skibniewski & Abduh (2000)] found that there are two strategies for adopting ICT—in-
house development and outsourcing depending upon the level of internal systems and
resources that support the main organisational functions. Our belief is that no matter
which strategy is selected, organisations still need to implement their ICT initiatives. To
518 Peansupap and Walker
understand the ICT implementation, the organisation should adopt a trial, a pilot project
strategy to learn from experience [Sutton & Lemay (1999); Whyte et al. (2002)]. First,
this strategy could help them understand real benefits and possible constraints that may
occur before diffusing the ICT initiative throughout their organisation. Second, a pilot
strategy can help the organisation to overcome the investment barriers because a pilot
generally requires a small-scale budget. Third, a pilot project can help avoid a large cost
impact if the ICT implementation fails. The final advantage of this strategy is help to
create small wins and create a best practice model, which helps staff, understand the
benefits of the investment.
The constraint loops (C1a, C1b, C1c) describe organisational level ICT diffusion
constraints. These constraints involve a construction organisation’s internal and external
environment with issues that may influence the investment decision, the organisation’s
ICT initiative adoption and resulting business results. Constraints at the organisational
level are different from the constraints at both the individual and group levels. For
example, the organisational constraints involve issues relating to an organisational
decision adoption that is determined by a senior management group or IT managers
whereas the individual/group constraints involve issues relating to operational users who
are expected to use ICT. Thus, it is necessary to explore the constraints at both individual
and group levels. While we acknowledge the limitation of this paper’s scope group and
individual level implications are explored in one author’s PhD thesis currently under
examination.
This paper, based upon research of three sophisticated large construction contracting
organisations, provides insights into what drives and inhibits effective ICT innovation
diffusion for this class of construction firm at the organisational level. While we do not
intend that results should be generalised to other types of construction organisation, they
do provide a useful checklist of potential pitfalls that may be more broadly considered in
a wider context. The literature and the case study results suggest that organisations should
closely manage their ICT initiative decision making and implementation using pilot
studies and a reflective learning approach to maximise advantages from lessons learned.
This research work formed part of a much wider study and so many of the unanswered
issues are unaddressed elsewhere.
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520 Peansupap and Walker
STRATEGIC MANAGEMENT OF INFORMATION TECHNOLOGY IN
CONSTRUCTION INDUSTRY: THE INDONESIAN PERSPECTIVES
CHANDRA BHUTA
School of Architecture, Civil and Mechanical Engineering, Victoria University of
Technology, Melbourne, Victoria 3011, Australia
Chandra.Bhuta@vu.edu.au
ABSTRACT
This paper presents findings of a research project which explores the current use of
information technology (IT) in the Indonesian construction Industry. The findings are
based on a survey taken between December 2002 and April 2003 among 250 construction
companies registered in the National Construction Industry Development Board (CIDB).
The CIDB listed and classified these companies as B group or large company. A total of
48 valid replies were received, representing a response rate of 38%. The survey includes:
IT environment and management, use of software, hardware, internet application and staff
competency, Investment in IT, benefits gained and problems associated with IT
implementation. An assessment of the exploitation of IT for business strategic purposes
was also explored. Survey reveals that (1) Level of IT applications among contractors in
the industry is relatively low in their core activity; (2) There is a growing gap in
managing IT, where high investment and expenditure in hardware and software on one
hand with poor human resources development on other hand; (3) From strategic point of
view, Indonesian construction industry is still in reactive mode in managing IT indicating
that the industry has a limited understanding of the value and potential of IT. The paper
suggests a need to aggressively promote relevant government initiatives which would
increase strategic use and adoption of IT. Government and public agencies should
consider policies that encourage the use of IT in the construction industry thus making
this industry sector more competitive.
INTRODUCTION
impact on the way business processes are carried out. IT can no longer be viewed as an
enhancement to traditional business procedures but rather as an innovation agent that
enables new and different alternatives in operation of business organization. This new
trend will color investment attitudes of business communities in the world towards
utilization of IT in the coming years.
IT is already widely used in construction organizations and much more dramatic effects
are anticipated for the years to come. [Betts, (1999)] reported that the construction
industry in many countries is starting to consider seriously the strategic use of IT. The use
of IT in construction is extending beyond the stage of piecemeal application for
improving the efficiency of discrete operations by individual organizations to an
advanced stage where IT is applied strategically in commercial enterprise, government
agencies and professional institution. From strategic point of view, IT has the potential to
change the landscape of the construction industry.
PREVIOUS WORKS
2002), Toole (2003)]. With so much research being carried out on the use of IT in the
construction industry, it is important to ensure that the results and findings can be
compared and lessons learned be applied to gain a picture of the growth of IT use.
However, the number of research surveys related to construction IT in developing
countries appears to be limited. Above surveys certainly provide information of IT in
construction industry in the developed countries. [Howard (2003)] stated that IT products
such as software are available worldwide, but may not fit into industries that are
organized in a traditional way and do not have the same drive towards process
improvement yet. [Stewart (2002)] reported that construction organizations operating in
these countries face further distinctive difficulties, such as, scarcity of IT professionals,
inadequate physical and information infrastructure, social and cultural diversity, and
political barriers that modulate and distort competitive markets
The research aims to investigate the current state of IT in the construction industry, to
obtain an up-to-date and general view of the state of IT applications in Indonesia. The
survey includes IT environment, such as hardware, software, networks, staff competency,
and IT investment and the resulting benefits and associated problems, and assessment of
the exploitation of IT for business strategic purposes.
Postal transmission of questionnaire was selected as the main information gathering
research process. This method is widely used for collecting data and opinions from target
groups. Some personal interviews have also been undertaken to supplement some
limitations of the postal questionnaire. The mailing list for the survey distribution was
obtained from the National Construction Industry Development Board (LPJKN/CIDB).
The survey recipients were mainly in the capital, Jakarta area for the following reasons:
(1) About 30 percent of construction projects in Indonesia are located in the Greater
Jakarta area, (2) Most of the projects, especially public work projects, are planned and
designed in Jakarta, and (3) Most of the construction participants - owners, designers and
contractors - have their head offices or representatives in. There were approximately 247
organization listed in the mailing list representing all national companies which operate
throughout Indonesia. A group of 130 randomly selected construction companies were
sent the questionnaire. Of these 20 were returned undelivered and or declined to
participate. 48 organizations (44 % of those delivered) returned the questionnaire. The
questionnaire responses were entered into a spreadsheet for collation and analysis.
Characteristics of Respondents
The companies represented in the survey had a workforce that varied from one employee
to over 200 employees in average. Under half of the respondents have over 200
employees.
524 Strategic management of information technology in construction industry
The respondent companies in terms of size (number of employees) are shown in Table 1.
The data is derived from Construction Industry Development Board (CIDB) of Indonesia.
Most of the companies are involved in civil, electrical and mechanical construction
works. Over 90% of all local companies are involved in civil construction business. Of all
international respondent companies 64% have engineering business (Electrical and
Mechanical Engineering), and 59% of them compete with the local firms in civil
construction
Thirty organizations had annual revenue of more than US$666,667. Twelve (25%)
organizations had an annual turnover between US$111,111 – 555,556 and 6 organizations
had an annual turnover of less than US$111,111. In the highest category of revenues there
are 45% of all multinational companies and 42% of all local companies had turnover of
more than US$1.1 m annually.
IT investments
This section will present IT environment within the following topics: General IT
investment, IT related expenditures, and reasons toward investing on IT.
General IT investment
The amount of company funds spent on IT investment has always been controversial. For
many years it has been thought by some executives feel that too much has been spent and
with insufficient return from this IT expenditure.
In terms of spending on IT, by looking at the current picture, most firms (83%) spend less
than 10% of their overall expenditure on investments in IT. 16 % of the companies
surveyed spend more than 10% on IT.
Strategic management of information technology in construction industry 525
With the scant budget for IT expenditure, the firms tend to spend it more on hardware and
peripherals (98%). As more new IT products come out in more frequent cycles, the
pressure to upgrade will only increase. Naturally, to operate the latest hardware and
employ the necessary applications must be followed by an 88% budget in spending on
Software.
However, the proportion of training and manpower costs is well below under hardware,
software, and networks management costs.
Interestingly, with the emphasis on upgrading the systems, IT manpower and training
takes up the fourth and fifth budget priority. There is a disparity on having the latest in
hardware and software without the necessary adequate and/or trained personnel to operate
it.
The motivation for investing in IT seems to be initially for proficient technical work,
followed by management control and reporting, demand from employee (internal
purposes). Innovation becomes least reason for investing on IT.
In the next, level of IT use in business processes is going to be set. With so many
potential strategic applications for IT in business, it becomes important to find a means of
classifying the role played within organizations business processes. To enable such
classification, a self-assessment matrix categorizing IT use into one of level or quadrants
is often utilized. Construct IT – University of Salford develops the following matrix.
In this case, business processes have been defined as processes that cut through the entire
organization to exist as a business entity. [Betts (1999)] outlines a definition of generic
business processes in construction enterprises as shown below:
Business Planning: refers to strategic management of the organization, deciding on new
business ventures, and other senior management functions.
Marketing: refers to market selection, public relation activities, market intelligence, and
generating new business.
Information management: refers to communications links between parts and locations of
the business and external organizations, information achieving and distribution, and
activities in information processing. It also includes information strategy and system
planning.
Procurement: refers to all activities associated with the involvement of the organization in
the procurement activities of the client or customer and to the activities associated with
procuring the services and activities of other participants to the organization’s input to the
project. Finance: refers to activities associated with financial management and transaction
processing on projects and at head office within organization
Client Management: refers to activities associated with managing relationships with
customers, both on specific projects and in longer-term relationships.
Strategic management of information technology in construction industry 527
Design: refers to those activities concerned with obtaining a brief, conducting feasibility
studies, and sketch and detailed design activities undertaken on projects.
Construction: refers to those activities associated with production support on projects and
extends into commissioning.
Occupation and maintenance: refers to activities associated with the use and occupancy,
and maintenance phases of buildings and projects.
Human Resources: refers to activities within the organization and on its projects that
concern the management of people.
The Porter’s Value chain models [Porter (1980)] can also to be adapted to the
construction industry, where business processes divide into two categories:
Core activities: refers to processes associated with business planning include design,
construction operations include planning & scheduling, Operation executions and client
services follow-up include client management.
Supporting activities: refers to processes associated with human resources, procurement,
finance, IT and other technology application and development, and marketing.
The following sequences describe the methodology adopted in assessing the level of IT
use in different business processes in construction organizations.
Use questionnaire results related to three typical benefits gained in the previous section
would to find out the role played within construction organizations. [Betts (1999)]
provided a useful checklist of typical benefits in relation to business processes.
Rank business processes and the classify into core activities and supporting activities
Use the self-assessment matrix to assess the level of IT use.
Survey shows that Indonesian construction industry was having investment for acquiring
the latest in hardware and software, but does not have adequate and trained personnel to
utilize the same. It can be surmised that IT is used mostly in administration and other
supporting area, but not in strategic core and business enhancement processes.
If above areas of IT applications are strengthened the Indonesian construction industry
will reap greater benefits.
Since the level of IT use is prevalent at lower level, top management of construction
organizations should have strong commitment to develop strategic management of IT in
their business processes. The hardware, software and their applications should be utilized
to enhance both core and supporting activities to gain competitive advantage in today
highly global business environment. Secondly, the firm's management should give greater
attention to IT support and training, by making sure that there is sufficient trained staff for
the implementation of IT, and making greater effort in training staff on the correct and
efficient use of IT in the organization. Thirdly, Government and public agencies should
consider policies that encourage the use of IT in the construction industry thus making
this industry sector more competitive, and encourage industry to make greater use of
information system.
Strategic management of information technology in construction industry 529
FURTHER WORKS
The survey was confined to only one sub-sector (large contractors) of the Indonesia
construction sector in particular Jakarta. Other sub-sectors such as small and medium
firms should be a part of future surveys. This being the first published survey of this type
in Indonesia, a full study in greater breath and depth would be highly recommended for
this important field. The result of such a study and the adoption of its recommendations
would be of immense value to the construction industry in Indonesia and the national
economy.
REFERENCES
Arif, A.A. & Karam, A.H. (2003) A Comparative Study: With Insight into The Use of
IT in Local Architectural Practices. Proceeding W78-19, pp.8-14.
Betts, Martin (1999) Strategic Management of I.T. in Construction. Blackwell Science
Ltd, Oxford.
Construction Financial Management Association. (2002) 2002 Information
Technology Survey for the Construction Industry, (fourth edition) CFMA,
Princeton, New Jersey.
Futcher, K. (2000) Use of Information Technology within the Hong Kong
Construction Industry. Proceedings, International Conference on Construction
Information Technology, INCITE (2000) Hong Kong, pp.119-131.
Ganah, A., et al. (2001) A Survey of The Use of Visuatlisation Tools to
Communication Buildability Infonrmation. COBRA, RICS Conference,
Glasgow Caledonian University.
Howard, Rob. (2003) IT Directions – 20 Years Experience and Future Activities for
CIB W78. Proceeding W78-19, pp.153-161.
Howard, Rob., Kiviniemi, Arto., & Samuelson, Olle.(1998) Surveys Of It In The
Construction Industry And Experience Of The IT Barometer In Scandinavia.
Electronic Journal of Information Technology in Construction, Vol.3/1998, pp.47-
59.
Ingirige, B., and Aouad,G. (2001) Awareness and Usage of Information Standards in
the UK Construction Industry: A Survey by The SIENE Network. Proceeding
CIB W78-17, South Africa, Paper ID.007.
Isikdag, Umit. (2002) A Survey of IT use in the Turkish Construction Industry. The
Second International Postgraduate Conference in the Built and Human
Environment, University of Salford, UK. (April 11-12th, 2002).
Love, Peter E.D., MacSporran, Carol. & Tucker, Selwyn. (1997) The Application O
Information Technology By Australian Contractors: Toward process Re-
Engineering. Proceeding of International Conferences on Lean Construction,
The University of Birmingham, UK, 1996.
Marosszeky, M., et al. (2000) Information Technology in the Building and
Construction Industry: The Australian Experience. Proceedings, International
Conference on Construction Information Technology, INCITE 2000, Hong
Kong. p.183-196.
530 Strategic management of information technology in construction industry
ABSTRACT
The findings revealed that the five utmost types of measurement used in Malaysia were
measuring contractor performance, followed with measuring project quality, project
performance, project manager’s performance, project viability and feasibility, and
consultant’s performance. Private sectors in Malaysia were seen to be more receptive,
detailed and thorough in measuring project performance compared to the Government.
Although the results reported the different types of measurement used, it highlighted that
there are no systematic models that appeared to be adopted by the respondents in
measuring project performance.
INTRODUCTION
This study initially explores and documents the performance measurement systems used
in the development of construction projects in Malaysia by the four groups of project
stakeholders, namely: the Government, private clients, consultant and contractors. The
second stage reports the possibility of measuring project performance based on
performance indicators at the four project phases.
[Mbugua et al, (1999) and Love et al, (2000)] have identified a distinction between
performance indicators, performance measures and performance measurement.
According to [Mbugua et al, (1999)], performance indicators specify the measurable
evidence necessary to prove that a planned effort has achieved the desired result. In other
words, when indicators can be measured with some degree of precision and without
ambiguity they are called measures. However, when it is not possible to obtain a precise
measurement, they are usually referred to as performance indicators. Performance
measures are the numerical or quantitative indicators [Sinclair and Zairi, (1995). On the
other hand, performance measurement is a systematic way of evaluating the inputs and
outputs in manufacturing operations or construction activity and acts as a tool for
continuous improvements [Sinclair and Zairi, (1995); Mbugua et al, (1999)]. In response
to calls for continuous improvement in performance, many performance measurements
have emerged in management literature (see Mbugua et al, (1999)].
According to [Sohail et al, (2002)], one of the probable reasons for the lack of
performance monitoring in many public projects in South Asian countries is the non-
availability of the reliable performance indicators. There is no standard measurement
formulated to assess project performance in the project life cycle. All the key
stakeholders’ (client, consultant, contractor, supplies, and users) needs and expectations
are not being seriously highlighted and entertained. Different prioritisation of cost,
quality and time factors between project stakeholders, as well as the non-congruence of
Analysis of performance measurement of construction projects in Malaysia 535
measurement criteria could create conflict among the stakeholders. The consequences of
this could result in the project being completed with many claims and legal jurisdictions
to settle conflicts. In the meantime, the performance of a project reflects the performance
of the people who managed the project [Cooke-Davis, (2002)] and to a large extent relies
on the right people having the right information at the right time [Kagioglou et al,
(2000)].
With most public clients in Malaysia, the difficulty is on how to choose the most reliable
measurement methods to measure the performance of their construction projects in the
different phases of the project life cycle. The CIDB of Malaysia has proposed a solution
and consequently, the QLASSIC model of project quality and productivity measures has
been proposed by them (CIDB, 2001b). The five key objectives of the model are: to
evaluate the quality of workmanship, to comply with a set of approved standards and
specifications, to compare quality between projects, to evaluate a contractor’s
performance and, finally, to estimate the productivity level of the project. The model
emphasises three components of construction physical works namely; structural,
architectural and external. The assessment of structural work is done during the
construction process, while both the architectural and external works are conducted after
the completion of the project, before handing over to the client. QLASSIC evaluations are
done for superstructure components of a building and do not cover substructure works,
mechanical works and electrical services. The strength of this model is that it is very
simple to implement. Nevertheless, a major weakness is that assessment of architectural
and external work is not conducted until the project is completed.
RESEARCH METHODOLOGY
The methodology adopted for this research was based on a structured questionnaire
survey of four principal target groups within the Malaysian construction industry,
focusing on the states of Selangor and Kuala Lumpur in Malaysia. The data collection
exercises were held in Malaysia over a period of three months in 2003. A fourteen-page
structured questionnaire was distributed to four targeted groups (the Government, private
clients, consultants and contractors) representing a mixture of professionals, including
those dealing with policy-formulation, design, construction, quantity surveying, and
clients of construction projects. Samples were randomly selected from the listing
provided by their respective professional institutions. The target population for
contractors was based on companies that are registered with the CIDB of Malaysia under
536 Takim, Akintoye and Kelly
the Class G7 (projects greater than Ringgit Malaysia 10 Million) categories and were
identified from the CIDB directory. The two states of Selangor and Kuala Lumpur,
Malaysia, were chosen because larger groups of professionals and Class G7 contractors
registered in these regions, representing above 61% of registered professionals in
Malaysia [CIDB, (2003a)].
This paper on performance measurement systems reports a section of the larger survey.
Based on a comprehensive literature review, a list of sixteen different types of
measurement used in the development of construction projects (Table 2), were produced
for the respondents to identify their level of use in the Malaysian construction industry.
Respondents were also required to assess the techniques of measurement used. In
addition, a list of 28 performance measurement indicators was listed for them to provide
opinion on the extent to which they impact on the four phases of the project life cycle.
Respondents were required to rate their responses on each question on a five-point Likert
scale (1-5), where one represents ‘not important’ and 5 ‘extremely important’. The
questions were of the ‘close-ended’ type aimed at simplifying completion, thus enhancing
the response rate, as suggested by Dlakwa, (1990). The results were analysed using the
Statistical Package for the Social Sciences (SPSS) software. Statistical analyses
conducted include: descriptive analysis (mean value and ranking) and inferential statistic
[Kruskal Wallis of One-way ANOVA and a Wilcoxon Signed Rank Test of 2 related
samples].
Response Rate
As shown in Table 1, a total of 446 questionnaires were sent to the different target groups
in the Malaysian construction organisations. Ninety-three questionnaires were returned
within two months of being sent out, making the total response rate 20.9 percent. This
response rate was finally achieved after several efforts were made in terms of personal
contacts and follow-up calls. All the questions were satisfactorily completed. The
respondents had an average construction experience of approximately 16 years. The
majority of them were in senior positions in their organisations.
percent response rate. Although the volume of the questionnaire (14-pages) is essential to
capture the issues involved in project success in Malaysia, it might also have been
responsible for the seemingly low response rate. Nevertheless, this questionnaire was
completed by the various project stakeholders in Malaysia and, thus, gives us some
confidence that the responses are representative.
Table 2 shows the results of sixteen different types of measurement used in the
development of construction projects in Malaysia. Using a demarcation point of 50% of
the overall percentage of measurement used, six types of measurements are perceived to
be crucial by the Malaysian construction project stakeholders. These are: contractor’s
performance (78%), project quality (63%), project performance (59%), project manager’s
performance (54%), viability and feasibility (53%), and finally, consultant’s performance
(52%).
538 Takim, Akintoye and Kelly
When comparisons were made between sectors, with the exception of the contractor’s
groups, all the three sectors (Government, private clients, and consultants) were in broad
agreement on contractor’s performance has been the most important with the percentage
values of 100%, 87%, and 76%, respectively. This finding complements the view of
other researchers; contractor performance is the most popular measurement in the
development of construction projects compared to other measurements that could be
undertaken [Egan, (1998), Brown et al, (2001); CIB, (1998); Arditi et al, (1998); CIDB
Malaysia, (2001b)]. More often than not, an evaluation of contractor performance on the
whole is associated with the time, cost and quality parameters. Since project success leads
to satisfaction, the most straightforward relationship of goals to satisfaction is that when
the contractor is able to deliver the project on time, on reasonable budget, and exceed the
standard of quality (Liu and Walker, 1998).
The second ranked factor is ‘project quality’. Government and consultants groups
regarded ‘project quality’ as the second most important factor out of sixteen. Private
clients ranked ‘project manager performance’ 2nd and ‘project quality’ 3rd. On the other
hand, contractors ranked ‘project manager’s performance’ 1st and ‘project quality’ 3rd.
The possible explanations may be due to the current intervention by the CIDB, Malaysia,
on industry players to implement quality measures in the Government projects [CIDB,
(2000)]. Meanwhile, in the private sectors, project managers play various roles in
monitoring the activities of the entire project consortium. As such, the competency of the
project manager is sought to act in the interest of various project stakeholders as pointed
by [Newcombe (2003)].
Furthermore, the analysis revealed that private clients, consultants, and contractors agreed
to measure the ‘viability and feasibility’ of construction projects as essential and ranked it
in the 5th, 3rd, and 7th places, respectively with the exception of the Government
organisations. According to Tan (1996) measuring the viability and feasibility of projects
Analysis of performance measurement of construction projects in Malaysia 539
is the initial task by project consultants prior to embarking on a project. Once the
feasibility study has been carried out, the client may also need assistance to check the
viability of the proposal as to ensure the product technically and commercially be fit for
the purpose. Since most Government projects in Malaysia are regarded as viable,
measuring the viability and feasibility of project is probably less emphasised by the
Government.
Performance Indicators
Table 4 gives the overall mean scores and the priority ranking of the groups’ perceptions
on the proposed 28 factors as a framework to drive the projects at the four phases of the
project life cycle. Out of these 28 variables, 8 variables are rated as ‘very critical’ by the
groups. These variables are: client satisfaction on service, profitability, development of
clear and concise project brief, project feasibility and viability, users’ satisfaction on
product, procurement and delivery strategy, project quality, and cost growth/overrun.
The remaining 20 factors are also significant and classify as ‘critical’ with the mean
scores in the range of 3.24 to 3.97 which is absolutely higher than the mid-point score of
2.5 (Cheung and Yeung, 1998), implying that all of these factors are essential to the
project stakeholders.
However, the overall lower rating on ‘project objectives’, corporate missions, and project
philosophy were unexpected and seemed to be mistreated by the respondents. It is
interesting to note that these three factors are associated with the project strategy
formulation phase. The probable reason for the inconsistency occurring amongst
respondents, may be due to a lack of thought given to capture the most significant
indicators out of 28, when these variables were purposely not subdivided into the four
project phases. Furthermore, close comparisons between sectors show that the
Government sector assigned ‘concise project brief’, ‘corporate missions, ‘external project
environment’, ‘procurement and delivery strategy’, and ‘client satisfaction on service’ as
the five utmost important factors.
Analysis of performance measurement of construction projects in Malaysia 541
Similarly getting the project done on time and on budget, user satisfaction of the product,
meeting project objectives and profitability were important to private clients and
contractors. In the meantime, the consultants group emphasised on ‘project feasibility
and viability’ apart from ‘client satisfaction on service’, ‘concise project brief’, and the
‘efficiency of approval authorities’. Given the above phenomena, it shows that the
relative importance of each dimension will differ within and between organisations at any
point in time and over time as pointed by [Maloney (1990)]. Therefore, it is important to
understand that by neglecting any of the dimensions for a significant period of time will
have negative consequences for the organisations.
CONCLUSIONS
In Malaysia, no systematic model seemed to be adopted at the various project phases for
performance measurements to benchmark project performance by the project
stakeholders. Although the QLASSIC model of project quality and productivity measures
of contractor performance was introduced by CIDB, Malaysia, this model has not been
implemented fully by any of the respondents. The interviews undertaken concurrently
with the questionnaire survey suggested that some respondents do not know the existence
of the QLASSIC system, while some have no knowledge of how to execute such
measurement techniques. This may be due to insufficient enforcement by the Malaysian
Government to implement the system.
Analysis of performance measurement of construction projects in Malaysia 543
In the meantime, 11 factors (client satisfaction on service, project quality, cost and time
growth/over-run, productivity, approval authorities, defects, degree of interaction, safety,
environmental effect, and external project environment) are suggested to be evaluated at
the project implementation phase. According to [Morris and Hough (1987)] various
factors are observed to be crucial at the project implementation phase, which includes: the
management structure and project interfaces, fragmentations and conflicts, external
forces, environmental implications, safety and other stakeholders’ attributes. This
involves a tedious and fragmented way of implementation where a high level of
integration, co-ordination, and good communication between the design and construction
teams is needed.
The research presented in this paper is part of wider ongoing PhD research into a framework
for successful construction project performance from the client’s perspective. It is
anticipated that the findings reported in this paper could be important for future strategies
and guidelines for measuring project performance in Malaysia.
544 Takim, Akintoye and Kelly
REFERENCES
ABSTRACT
This research aims at examining and identifying the cost components of construction
claims and necessary data for substantiating and pricing claims. The research was done
by identifying and analyzing the cost components for each contractual claim type handled
by employers. The availabilities, the appropriate method for calculation, and the data
required in substantiating and pricing process of each cost component were analyzed. In
addition, the ranks of the important cost components and the contract provisions are also
identified. The required data collected from the analysis were then classified into
subgroups by their sources.
It was found that there are a number of cost components, which can be classified into
either the employers’ claim cost components or the contractors’ claim cost components.
The availabilities of each component of each contractual claim type were also presented.
The data required in substantiating and pricing claims handled by the employers were
classified into seven groups by their sources and their topics. The strategic data acquired
from this research, especially that are necessary for substantiating and pricing high ranked
contractual claims and their related cost components, should be paid high level of
attention in order to enhance the effectiveness in the employers’ claim management
process and to reduce the project time and cost.
INTRODUCTION
Although construction claims have significant effects on the projects, they are not always
given adequate considerations. For example, a study shows that records available on sites
seldom allow an as-built schedule to be constructed easily [Scott and Assadi, (1999)].
The daily report is often given the least amount of attention although it may be the most
important document on the project [Pogorilich, (1992)]. A survey of construction claim
management practices in Thai construction companies showed that the lack of awareness
of on-site people is considered the major problem of claim management. Inadequacies of
supporting evidences, stemming from unaware project personnel as well as improperly
designed documentation systems, are the next serious shortcomings causing loss of
chances to recover incurred damages. The management level was also recommended to
pay more attention to these aspects for having an effective claim management system
[Surawongsin, (2002)].
From the employers’ point of view, it is appropriate that they should establish an effective
claim management system so that they can be aware of the potentially adverse job
conditions and have opportunities to take proper actions to protect or remedy the works in
advance instead of simply complying with contractor’s claims. From literature review, it
can be seen that the majority of the claim management systems focus on supporting the
contractors’ claim process. Because of the difference between the employers’ and the
contractors’ roles, rights, duties, availabilities of the information, their relevant types and
aspects of claims, and methods of analyzing and pricing claims, the management system
that is suitable for them must also be different. While the contractors always claim
against the employers for the delays, changes in scope-of-work, acceleration, and
differing site conditions, the types of claims generally claimed by the employers against
the contractors are claims for delayed project completion, defective work, and
abandonment of the project [McDonald, (1984)].
This research presents the results of analyzing the required data for the employers to
manage their claims in accordance with “The Conditions of Contract for Construction for
Building and Engineering Works Designed by the Employer” (“The Construction
′ ′
Contract”) prepared by the Federation′ Internationale des Ingenieurs-Counseils (FIDIC) in
1999, which is one of the most accepted standard forms of construction contract. In
addition, this research examined the strategy of identifying the cost components of the
employers’ claims, cost component quantification, and acquisition of necessary data for
substantiating and pricing the claims.
RESEARCH METHODOLOGY
The steps to examine and acquire the data necessary for the claim substantiating and
pricing processes consist of:
1. Identifying and analyzing the components of cost claimed for each employers’ and
contractors’ claim type specified in “The Construction Contract” [FIDIC, 1999]. In this
Strategic data for emplyer’s construction claims 549
step, the types of contractors’ claim cost components for each type of the contractors’
claims presented by [Adrian (1988)] were used as a framework in identifying and
analyzing the employers’ claim cost components.
2. Analyzing the availability, the appropriate method for substantiating or pricing, and the
data required in substantiating or pricing or recognizing each cost component of claims.
2.1 Analyzing the availability of each claim cost component for each claim-related
contract provision. In this analysis, the list of contractual claim in FIDIC’s forms of
contracts proposed by [Booen (2001)] and the types of contractors’ claim cost
components for each type of contractors’ claims [Adrian, 1988] were used. Each claim
cost component was labeled as “Not Included”, “Sometimes Included”, and “Always
Included” for each employers’ or contractors’ claim-related provision.
2.2 Finding the ranks of the most frequently found cost components and contract
provisions by representing “Not Included” by “0”, “Sometimes Included” by “1”, and
“Always Included” by “2”. Then the summation of such values for each cost component
and each contract provision are calculated.
2.3 Reviewing and Selecting the appropriate method for substantiating or pricing each
claim cost component from literature. The criteria for selecting the appropriate method of
calculation were the correctness of result, advantage, disadvantage or limitation, and
acceptance. The discussion of each selection is, however, beyond the scope of this paper.
2.4 From the substantiating or pricing method selected in 2.2, analyzing the data
necessary to be inputted into the relevant calculation process of each method. Some data
were classified into the same group in order to reduce the number of the data.
3. Analyzing the sources of each required data. Four sources of data, e.g. the employer,
the contractor, the engineer, and sources, were used in this analyzing step.
4. Identifying the availability to the employer and the engineer (as an employer’s
representative) of each data by considering its sources. The data which are not available
to the employer or the engineer were then replaced with another alternative data that are
directly or indirectly available to those parties.
5. Classifying the data collected from the above analysis into eight subgroups according
to their sources(data directly and indirectly acquired by the employer or the engineer) and
their relationships with the construction process (data related to the employer and the
engineer, contractor and the subcontractor, project, and miscellaneous respectively).
In order to determine the standard contract management process used in this research, the
process specified in “The Conditions of Contract for Construction for Building and
Engineering Works Designed by the Employer” or “The Construction Contract” prepared
by′ Federational
′ Internationale des′ Ingenieurs-Conseils (FIDIC) was adopted as a
framework for the analysis. This form of contract is recommended for building or
550 Strategic data for emplyer’s construction claims
There are several provisions related to the construction claims, both against employer and
contractor, in The Construction Contract (1999). [Booen(2001)] listed the sub-clauses
related to several types of claims, as shown in Table 1. It also presents the party against
whom each provision claims and the purposes for which each provision claims.
Table 1. The Provisions related to Claims from “The Construction Contract (1999)”
No. Sub-Clause Claimed By Claim For
Employer Contractor Cost Time
1. 1.9[Delayed Drawings or Instructions] - • • •
2. 2.1[Right to Access to the Site] - • • •
3. 4.7[Setting Out] - • • •
4. 4.12[Unforeseeable Physical - • • •
Conditions]
5. 4.19[Electricity, Water and Gas] • - • -
6. 4.20[Employer’s Equipment and • - • -
Free-Issue Material]
7. 4.24[Fossils] - • • •
8. 7.4[Testing] - • • •
9. 7.5[Rejection] • - • -
10. 7.6[Remedial Work] • - • -
11. 8.4[Extension of Time for Completion] - • - •
12. 8.5[Delays Caused by Authorities] - • - •
13. 8.6[Rate of Progress] • - • -
14. 8.7[Delay Damages] • - • -
15. 8.9[Consequences of Suspension] - • • •
16. 9.4[Failure to Pass Tests on Completion] • - • -
17. 10.2[Taking Over of Parts of Works] - • • -
18. 10.3[Interference with Tests on - • • •
Completion]
Table 1. The Provisions related to Claims from “The Construction Contract (1999)” (Cont.)
No. Sub-Clause Claimed By Claim For
Employer Contractor Cost Time
19. 11.3[Extension of Defects Notification • - - •
Period]
20. 11.4[Failure to Remedy Defects] • - • -
21. 11.8[Contractor to Search] - • • -
22. 12.4[Omissions] - • • -
23. 13.1[Right to Vary] - • • •
Strategic data for emplyer’s construction claims 551
There were seventeen cost components proposed by Adrian in 1988. However, six cost
components collected from the contract provisions of “The Conditions of Contract
Contract for Building and Engineering Works Designed by the Employer” [The
Construction Contract (1999)] were added in order to improve the analysis. The relations
between the contractors’ claim related provisions from [The Construction Contract
(1999)] and the contractors’ claim cost components are the result of subjective analyses
by the authors, taking account of their availabilities in each provision.
The ranks of the cost components which have the highest frequencies among the
contractual claims and the contract provisions which have the highest number of the
related cost components, for both contractors’ and employers’ claims, can be analyzed by
assigning the values to the cost component and contract provision matrices. The cost
components which are seldom or never found in the claim specified in the related sub-
clause were assigned “0” value while the cost components which are sometimes and
always found in the claim related to such sub-clause were assigned “1” value and “2”
value respectively. The values were then summed in both row direction and column
direction to find the rank of the cost components and the rank of the contract provisions,
respectively.
The analysis shows the cost components with the highest frequencies among the
contractors’ contractual claims and the contract provisions with the highest number of the
related contractors’ claim cost components in Table 2 and Table 3 respectively. These
cost components and contract provisions are found in several contractual claims and
should be given special attention.
Note that almost all high-rank contract provisions are related to delay claims, scope-of-
work claims and acceleration claims. In addition, sub-clause 4.7[Setting Out] and
4.24[Fossils] are related to the changing-site-condition claims.
On the other hand, the cost components of the employers’ claims were identified by using
the contractors’ cost components as a framework. But only fifteen components were
collected from the employers’ cost components. After being added seven cost
components acquired from analyzing [The Construction Contract (1999)], there are
twenty-two cost components used in substantiating and pricing the employers’ claims.
After performing the same analysis of the contractor’s claims, Table 4 and Table 5
respectively show the three employers’ claim cost components which are frequently
found and the three contract provisions with the highest relationship with the employer’s
contractual claims. It should be noted that the important employers’ claim cost
components are related to the overhead cost. These cost components and claim-related
contract provisions should be given special attention.
Table 6 shows that there are several data required by the employers in substantiating and
pricing the claims specified in The Construction Contract (1999). Some data can be
collected from either the employers or the engineers, as the employers’ representatives,
while some data must be collected from the contractors or other external sources. The
data which must be collected from the contractor but which there is no contract provision
specifying the contractor’s obligation to provide to the engineer must be substituted by
other data more conveniently acquired by the engineer. Some data, such as the contract
value, the name of the bidders, and the bid price of each contractor in the project bidding
in the past are always overlooked although they are necessary in substantiating some cost
components of the claim. The engineers or the employers should inspect
their claim management system whether such necessary data are sufficiently collected.
CONCLUSION
This paper presents the claim-related provisions of “The Conditions of Contract for
Construction for Building and Engineering Works Designed by the Employer” or “The
Construction Contract (1999)”, the contractors’ and the employers’ cost components, the
ranks of the important cost components and the claim-related contract provisions, and the
data necessary for the employers in managing their construction claims. There are thirty-
two provisions of The Construction Contract (1999) which are related to the construction
claims. They have relationship to some components of twenty-three contractors’ claim
cost components or twenty-two employers’ cost components in different ways. The most
important cost components and claim-related contract provisions, both for employers’ and
contractors’ claims, were also presented. Finally, there are 67 pieces of data required in
substantiating and pricing the claims by the employers, which can be divided into seven
groups. The strategic data acquired from this research, especially that are necessary for
substantiating and pricing high ranked contractual claims and their related cost
components, should be paid high level of attention in order to enhance the effectiveness
in the employers’ claim management process and to reduce the project time and cost.
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Clauses and Cost/ Time Overruns. ASCE Journal of Construction Engineering and
Management, Vol. 120, No. 4, pp.785-795.
Surawongsin, P (2002) The Implementation of Construction Claims Management in the
Thai Construction Industry, Master Thesis School of Civil Engineering Asian
Institute of Technology[AIT].
LOW COST HIGH QUALITY HOUSING
E. M TATSA
Asian Institute of Technology, School of Civil Engineering, PO Box 4, Klong Luang,
Thailand. tatsae@ait.ac.th
TATSA-ARCHITECTURE AND ENGINEERING, tatsae@actcom.co.il
ABSTRACT
Housing for the present and the future is a “mega problem”. The magnitude of housing
needs makes it impossible to be tackled only by traditional ways. The need for optimizing
the use of natural and financial resources leads to the adoption of yet unexploited
technology. A housing project in a time of housing crisis is described. An approach for
minimizing the harmful impact on the environment is described. Conclusions stating the
benefits of global thinking are arrived at. Note that many questions have not and cannot
be answered in a single discussion.
BACKGROUND
In 1988 a resolution was adopted by the United Nations. It said “A roof over every head
by 2000”[1]. This resolution stems from the recognition that the need for adequate shelter
(housing) is not less important than food and clothing and is one of the fundamental needs
for humans. Like many declarations, also this one has not been fulfilled. On the contrary,
here is a quotation of a “UN Wire” dated October 6, 2003[2], informing that: “A report
issued today by the United Nations Human Settlement program says that one out of every
six people in the world lives in a slum, and that the total number could double to 2
billions by 2030”.
Quoting again a UN source, “The UN Millennium Deceleration”, one finds that,” Most of
the housing in slums are sub-standard and do not comply with local building codes”. This
means that not only the physical shelter (house) is problematic but also other
infrastructure functions are sub-standard and must also be addressed to in order to prevent
the problem from worsening. The UN Millennium Declaration has set a goal that by
2020,100 million slum dwellers must obtain a significant improvement of their lives.
Other reports and many academic papers say similar things. It is widely agreed that the
problem of housing is mostly due to the urbanization process. Urbanization is an
irreversible ever increasing process all over the world. Statistics show that world wide
urbanization is due to increase from 35% at the end of third quarter of the 20th century, to
60% at the end of the first quarter of the 21st century. It takes a more dramatic dimension
in the less developed economics (25% to 60%) and in least developed economics (15% to
45%) while in developed economics the increase is estimated to be from 65% to
85%.These percentage data when translated into real numbers taking into account the
natural growth of population leads to the unimaginable number of at least 2 billion people
560 Tatsa
needing housing solutions in the year 2030.Without going too far into the future but
looking into the present situation it can be said that about 10% of the world’s population
is in need for urgent housing solutions. A survey [3] done in 1994 in five regions –Africa
(Sub-Sahara), East and South Asia, Europe, Middle East and North Africa, Latin America
and Caribbean, China-altogether in 38 countries concluded that there was at that time a
need for nearly 100 million housing solutions. It can be estimated that the entire global
housing requirement at that time (1994) could be at least double that number. One can
argue about the accuracy of such estimates, but even if they are somehow incomplete or
mistaken to a certain degree there is no doubt that housing is not just a big problem it is a
“mega problem” that must be addressed in the fastest way known or yet to be developed.
It is a mega global problem that must be solved by global means and effort. It is a multi
aspects task in which the construction industry is a major player.
Globalization
Searching the internet on May 14, 2004, one finds 797840(!!!) links on the term
globalization. So George Soros [4] is absolutely correct when in his book on globalization
he says that “Globalization is an overused term that can be given a variety of meanings”.
In another quotation from the same source he says that globalization leads to ‘The
development of global financial markets, the growth of transnational corporations and
their increasing domination over national economics”. There is no doubt that finance in
one way or another is the oxygen to all human activities required to improve quality of
life as the vast majority of human sees it. (There are always some exemptions).The
global, virtually free, movement of finance (oxygen) can bring improvement (of life)
across the globe. Matching the window opening that globalization leads to in a right
manner to the problem created by population growth and movement may narrow the gap
between the problem and its solution. The question, as always, is definition of the
problem, allocating the means and acting in accordance. Defining quantitatively,
understanding the means and acting sensibly.
-Present number of people needing a housing solution is1000, 000,000 (one billion).
-8 square meters per person.
-Total need is 8000,000,000 (eight billions)
-Cost-???
Cost depends on what is required at various locations as minimum quality which is
acceptable. This may range from 50US $ to 200 US $ per square meter. Based on the
assumption that the cost will be relative to the starting point and rate of urbanization in
least, less and developed economics the average cost per square meter will be:
Then the estimated cost of providing these housing solutions for the year 2030 will be
8x1011 US $.If equally distributed over 25 years this amounts to a global market of 3.2 x
1010 US$ per annum.
It may be argued that this is just a manipulation of numbers. So it is, but the result seems
not unreasonable. For example, on august 2003, information was released that Thailand
intends to build 600,000 units over a period of five years. Based on the above estimate
Low cost, high quality housing 561
this means (40 square meter per unit* 150US $/m2) = 0.72 billion US $ per annum, about
2.25% of the 32 billions.
A potential global market of such magnitude (and this includes only the housing and not
the associated infrastructure and other construction projects like public and commercial
buildings) can only be handled by ‘global financial markets and transnational
cooperation.” These institutions need to develop the market towards attracting the
individual ‘small” business to take part and “reap off” the benefits. Doing so very
carefully without solving one problem and at the same time creating many others. There
are many risks on this path and they should be avoided or at least minimized.
Low cost is a term frequently used without reference to what is to be provided at this
level of expense. Therefore a term which seems to be more appropriate replacing it is
affordable. Again this term may have a variety of meanings and does not actually relate to
the product. Also, affordability by whom? So it is not how much it costs to build or how
much somebody, being a person or an organization can afford to pay but what does one
get and for what. The definition should therefore incorporate the cost and the quality.
Usually low cost is associated with low quality but then it does not remain low but high
cost. Low cost for poor quality products ends up being high. The goal should be “Low
Cost High Quality (LCHQ)”.
The major problems when such an enormous need is identified are:
-Where does the finance come from?
-Who is the client?
-What can be done to balance between resources and profit?
-What can be done in order to avoid environmental damage?
-If the finance is there what and how can it be used in the optimized way?
-What is the optimum?
-What about market stability?
So the basic idea is to be able to attract finance to be invested for the good of humanity
but in no way as a charity.
As for many other real mega problems there is no one single universal solution. There are
so many factors and each one may vary according to circumstances so that it is possible at
this moment of time only to look backwards and learn from specific situations of crises in
housing supply, what happened in the project itself and what its effect in the industry was.
An Israeli Experience
1990 was a turning point year in the global political situation. The Soviet Union collapsed
and people started to emigrate. The state of Israel expected around 1000,000 immigrants
to arrive from the USSR over the period of two to three years. This was a time of possible
crises for the construction industry. The numbers speak for themselves:
Population growth was not as first estimated but nevertheless unimaginable in modern
times. From 4.8 millions in 1990 to 6.2 millions in 2004.An increase of nearly 30%.
Again “percentage” does not mean much. As average natural growth of around 2% is
quite high but not impossible to deal with. But the fact, the almost one half of this growth
occurred over a period of about 4 years (3.7% annually) changes the whole picture.
562 Tatsa
At this point of time the Israeli construction industry was producing about 30000 housing
units, much below its capacity estimated at 45000 units per annum in public housing. The
need for 100,000 units per year was much beyond its possibility to provide. So search
began where it was thought a solution could be found. This is where a market was opened
for international players. It was thought that speeding the production could be achieved
by introducing incentives by the government through promising bonuses and through
guaranteeing to purchase any apartment that the developer is unable to sell. The rules
were:
-10000 US $ for every unit, provided completion in under nine months. This period of
construction being in contrast to 24 ÷ 32 months it took to complete an eight storey
apartment building containing 32 flats. This amounts to 320,000 US $ as a bonus for
such a building (Abut 15% of the construction cost)
-Guarantee of purchase at a cost not higher than 550 US$/m2.
If the full demand had to be bonused it meant that the government would have to pay
one billion US$ as bonuses only. The result was that a multitude of methods were
proposed to fulfill the demand in the required time. Luckily a review committee was
established at the National Building Research Institute which rejected almost 95% of
the proposals.
It was clearly understood that one must apply in this case methods which were proven
suitable elsewhere, or in other words international experience and know how to be
adopted.
Two years prior to this housing crisis which took everybody by surprise action was
started by the Israeli Steel Construction Society to encourage the use of steel in low and
high rise buildings. The housing crisis created a breakthrough. It enabled to prove the
advantages in using steel as the skeleton of such buildings both for the high quality and
low, affordable, reasonable cost. (A project of 332 apartments is demonstrated in a slide
show at the conference).A 30 millions US$ project was constructed and followed as a
1:1 field test. The use of steel in such buildings has increased since from a mere 1500
tons in 1989 to an averse of 40 to 50 thousand tons annually.
The success in this case could not have been achieved without an attribute of
“Globalization” permitting the movement of know-how which sometimes cannot be
even measured on a financial scale.
Construction with plane ferrocement components presents many advantages than using
curved spatial elements because of the possibility to fully industrialize the system. The
massive housing problems the world is facing now and in the near and far future calls
for a system which is economical in material and workmanship and still provides good
quality products. Also, it has to be universal in the sense that small building companies
and individuals will be able to apply it. With these goals in mind a basic unit was
developed. It is very simple to manufacture and together with cast in situ ribs creates a
panel of any required reasonable size already includes the insulating material. Trying to
evaluate the economic advantages of a panel system for housing for a potential market
study was made for a typical housing project in China. The results of this study with
regard to material quantities are shown in the tables 1 and 2 [5].
These results demonstrate the huge savings in cement enabled by the use of
ferrocement. On a national economics basis this means cost saving of very large scale.
Low cost, high quality housing 563
One of the risks of “over construction” using traditional ways (reinforced concrete) is in
the damaging impact on the environment. The production of cement consumes
enormous amount of excavated raw materials and energy. Concreting takes additional
natural raw materials and huge amount of water. To minimize these harmful effects it is
required to reduce as much as possible the need for concrete. It can be done by the use
of ferrocement which is basically thin walled concrete. There is nothing new about
ferrocement. It has been known for over 150 years now. Industrialization of its
production leads to high quality, low (affordable, reasonable) cost.
Table 2 Material quantities per square meter of floor area (Multi Apartment Project)
2 FC FC FC FC 0.120 49.3
SLP DLP
3 FC FC FC FC 0.147 55.5
DLP SLP
4 FC FC FC FC 0.152 58.7
DLP DLP
5 FC FC C FC 0.125 49.0
SLP SLP
6 C FC FC FC 0.194 53.2
HB SLP
7 C FC FC FC 0.202 56.4
HB DLP
8 C FC FC FC 0.367 74.2
SLP
9 C FC FC FC 0.374 77.4
DLP
10 C C C C 0.302 79.5
HB
11 C C C C 0.474 126.5
12 C FC C C 0.279 79.5
HB PRH
13 BRICKS* FC FC FC 0.054 24.2
SLP
14 BRICKS* FC FC FC 0.061 27.4
DLP
15 BRICKS* FC C C 0.065 27.8
SLP
16 BRICKS* FC C C 0.072 31.0
DLP
17 BRICKS* C (full) C C 0.157 48.2
REFERENCES
Subramanian, K.P., “Housing for all by 2000: A myth for reality”, Housing Science, Vol.
21 (3), pp.189-195, USA 1997.
“UN Wire”, October 6, 2003.
Survey by” Global Marketing Group Ltd.” NY 1994.
Soros, G.,”On Globalization”, PBS, NY 2002.
Tatsa, E.,”Ferrocement application in Israel”, Fiber reinforced cement and concrete, E
and FN Spom UK, 1992.
ABSTRACT
This paper examines the Nigerian property market vis-à-vis the current global trends in
real estate development finance and determined whether or not the property market in
Nigeria, as currently is, constitute an enabling environment for the workings of unitized
finance vehicles. This is against the backdrop of increasing need to bail the market out of
its present development conundrum and prepare it to meet the challenges of globalisation.
It identifies the requisite for the successful development of unitisation and examines the
hurdles that must be scaled before unitised vehicles can be utilised successfully in
Nigeria.
Three sets of questionnaires were administered on the three main stakeholders in real
estate development industry. These are the corporate property investors, the property
managers and the Nigerian Stock Exchange. 71 property managers (Estate Surveying
firms) and 52 corporate property developers were sampled in the study area, that is, Lagos
Metropolis. An interviewer guide was used for the Stock Exchange official. The total
response was 43 (61%) and 32 (62%) for the Estate Surveying firms and the corporate
developers respectively. Statistical tools employed in analysing data were frequency
tables, percentages, mean and standard deviation measures.
The study concluded that the property market in Nigeria, currently, does not constitute an
enabling environment for the implementation of unitised vehicles. Certain problems such
as the low level of knowledge about unitised finance vehicles and lack of institutional and
legal structure still need to be addressed for the property industry in Nigeria to benefit
from this source of finance.
Introduction
The consensus among the participants at the Mexico U.N. Heads of State and
Government conference, called Monterrey Consensus, in January, 2002 was that
globalisation offers opportunities and challenges. The developing countries and countries
with economies in transition face special difficulties in responding to these challenges and
opportunities. To this end, it was noted that there is need for a holistic approach to the
interconnected national, international, and systemic challenges of financing for
development. It is recognized that in the pursuit of growth, poverty eradication and
570 Abel, Tajudeen, and Abdul-Rasheed
One way to achieve the above objective, in Nigeria, is to enhance and sustain the
development of real estate sector through mobilization of long-term finance. This is
because the sector is of prime importance to the wider national economy. Between 1998
and 2001, housing development alone accounted for between 2.38% and 4.15% of the
Gross Domestic Product (GDP). (C.B.N., 2002). Meanwhile, the global trends for
mobilizing long-term funds for sustainable real estate development has been the use of
securitisation and unitisation methods. These concepts relate to the process of turning
equity interests in real estate, which is illiquid and lumpy, into tradable securities.
Securitisation refers to the conversion of properties into tradable paper securities, which
may be debt or equity based, while unitisation specifically refers to the securitisation of
the equity interests. Unitisation vehicles such as Single Asset Property Companies
(SAPCOs), Single Property Ownership Trusts (SPOTs) and Property Income Certificate
(PINCs) allow investors to take up the equity interests and directly participate in the rental
and capital value performance of a property.
In Nigeria, the quest for unitisation and securitisation is slow unlike in the other part of the
developed world. For example, in United Kingdom and other European countries, the
property market and the investors are taking advantages of securitisation and unitisation
methods to solve the problems of illiquidity of property investment and improve on their
real estate development finance. According to Isaac (1996), the problems with the
ownership of large property investment, which has arisen because of the lack of liquidity
in the property market in the U.K, encouraged the introduction of securitisation and
unitisation. Breidenbach (2003) submitted that Real Estate Asset-Backed Securities have
become increasingly popular, in Europe, amongst originators as well as investors in recent
times, as it is an innovative real estate financing vehicle for the property industry.
According to this author, the last couple of years have witnessed the increased acceptance
of Asset Securitisation as an established financing technique by financial institutions and
corporates throughout Europe. In Singapore, Foo (2000) reported that Asset Backed
Securitisation offers a new way for developers and property owners to raise fund and it
quickly gained favour among property developers in the country which saw, in 1999
alone, a total of $1.82 billion worth of prime properties being securitised.
In the United States of America, the activities of Fannie Mae (Federal National Mortgage
Association), a privately shareholder-owned mortgage corporation, at issuing mortgage
backed securities (MBS) have been reported to have provided funds for home mortgages
(ownerships) with a book business in excess of 15 million mortgages. This is apart from
serving as one of the most productive corporation and the largest financial services
corporation in the world employing approximately 4,000 people. (Fortune-Ebie, 2002).
Nigeria therefore should not be seen to be lacking behind. This is particularly important
because an examination of the property market in Nigeria today would reveal the fact that
the pattern of development, especially with regards to commercial property, has changed
substantially like in many other part of the world as developers now resort to modern
designs and construction techniques. Thus, it has become increasingly difficult to develop
or invest in real property development without recourse to mortgage loan due mainly to
the inadequacy of equity funds, and the opportunity of cheap money.
Financing Property Development in Nigeria 571
Literature review
Papers that have been written on the problems of access to finance for real estate
development and the possibility of solving these problems through securitisation and
unitisation in Nigeria include that of Moka (1994), Lawson (1997), Otegbulu (1999),
Koleoso (2000) and Onyeuka (2000). Moka (1994) demonstrated how unitisation could
be used to solve the problem of high interest rate burden on borrowed capital. Lawson
(1997) paper provides an explanation of the workings, operations and the advantages of
securitisation and unitisation methods over the traditional sources of finance, while
Otegbulu (1999) gives a theoretical, but succinct, explanation of how unitisation can be
used to achieve the construction of new projects or the selling of real property with
mortgage problems and large value property investment. Koleoso (2000) also explained
how unitisation could be used to achieve privatization of government properties and
Onyeuka (2000) paper was restricted to a consideration of the roles, operations and
problems of primary mortgage institutions in Nigeria. Although, these papers suit their
objectives, they did not identify the critical factors necessary for the successful operation
of unitisation method and are also lacking in providing empirical evidence as to whether
or not the property market in Nigeria constitute an enabling environment for its operation.
571
572 Abel, Tajudeen, and Abdul-Rasheed
factors necessary for the successful operation of unitisation, they did not provide an
empirical evidence of its workability in Nigeria. Fortune-Ebie (2002) and Chionuma
(2003), while providing explanations on the workings and advantages of secondary
mortgage market, also highlighted the requisite conditions for the operation of such
market by citing experiences from other nations such as, U.S.A. Indonesia, Turkey and
Malaysia. The authors identified such conditions as adequate market potential in terms of
honesty, integrity and mutual respect in upholding the highest standards of ethics in daily
life transactions, sound legal and institutional framework, better performance history on
mortgage servicing, adequate government support and infrastructure that supports the
flow of information in the market. However, while these papers looked at the prospects
and modalities for a secondary mortgage market in Nigeria, they also did not consider
these issues at the empirical level.
A more recent paper by Nubi (2003) dealt with the problems of housing finance in
Nigeria under the present primary mortgage system. The author identifies a number of
factors constituting implementation difficulties and goes further to propose Secondary
Mortgage Market development with a detailed explanation of its types, working and
advantages. The paper though evaluates the Nigeria position/readiness for secondary
mortgage operations; it used theoretical reasoning to conclude that the method might not
be too strange to Nigerians, but much still need to be done for its successful operations.
The paper therefore is also lacking with regards to justifying empirically whether the
Nigerian property market is a suitable environment for the operation of unitized finance
vehicles and or secondary mortgage market.
The foregoing is a pointer to the fact that many authors, in Nigeria, have commented on
the issues of securitisation and unitisation as methods for real estate finance. However,
when related to the workability of these finance vehicles in the Nigerian property market,
little is known, especially at the empirical level. This paper, therefore, sets to examine the
Nigerian property market as a suitable environment for the operation of unitized property
finance methods.
In determining the prospect of using unitised vehicles for real estate finance in Nigeria,
the paper identifies a number of criteria, arising from the reviewed papers and others such
as Isaac (1996) as having bearing on the effective and successful operations of unitisation
method. These include (1) knowledge of the method by market players and stakeholders
(2) maturity of the property market judging from the perspective of availability and usage
of information (3) the market potential in terms of the presence of large number of
institutional investors to curtail the problems of market domination by major investors (4)
minimum volatility in the market (5) long-term commitments to real estate development
(6) presence of well laid legal and institutional framework to avoid problems such as
double taxation, default in payment, e.t.c; and (7) investors’ readiness to embrace indirect
ownership in property assets.
On the basis of the foregoing criteria, the paper examines the Nigeria property market as a
suitable environment for the workings of unitised vehicles. In doing this, data were
collected from three study population that consisted of the real estate investors/developers
Financing Property Development in Nigeria 573
In each of the first and second group specified, between 19% and 30% of the constituent
population was sampled based on the registers of their respective parent bodies as at
2002. For example, 22 of the general construction companies were sampled, representing
27% of the entire population. For Insurance companies, 18 companies representing 19%
of the entire population in Lagos metropolis were sampled, while the total coverage of the
property companies represents 25%. Twelve (12) companies were studied. This shows
that a total number of 52 questionnaires were administered on the real estate
investors/developers. With regards to the estate surveying firms (real estate managers),
the study administered 71 questionnaires representing 31% of the 228 registered estate
surveying firms in our study area- Lagos metropolis. The response rate was 43 (61%) and
32(62%) for estate surveying firms and the corporate developers respectively. The data,
so collected, were analysed with the use of frequency tables, percentages, mean and
standard deviation measures.
Results
The results of the questionnaire survey as evident from the analysis are presented in this
section.
Three yes or no questions were asked to determine whether developers and professionals
alike were aware of unitisation as a source of real estate finance. The questions bothered
on whether they have heard of the method and aware that properties can also be unitized
as well as whether they have been involved in the usage/implementation of the method.
The result indicates that only 49% representing 21 of the 43 estate surveying firms (68%
of valid responses) and 13% of the 32 responding developers (27% of valid responses)
have had of unitisation and knew that properties can also be unitized. With regards to the
knowledge in the usage of the method, only 2 of the property managers (6% of the valid
responses) claimed to have had the experience of unitisation being used as a finance
vehicle. None of the corporate developers had the knowledge of the usage of unitisation.
With these results, one can infer that the 2 property managers who claimed to have
experienced the usage of unitisation might have gathered their experiences elsewhere
outside Nigeria. These results therefore show that although the concept of unitisation may
not be too new to the Nigerian property market, the market might still be deficient in the
practical usage of unitisation for real estate finance. This finding might not be
unconnected with the conservative attitude of Nigerian professionals and investors alike.
It normally takes long time before new concepts are fully integrated into the Nigerians
minds and practices. The good news, however, is that with the involvement of the
banking sector in trying to meet international standards, the usage of this method will
only require short training.
573
574 Abel, Tajudeen, and Abdul-Rasheed
The result of the survey shows that the property market in Nigeria is still bedeviled with
the lack of data availability and crude manner in which the professionals are sourcing for
property data. The analysis in Table 1 below, which shows the sources of information
gathering by the property managers, revealed that the usage of centralized databank was
not common. 60% of the property managers attested to this fact. 65% of them (managers)
agreed that in-house data were the most commonly used source of information, while the
same percentage (65%) agreed that property market information from colleagues was
common in use.
Table 1. Sources of gathering information
Source of Most commonly use Just common Less common Not common
Information
Freq. Percentage Freq. Percentage Freq. Percentage Freq. Percentage
In-house Data 28 65 15 35 - - - -
Property
Market Data 15 35 28 65 - - - -
Centralised
Databank - - - - 17 40 26 60
Source: Field Survey, 2003.
The result in Table 1 supports the fact that there was no centralized databank in the
Nigerian property market. Meanwhile, under a unitised vehicle, investors must have easy
access to information in the form of price indicies with which they can forecast prices and
evaluate the risk of their investments. Where there is lack of information, it becomes
difficult for investors to operate efficiently without making a loss. One can then conclude
that the Nigerian property market is not mature for the operation of unitized vehicles
judging from the perspective of data availability and usage. The level of secrecy attached
to property information might have influenced this finding. This is an institutional failure,
which can lead to information asymmetry thereby causing market distortion and an
environment inimical to the success of unitisation.
The paper establishes the main objective of owning property assets among the developers
and sought their opinion on indirect ownership. This is because, for successful
implementation of unitisation, it is noted that investors and property owners must be
ready to embrace indirect ownership of property assets for investment purposes as against
direct ownership. The results of the analysis (see Table 2 below) revealed that greater
percentage (69%) of the investors preferred owning property for investment purpose. The
remaining 31% preferred owning for other purposes such as for owner occupation.
With regards to investors’ opinion on indirect ownership of real estate assets, the result as
shown in Table 3, shows that 66% were ready to embrace indirect ownership, while 34%
preferred direct investment in property. These results, perhaps, raise the prospect of
Financing Property Development in Nigeria 575
unitisation and suggest that there is ready market for the operation of the method in
Nigeria.
Questions were asked concerning respondents (practitioners and investors) views on the
level of volatility in the Nigerian real estate market. Their responses, as indicated in Table
4, show that 33% and 34% of the property managers and investors respectively believed
that there is high rate of volatility in the Nigerian property market. The same percentage
(47%) of the property managers and the investors had the belief that Nigerian property
market is just volatile. 7% of the property managers and 19% of the investors are of the
opinion that the property market is less volatile. This result therefore suggests that at least
80% of the property managers and 81% of the investors believed that the property market
in Nigeria is at least volatile.
Assigning scores of 5,4,3,2, and 1 to highly volatile, volatile, less volatile, not volatile
and no response respectively, the calculated mean (3.97) and standard deviation (1.09)
(see Table 4) of the distribution give an indication that the market is volatile and that
there is a high degree of consensus of opinion about the result among the respondents.
This may be the result of unstable polity and fluctuating exchange rate of Naira which
might have contributed to the instability and high volatility in the market. This however is
not too good for the prospect of unitisation in the country since there has to be minimum
volatility in the market for successful operation of the method. Investors must be able to
forecast cash flows with a tolerable level of variance in order to price and evaluate the
risk of their investments.
To further establish the prospect of using unitisation as a vehicle for real estate finance in
Nigeria, the paper examines the market potential in terms of the presence of large number
of institutional investors looking for long term finance as well as the presence of well laid
down legal and institutional framework. A key legal prerequisite is the timely and cost
575
576 Abel, Tajudeen, and Abdul-Rasheed
effective registration of title. The conduct of interview with the Stock Exchange officials
revealed that there are, at present, few known institutional investors. In actual fact, only
one property development company (United Africa Company Nig; (UACN) Properties) is
listed at the Stock Exchange. It is, thus, possible for the market, under unitisation, to be
dominated by the few institutional investors. Also, the result shows that there is yet to be
a well laid down legal and institutional framework to guide the operation of unitisation of
real estate assets. They also opined that registration of land title in Nigeria could increase
the risk of unitisation transactions because of excessive land costs and taxes as well as
delays in the registration process, in addition, to insecurity of land titling system. This is
counterproductive for the operation of unitisation.
Question was asked on the opinion of the sampled population with regards to the general
feasibility of using unitisation method as a finance vehicle in the Nigeria property market.
The results of the analysis in Table 5, below, show that 14% of the property managers
agreed strongly that there is prospect for the workings of the method. 35% agreed to this
fact and 37% of them were indifferent. With regards to the corporate investors, 35%
agreed strongly that there is prospect for unitisation as a vehicle for real estate finance
while 53% of them agreed to this fact and 6% respectively were indifferent and disagreed
with the fact that there is prospect for unitisation method.
Table 5. Opinion on the prospect of unitisation method in the Nigerian property market.
Opinion level Property managers Property investors Total for the two
groups
Freq. Percentage Freq. Percentage Freq. Percentage
Strongly agree 6 14 11 35 17 23
Agree 15 35 17 53 32 42
Indifferent 16 37 2 6 18 24
Disagree 3 7 - - - -
Strongly disagree 3 7 - - 6 8
Total 43 100 32 100 75 100
Mean 3.42 Mean 4.28 Mean 3.73
Std. Dev. 1.05 Std. Dev. 0.581 Std. Dev. 1.018
Source: Field survey, 2003.
The results, in the total, show that there is high opinion of prospect among the corporate
investors when compared to that of the property managers. The mean value of 4.28, when
scores of 5,4,3,2, and 1 are assigned to strongly agreed, agreed, indifferent, disagreed and
strongly disagreed respectively, also revealed that investors’ opinion fell between agreed
and strongly agreed and the low standard deviation (0.581) shows that there was a high
degree of agreement among them concerning this opinion. For the property managers,
their opinion fell between indifferent and agreed (the mean value is 3.42), although the
consensus of agreement is also high (1.05), but not as high as that of investors. Together,
the opinion of the two groups of respondents shows that they agreed with the fact that
there is prospect for unitized vehicle as a source of real estate finance in Nigeria. The
mean score is 3.73 with standard deviation of 1.018.
The result of the interview conducted with the Stock Exchange official suggests that the
Nigerian property market is not ripe for the usage of unitisation methods as a source of
finance. It is their belief that Nigerian institutional investors would prefer to invest in
Financing Property Development in Nigeria 577
stock and shares because of the active trading markets and their high liquidity. Besides,
they opined that the presence of one public quoted property company and lack of
regulatory framework may mar the success of the method and thus concluded that the
usage of unitized vehicle for real estate finance might be impracticable at present but
probably in the near future when an enabling environment might have been created by
Government.
Concluding remark.
In our examination of the Nigerian property market as a suitable environment for the
workings of unitisation, the results of the analysis suggest that the property market in
Nigeria as currently is, does not constitute an enabling environment for the
implementation of unitized vehicles except in the near future. The results show that
certain issues, which are highlighted below, still need to be addressed before the property
market in Nigeria could benefit from unitisation.
References.
Breidenbach M. (2003) Real estate securitisation in Europe. Paper Presented at the 8th
Annual Conference of the Asian Real Estate Society (AsRES). 21-23 July.
Singapore.
Central Bank Nigeria (2002) Annual report and account. Central Bank of Nigeria
Research Department, Abuja. Nigeria.
577
578 Abel, Tajudeen, and Abdul-Rasheed
Chionuma, O.N. (2003) Prospect and modalities for a secondary mortgage market in
Nigeria. Housing Today. Journal of The Association of Housing Corporation of
Nigeria. Vol. 1 No 7 pp 6-11.
Foo S. I. (2000) Securitising real estate – a primer on the new financial instrument. A
working Paper of the Department of Real Estate, National University of Singapore,
Singapore.
Fortune-Ebie, S. P. O. (2002) Secondary mortgage market as a long term funding tool.
The Estate Surveyor and Valuer Vol. 25 No1 pp 33-44.
Isaac, D. (1996) Property Development Appraisal and Finance. Macmillan Press Limited
London.
Koleoso H. A. (2000) Privatisation of government properties: the unitisation alternatives.
Being a Paper Delivered at the 30th Conference of the Nigerian Institution of Estate
Surveyors and Valuers Onikan, Lagos.
Lawson K. (1997) Securitisation and unitisation: vehicles for real estate financing. Being
a Paper Presented at a Workshop on Asset Valuation, Finance and Project
Management. Organised by Management Centre in Conjunction with Estate
Surveyors and Valuers Registration Board of Nigeria.
Moka, N.E. (1994) Using unitisation to solve the problems of high interest rate burden on
borrowed capital. Unpublished Thesis submitted for admission into the Nigerian
Institution of Estate Surveyors and Valuers (NIESV).
Nubi, T. O. (2003) Flying with one wing: dilemma of mortgage bank. The Estate
Surveyor and Valuer Vol. 26 No 1 pp 23-31.
Ogunba, O.A; A. Olaleye, and S.A. Oloyede (2002) Financing home ownership in the
Nigerian cities: searching for the most viable options. In Amole, D; A. Ajayi; and A.
Okewole; (Eds) The City In Nigeria. Proceeding of a Conference Organised by the
Faculty of Environmental Design and Management, Obafemi Awolowo University,
Ile-Ife. Pp 346 – 352.
Onyeuka C.N (2000) The role of primary mortgage institutions (PMIs) in mass housing
delivery-what achievement? Paper Presented at Sixth Annual Conference of Heads
of Quantity Surveying Division of Federal and State Ministries of Works and
Housing and Parastatals in the Federation in Abuja, from 13th-15th July.
Otegbulu A. U. (1999) Valuation and development finance in the next millennium: the
hurdles before the prospects. Paper Presented at The 29th Annual Conference of The
Nigerian Institution of Estate Surveyors and Valuers. PP.111-124.
United Nation (2002) Confronting the challenges of financing for development: a global
response. An Agreed Text of the Consensus of Heads of State and Government
U.N. conference on Financing for Development (Monterrey Consensus) 27 January,
2002. Pp 1-15.
DEVELOPMENT OF CONSTRUCTION QUALITY MANAGEMENT AND THE
RELATED SYSTEMS IN HONG KONG
RAYMOND T. AOIEONG
Department of Civil & Environmental Engineering, University of Macau, Macau, China
S. L. TANG
Civil and Structural Engineering Department, The Hong Kong Polytechnic University,
Hunghom, Kowloon, Hong Kong, China. cesltang@polyu.edu.hk
ABSTRACT
With an ever-blooming population, there have always been demands for public housing in
Hong Kong. To meet with the huge demand for public housing, construction quality has
often been sacrificed at the expense of quantity in the 1970s and 1980s. The maintenance
problem of these poor quality buildings and the higher expectation on housing quality
from the public, have prompted the Hong Kong Housing Authority (HKHA) to focus on
its construction quality. To achieve the goal of providing quality housing, a good quality
management system is crucial. A number of construction quality tools, like Quality
Assurance Systems, Quality Indicators and the related systems, have been developed and
implemented by the HKHA since the early 90’s. This paper describes the implementation
of these quality tools and their effectiveness in monitoring the performance of
construction organizations in Hong Kong. Two of the trends in producing high quality
building, partnering and off-site production are described.
INTRODUCTION
As a fast developing society with a vibrant economy and a blooming population, initial
expectations of the construction clients and end-users in Hong Kong were quantity rather
than quality. Nevertheless, economic prosperity and problems resulting from the poor
quality of earlier buildings shifted the society’s focus towards quality. This paper
presents the various measures taken to manage the quality of construction work to meet
the rising quality expectations. Because of the colossal public housing construction
challenge and the commitment to satisfy rising aspirations for quality, the Hong Kong
Housing Authority (HKHA) found itself pioneering construction quality management in
this territory.
In the post World War II period, Hong Kong experienced a great influx of immigrants.
The result was that many lived as squatters in makeshift housing that neither had
consideration for safety nor hygiene. On the Christmas Eve of 1953, a disastrous fire
spread through the Shek Kip Mei squatter area leaving some 53,000 people homeless.
This event initiated the Hong Kong Government’s extensive public housing policy. Early
in 1954, Resettlement Department (RD) was established to relocate and provide shelter to
the fire victims.
It was a mammoth emergency task where the objective was to quickly provide safe (fire-
proof and typhoon-proof) and relatively hygienic shelters. By the end of 1954, eight
permanent resettlement two-storey blocks were constructed where each block could house
20,000 persons, providing 5 square meters per person. Buildability was a concern of
those who were engaged in this rapid construction programme, thus precast concrete
components were used, although, the objective of applying the technique was to gain
speed rather than quality.
Not only were the victims of the Shek Kip Mei fire, there were many others in dire need
of reasonable housing. The Housing Department (HD) was established in 1954, with the
objective of providing self-contained housing for low to middle-income households.
Although HD built better standard housing than RD did, the overwhelming demand for
high volume was met at the expense of quality. In 10 years time (from 1954 to 1964),
240 resettlement blocks were constructed housing some 500,000 persons.
Until the early 1970s, the Governmental intervention in housing was fragmented and ad
hoc. In October 1972, a Ten-year Housing Development Plan was announced to make
planned developments that would house 1.8 million people over the next 10 years in
permanent self contained homes that provided 3.3 square meters per person, good
amenities, decent environment and neighbourhood ancillary facilities such as schools,
clinics, restaurants, market stalls, and so on. To support and thrust this programme, on 1st
April 1973, a new HKHA (Hong Kong Housing Authority) was formed by amalgamating
the RD and the old HD.
As the public housing stock was growing since 1954 through the 1960s, maintenance cost
kept on increasing, particularly due to poor workmanship, for example, honeycombing,
Development of Construction Quality Management 581
bulging, misalignment, etc. arising from traditional small size timber formwork and site
mixed concrete. Hence, there was growing concern for quality improvement through the
1970s and the 1980s, prompting the use of large panel formwork, standardisation of plans
to enable the use of such formwork, use of mechanisation such as tower cranes to lift
large panel formwork, and ready mixed concrete and concrete pumps to effectively
concrete the large moulds.
The real awakening, however, came in 1986 with HKHA (or HA for short) realising that
26 public housing blocks that have been in use for some 20 years, housing some 70,000
people, have deteriorated beyond the point at which repair is economically worthwhile.
Meanwhile, to accommodate the rapidly growing population and to reduce the long
waiting lists for public housing, HA formulated in 1987, the Long Term Housing Strategy
with the expectations of housing some 1,085,000 persons by the year 2001. This sheer
challenge of delivering both quantity and quality, made HA (as evident from Table 1)
pioneer construction quality management in Hong Kong. Table 1 summarizes the Hong
Kong Government's quality initiatives in the last two decades (modified from Chan et al.,
2002).
The first Quality Assurance Standard, BS 5750 was published in 1979 and the
International Organisation for Standardisation used it as the basis for ISO series of
standards published in 1987. Over the decade that had passed since the publishing of BS
5750, manufacturing and other industry sectors had begun to implement these
management tools, while there was no apparent interest within the Hong Kong
construction industry.
Understanding the potential benefit of quality assurance systems and to guarantee quality
at source, HA encouraged the two major local precast prestressed spun concrete pile
manufacturers to develop quality schemes for their products in 1987 (McNicholl et al.,
1989). Under the quality surveillance to the manufacturing of concrete piles, it was
observed that the schemes provided a high measure of quality assurance for an important
element in the building process. Since 1989, as evident from Table 3.1, HA has been
stepping up measures to improve the quality standards of public housing, such as:
establishing a ‘Quality Assurance Committee’ to promote improved standards in public
housing construction, planning to setup its own approved list of building contractors and
jointly with the Hong Kong Construction Association commissioning a consultancy to
advise the construction industry on how to establish an acceptable quality assurance
system.
In 1990, HA identified the need of a formal set of design and construction procedures for
their professionals. HK Industry Department, incidentally, was having a quality drive and
encouraged HA to go a step further to require ISO 9000 certification. It was decided that
the Works Group of the HA would develop a quality management system complying with
ISO 9001 by mid 1993.
582 Aoieong and Tang
In April 1990, HA established its own list of approved building contractors for new works
and maintenance works. The biggest ever impact on quality concerns of the construction
industry was delivered when HA required that all contractors on the list should be
certified to ISO 9000 by 31st March 1993. The contractors who were interested in the
growing volume of work of HA projects had no other option but to comply.
Following the announcement of the quality policy statement, the Hong Kong Government
Secretary for Works issued the formal quality guidelines in March 1996, requiring
consultants and contractors for governmental construction projects to obtain ISO 9000
certification by April 1996 and October 1996 respectively (see Table 1).
In December 2000, a new edition of ISO 9000 was released. The Hong Kong
Government required all construction organizations in Hong Kong to obtain re-
certification to ISO 9000:2000 version by December 2003 in order that they could submit
tenders for public jobs such that they could keep up with the latest trend of quality
management development.
The Hong Kong Government is the biggest construction client in Hong Kong and the
extensive public housing programme makes HA one of the largest property developers in
the world. Hence, it is difficult for any major construction company in Hong Kong to
ignore the huge market potential of the public sector projects. The requirement for ISO
9000 certification by the public sector clients forced all construction consultants and
contractors to implement quality assurance systems conforming to ISO 9000, thus
successfully increasing the awareness and the concern for quality. Today, private sector
projects also implement ISO 9000 quality assurance systems.
Although certification to ISO 9000 could give assurance of quality capability and
compliance, it fell short of providing a means of comparing the performances of different
contractors. In this respect, a construction quality measurement system, the Construction
Quality Assessment System (CONQUAS), was launched in the Singapore construction
industry in 1989. Inspired by this system, and using it as a basis, HA proceeded in 1990
to develop a quality measurement system, the Performance Assessment Scoring System
(PASS), to be applied in Hong Kong public housing projects. CONQUAS and PASS are
Quality Indicators, which serve as the tools for measurement or assessment of the quality
of finished construction products. (Readers should note that a quality indicator is
different from a quality audit. The former is for measuring the standard of finished
products and the latter for measuring the effectiveness a quality management system).
PASS attempts to systematically and objectively measure new works construction
contractors’ performance against predefined standards, thus enabling a fair comparison
between individual contractors. At the same time another quality measurement system,
the Maintenance Assessment Scoring System (MASS), was developed to assess the
quality performance of maintenance contractors. These efforts demonstrated the
commitment of HA to obtain from the contractors more than just compliance with ISO
9000.
Contractors performing better were rewarded under the Preferential Tendering Eligibility
Procedures, by allowing more tendering opportunities than those with poor performance.
584 Aoieong and Tang
Later in 1999, the incentive was increased by adopting the Preferential Tender Award
System where the better performing contractors would get preference in the award of
tenders.
Since January 1991, all building construction sites were subject to a monthly PASS
inspection. At site locations selected based on random sampling, assessments of
compliance with specifications were made in the presence of the contractors. The
following year, 1992, eligibility of contractors to tender for new works building contracts
was selected (under the preferential tendering eligibility procedures) based on their
performance on existing contracts as measured by PASS. In 1993 it was observed that,
since the implementation of PASS, the benchmark Target Quality Score for contractors
moved up to 92%, indicating that contractors had achieved better quality.
Two more assessment systems, the Laboratory Assessment Scoring System and the
Building Services Performance Assessment Scoring System (BSPASS), were developed
by 1997 to assess the performance and capabilities of laboratory services and building
services contractors respectively, together with a reward system for good performance.
At present, HA has launched Building Services Maintenance Assessment Scoring System
(BSMASS) also.
As ISO 9000 quality assurance systems were becoming popular in Hong Kong, there
appeared a need for facilitating accreditation services. An accreditation organization (e.g.
HKQAA, see below) is one who awards ISO 9000 certificate to a company after quality
auditing, a management process to confirm and evaluate the effectiveness of a quality
management system (QMS), as mentioned in the previous section. This section briefly
explains the developments in this respect.
The Hong Kong Quality Assurance Agency (HKQAA) was established in 1989 and
subsidized by the Hong Kong Government, as an independent non-profit organisation, to
undertake third party certification under a registration scheme based on ISO 9000
standards. Its scope of operation covers companies carrying on business in the
manufacturing, construction and service sectors. Besides HKQAA, there are as many as
11 other overseas organisations providing ISO 9000 certification services in Hong Kong.
HOKLAS has been operated by the Hong Kong Industry Department since 1985, with an
aim to improve the standard of testing and management of laboratories by providing
official recognition for accredited laboratories. The scheme also benefits local traders
directly from the mutual recognition agreements signed with accreditation bodies of Hong
Kong's major trading partners. The laboratories provide three broad services of quality
assurance testing, product inspection, quality consultancy and calibration services to
Hong Kong client laboratories that perform objective testing falling within the scope of
accreditation scheme and meeting the HOKLAS criteria of competence in accordance
Development of Construction Quality Management 585
with ISO/IEC Guide 25 which also contains all quality system elements of ISO 9000
related to laboratory operation for calibration and testing activities.
Apart from HKQAA, the other overseas certification bodies providing certification
services for ISO 9000 in Hong Kong are supervised by the “accreditation bodies” in their
own countries. In line with the current international trend in which a single government-
supported organization provides accreditation to both laboratories and certification bodies
on a voluntary basis, the Hong Kong Laboratory Accreditation Scheme (HOKLAS) has
been expanded to form the Hong Kong Accreditation Service (HKAS) in November 1998.
HKAS has been working towards the concept of “one test, one accreditation, accepted the
world over” by becoming a member of other accreditation bodies such as International
Accreditation Forum (IAF), International Laboratory Accreditation Cooperation (ILAC),
Pacific Accreditation Cooperation (PAC) and Asia Pacific Laboratory Accreditation
Cooperation (APLAC).
Hong Kong Certification Body Accreditation Scheme (HKCAS) officially came into
being with the formulation of the Hong Kong Accreditation Service (HKAS) on
November 2, 1998, to offer accreditation to ISO 9000 quality system certification bodies
in compliance with the requirements of ISO/IEC Guide 62, quality management system
(QMS) certification, those which conform with the requirements of ISO/IEC Guide 66 for
environmental management system (EMS) certification and accreditation of certification
bodies which conform with the requirements of ISO/IEC 65 for product certification.
586 Aoieong and Tang
Within the same month of launching HKCAS, i.e., November, 1998, HKQAA applied for
accreditation and eventually (in June 1999) became the first body to be accredited by
HKCAS. Applying for such accreditation is not new. HKQAA has been accredited by
China National Accreditation Committee for Registrars (CNACR) for ISO9000
certification, and United Kingdom Accreditation Service (UKAS) for ISO9000,
ISO14001, QS-9000 certification. This year, HKQAA is admitted to International Quality
Network (IQNet) as a full member, being the 29th member worldwide, and the 4th member
in Asia, after Japan, Korea, and Singapore.
This is a voluntary accreditation scheme for inspection bodies that has the objective of
upgrading their standard and recognising competent inspection bodies. Product
inspection bodies support the trade and industry sector by examining the compliance of
goods and products according to specifications provided by their clients, which may be
overseas buyers, local buyers, manufacturers or in-house clients. Inspection operations
include obtaining samples according to predetermined sampling plans and testing the
samples for compliance. The dependability, competence and integrity of product
inspection bodies are crucial to maintaining the quality of goods manufactured by or
traded through Hong Kong and for upholding the reputation of Hong Kong as a reliable
trading partner and service provider. Providing an accreditation service for inspection
bodies will improve their quality and increase the confidence of overseas clients on their
inspection results and the quality of the inspected goods.
The vision of Hong Kong quality proponents has been that, under tight surveillance from
both the certification bodies and internal auditors, the quality of works can be guaranteed,
and the preferential tendering eligibility system can effectively bar the poor quality
performance contractors and prevent them from obtaining contracts with a low tender
price. However, as reported by Kam and Tang (1997), it seems that actual achievements
resulted from such quality initiatives are below the original expectations.
Over a decade of ISO 9000 certification, there is still no apparent solution to the problems
of the construction industry. Although some benefits were experienced by contractors
after the implementation of the quality system (Tam, 1996), studies have shown that
many of the problems and difficulties encountered by contractors still exist (Tam and
Tong, 1996; Ahmed et al., 1998). The results obtained from different studies conducted
in Hong Kong are best summarized by Kumaraswamy and Dissanayaka (2000). In
summary ISO registration alone does not lead to a more efficient quality system. Rather,
it is the genuine motive, combined with correct interpretation, formulation and
implementation of ISO 9000 that yields the expected results.
and June 1998, Tam found that only a few contractors could achieve the desired quality
levels and the remaining contractors fell far below the performance criteria. Over the
years, nevertheless, there surfaced numerous complaints of poor quality of construction
by ISO 9000 certified contractors having scored high PASS scores. Complaints also used
to flow in from the contractors that, notwithstanding the implementation of PASS and
preferential tendering, some contractors used to obtain contracts at questionably low
tender prices. Tam concluded that eligibility for tendering future contracts based on
PASS scores could not provide enough incentive for contractors to improve construction
quality. Much concern was raised in 2000, when substandard piling incidents occurred in
HA’s building construction projects. The events prompted that all concerned parties need
to seriously rethink their approach towards construction quality management.
Future Trends
(1) reducing labour intensive site work by using offsite production and fabrication,
and use of mechanisation onsite
(2) applying the strategy of partnering to better manage the supply chain
(3) others
The concept of partnering emerged in the construction industry in the late 1980s, and has
been first used in Hong Kong, in 1994, in the project to design and build the 620-bed
North District Hospital in Sheung Shui, Northern New Territories (Skues, 1996). Being a
588 Aoieong and Tang
public sector project, the design and build contractor needed to be selected by public
tender, hence, partnering could only be applied after signing the contract, i.e., ‘Post-
contract Partnering’. Although benefits of post-contract partnering are limited compared
to ‘Pre-contract Partnering’, the high quality outcome of the building stands testimony to
the success.
In 1997, two private commercial developments in the heart of the city, ‘1063 King’s
Road’ and ‘11 Chater Road’ projects applied ‘Pre-contract Partnering’ strategy. The
client engaged the contractor at the outset of the project and negotiated a Guaranteed
Maximum Price (GMP) in a partnering environment. Among the many benefits reported
are proactive project management, ease introducing changes, extensive use of offsite
fabrication/production, superior quality and early completion of the project achieved
below the target price.
In another example, the Mass Transit Railway Corporation (MTRC), being a semi-
governmental organisation applied post-contract partnering in its Tseung Kwan O railway
line construction projects. MTRC reported that the use of partnering has led to 40% cost
savings and early completion of the project (Bayliss, 2001).
In view of this favourable trend, and considering many other industry conditions, the
Construction Industry Review Committee (CIRC) report, in January 2001, has
recommended partnering as a strategy to manage for quality in the construction industry
(CIRC, 2001).
(3) Others
In order to substantially lift the quality and cost-effectiveness of the construction industry,
a package of recommended measures were suggested by the CIRC. Some of the
recommended measures are:
REFERENCES
Ahmed, S.M., Li, K.T. and De Saram, D.D., (1998), “Implementing and Maintaining a
Quality Assurance System - A Case Study of a Hong Kong Construction
Contractor.” Proceedings of the 3rd International Conference, ISO 9000 & Total
Quality Management, Hong Kong Baptist University, Hong Kong, pp 450-456.
Bayliss, Roger F., (2001), “Partnering on MTR Corporation Ltd's Tseung Kwan O
Extension”, HKIE Transactions, Vol. 1, No. 1.
Chan, Albert P. C., Wong, Francis K. W., Lam, Patrick T.I. and Choi, J. C. W., (2002),
Proceedings of the First International Conference on Construction in the 21st
Century (CITC-I), Miami, Florida, USA, April 25-26, pp 289-294.
Development of Construction Quality Management 589
Kumaraswamy, Mohan M. and Dissanayaka, Sunil M., (2000), “ISO 9000 and beyond:
from a Hong Kong construction perspective”, Construction Management and
Economics, E & FN Spon, London, UK, Vol. 18, pp. 783-796.
McNicholl, D.P. et al., “A quality assurance scheme for precast prestressed spun concrete
piles to be used in housing authority contracts”, Hong Kong Engineer, Journal of
the Hong Kong Institution of Engineers, pp. 12-20, July 1989.
Skues, D., (1996), Partnering and its relevance to Hong Kong, 6 pages, Crow Maunsell
Management Consultants.
Tam, C.M., (1996), “Benefits and Costs of the Implementation of ISO 9000 in the
Construction Industry of Hong Kong”, Journal of Real Estate and Construction,
Singapore University Press, Singapore, Vol. 6, No. 1, pp 53-66.
Tam, C.M. and Tong, Thomas K.L., (1996), “A Quality Management System in Hong
Kong: a Lesson for the Building Industry Worldwide”, Australian Institute of
Building Papers, Canberra, Australia, Vol. 7, pp. 121-131.
Tam, C.M., Deng, Z.M., Zeng, S.X. and Ho, C.S., (2000), “Quest for continuous quality
improvement for public housing construction in Hong Kong”, Construction
Management and Economics, E & FN Spon, London, UK, Vol. 18, pp. 437-446.
AN EVALUATION OF POST-RECLAMATION MANAGEMENT OF LANDS
RECLAIMED FOR HOUSING IN LAGOS METROPOLIS, NIGERIA
ABSTRACT
The research reports that Land reclamation has been used to provide approximately 6,000
hectares of land in Lagos, Nigeria and housing for estimated 500,000 people. The impact
of globalisation revolutionalised the practice of reclamation from sand-tipped hinter-land
and marshy sites to large scale hydraulic dredged coastal sites. It is noted that the impact
of globalisation hardly extends beyond the construction stage of these lands. Findings
show that the insufficient attention paid to post-reclamation management of these lands,
has led to serviceability problems. Most public owned reclaimed lands do not have any
post-construction management, maintenance budgets are generally regarded as
insufficient. Drainage problems, flooding, general wetness of top surrounding soil are
ranked as the most pertinent consequences of lack of maintenance. Outright neglect,
delay in executing repairs, lack of maintenance policy, materials and equipments are seen
as factors responsible for the impaired serviceability. Consequently, the users of the lands
do not have full benefits of globalisation , as there are added costs; in terms of aesthetics,
decay and high life cycle costs. Policy on developing citizen capacity with inherent
technology transfer is suggested as a means of achieving full globalisation.
INTRODUCTION
Urban land scarcity for housing provision in Lagos metropolis is worsened by the twin
problems of relatively tiny land area and large presence of body of water covering 22%
of the total land area and excessively high and increasing population. The city has
0.04% of the Nigerian land mass, but accommodates 10% of the country’s
population.[Raheem, 2003].
Owing to the prevailing land scarcity, several attempts have been made to reclaim lands
from the Lagoon systems, on a large scale in the past fifty years. Such successfully
reclaimed lands have been used for housing purposes. Areas currently occupied through
this means include, Maroko, Iponri, Iganmu, Victoria Garden City, Ilubirin, Ogudu, Lekki
Pennisula, Osborne road, Ajah, Amuwo- Odofin, Abule- nla and Herbert Macaulay,
covering approximately 6,000 hectares or 1.65% of the total land area of Lagos State and
housing an estimated 500,000 inhabitants in 20,000 buildings[Onaivi,2004].
592 Aina et.al.
History of land reclamation in Lagos reported by Aina et al.(2002), shows that earliest
reclamation efforts was limited to hinterland marshy sites, interwoven within the
mainland, the sites were reclaimed by the dry sand filling technique, which involves
borrowing, transporting, spreading, and compacting fill material on site. The history
further shows that, changes in the city caused by exploding population, industrial,
communication, and transportation growth, led to large scale reclamation of coastal parts
of the city such as; Lekki, Maroko, Ajah, Victoria Garden City and Ikota. Hydraulic sand
filling technology required for reclaiming large coastal lands was imported because it was
not available locally. This need-importation chain has been identified by Drewer (1980)
and Ofori (2000) as the main basis for globalisation in developing countries, as opposed
to strategic and proactive reasons of the developed nations. Drewer believes that
globalisation is an inescapable fact for developing nations, because many of the
construction projects they require for their socio-economic development are beyond the
capacity of their industries to undertake. Similarly, Ofori concluded that developing
nations must import some construction activities. The main advantages of hydraulic sand
filling are the access to large amount of cost-free sand at the sea bed for large scale
filling and absence of vehicular transportation.
Low participation of indigenous contractor has been adduced to factors such as lack of
technical depth to support quality work, prompt delivery as well as lack of machinery and
economic and efficient management capabilities.
However, inspite of the near total control of the construction scene by foreign based
organisations and forces of globalisation and free trade, there is no evidence of the
involvement of foreign based firms in post-construction management and maintenance of
constructed facilities in the public sector in Nigeria. This duty is largely carried out by ill
equipped government organisations , that have been slow to reflect the effects of positive
globalisation. However, the importance accorded building maintenance and facility
management globally,[Seely (1986), Ikpo (1990) Yussif (1998)] does not support the
Nigerian arrangement.
For the purpose of sampling, the whole city was grouped into three zones according to
population density, namely; core zone, comprising Ajegunle, Amuwo odofin and Iponri,
the intermediate zone, comprising Ebute-meta, LagosIsland and Festac, and the newly
developed zone, comprising Victoria-Island, Lekki and Ikoyi. The core zone has the
highest population density. Structured questionnaires were administered on the
organization that manages the land and the dwellers on the land, to elicit information on
the existing land management policies and the performance of the reclaimed lands. One
hundred and fifty and fifty questionnaires were administered on the dwellers and
management organisations respectively. Response rate was 55 from the dwellers and 12
from the managers. Relative importance indices were used to rank the variables with
simple charts to present the results.
Out of the 12 management organization that responded to the survey, 11 claimed to have
maintenance policies, of these, six carry out daily inspection of their reclaimed land, five
do so every two year, while one does not carry out any inspection. The six firms that
carry out daily inspection were found to be private organizations, managing privately
reclaimed lands, in the newly developed zone, housing low density elite populations.
Respondents from organizations that manage public lands claimed that the responsibility
for maintaining the estates is borne by them for only two years after construction after
which the management of the estate is transferred to occupants of the lands.
Responses to budget related factors show that the basis of budget is predominantly from
actual maintenance needs and previous budget, both are used by 33% of the respondents
respectively. Percentage of original cost and percentage of current value are preferred by
25% and 8% of the respondents respectively. In a situation where there is organization
budget, the occupants bear 10% to 20% of the budgets, where there is no budget, 30% of
the organizations raise funds as required, while 70% demand funds from the occupants.
On the whole, only 30% of the respondents believe their funding is adequate.
Table 1 shows the problems identified on the reclaimed lands and the defects induced on
the buildings on them by dwellers. Nine out of the 12 variables identified, significantly
affect the state of the lands, they were ranked from 1 to beyond 3 on a scale of one to
four. Drainage problems (3.143), flooding (2.429), general wetness of top surrounding
soil (2.143) are ranked as the most pertinent problems associated with the lands. Other
important defects are rising damp in the floors and walls (1.571 and 1.429 respectively).
Cracking of the ground floor (1.286) and subsidence of the ground floor (0.857).
Survey findings show that most problems identified are associated with ground and
surface water, which generate others, such as general wetness of the surrounding grounds,
damp penetration, drainage problems and flooding. The effect of these on the occupants is
general inconvenience, which generates social tension when these problems occur
perennially on a large scale.
Damp penetration has been described as one of the most serious defects in buildings by
[Seely, 1986], apart from causing deterioration of the structure, it can also result in
damage to furnishings and contents and can in severe cases adversely affect the health of
the occupants. Structural defects may also arise as a result of drying out of subsoil after
flooding and washing away of the supporting soil by underwashing water currents. Walls
may also experience surface damage by scouring and erosion, efflorescence and cracks.
Furthermore, flood poses dangers to electrical installations as ducts and conduits that
traps flood water must be carefully treated and have continuous technical inspections for
a year after the flooding.In addition to the implications highlighted above, a critical
attribute of the building that is severely impaired is the aesthetics,[Anderson, 1987]
believes that aesthetics is the focus of all maintenance activities and that it is the prime
significance of maintenance. [Lloyd, 1962] also believes that among the Yorubas in
Nigeria, aesthetics of a building causes the building to bring prestige to its owner as it
marks him out as one of his town’s worthier citizens.
However, the economic life and the life cycle cost of the buildings in the study areas are
the most severely affected factors besides all other implications. The earning power of
these buildings may not be able to compete with those elsewhere and the life cycle cost is
high.
As noted earlier, the government, as owners of reclaimed lands, and as monitoring agents
of other privately owned lands, presently has agencies that are ill equipped for post
reclamation management responsibilities .To effect desired changes, government
responses would largely be premised on policy formulation. The general maintenance
provision of the Nigerian national housing policy is not strong enough to cater, for
specialised areas such as reclamation , the policy is also weak as a result of its low
emphasis on development of maintenance personels and in not advocating maintenance
in the design and implementation stages of projects. It is significant to note that the three
steel plants and the two refineries referred to in item 7 on table 1 are presently inoperable
and shut down, as a result of general poor maintenance culture.
The key policy requirement relates to development of citizen capacity, to enable their full
Land reclamation management 597
An alternative policy direction, that Nigeria may benefit from, is the localisation policy
[Gubago, 2000], which has achieved as much as 90% of it’s citizen capacity development
goals in Botswana Malaysia. The aim of the localisation policy in Botswana is to govern
and guide the employment of foreigners to achieve the national goal of full employment
for all qualified citizens before employing a foreigner. The act that guarantees an
employment permit for a foreigner , requires him to have a position of an understudy, as
well as training programme for an understudy. The programme has achieved 95% result
in Botswana’s public and mining sectors.
CONCLUSION
Land reclamation practices in Lagos metropolis has benefited immensely from hydraulic
sand filling technology, imported through the avenues of globalisation, the technology
has made large areas of reclaimed lands available, from previously uninhabitable, marshy
and coastal lands.The study shows that lands obtained through this means require greater
maintenance attention than naturally occurring lands, so as to prevent excessive
degradation. Findings from the study area show maintenance attention accorded these
lands is inadequate. Policy on citizen capacity development is advocated to improve the
situation.
598 Aina et.al.
A general view of globalisation shows that there have been both negative and positive
effects of its use in developing nations of the world, the lapses reported in this study is an
example of the negative effect. But studies elsewhere showed that Japan and Korea are
countries that benefited immensely from the globalising forays of the United States of
America. A notable characteristics of nations that have benefited from globalisation in
any sector of their economy is that the initiatives for benefiting and sustenance of
momentum came from them, this is because globalising organisations hardly ever have
the primary goal of empowering host nations.
REFERENCES
Abbot, P.G. (1985) Technology Transfer in the Construction Industry. The Economic
Intelligence Unit, London.
Aina, O.O., Ata, O. and Olusola, K.O. (2002) Land reclamation practices in Lagos
metropolis. Proceedings of the Conference on the City in Nigeria, Obafemi
Awolowo University, Ile-Ife, Nigeria October 9 –11, pp. 282 – 287
Anderson, R. (1987) Good maintenance pays off-The benefits of efficiency, productivity
and morale. Proceedings of the Profitability building maintenance conference,
London.
Carillo, P. (1994) Technology transfer. A Survey of International Construction
Companies. Construction Management and Economics, 12,45,51
Charles, J.A., Naismith, W.A., and Burford, D., (1977) Settlement of backfill at Horsley
restored opencast coal-mining site. Proceedings of the conference on Large
ground movements and structures, University of Wales- Institute of Science and
Technology. Cardiff.
Drewer, S, (1980) Construction and Development: A new perspective. Habitat
International Vol. 5, 3/ 4, pp 395 – 428.
FIDIC (1995) Improving Transfer of Technology – Guide for actions.
Gubago,B. (2000) Developing Citizen capacity in the face of Globalisation and foreign
competition – Proceedings of conference on challenges facing the construction
industry in developing countries. Botswana, CSIR/CIB.
Ikpo, I.J. (1990) Deterioration phenomena of selected housing estates in South Western
Nigeria, an unpublished Ph.d. thesis, Obafemi Awolowo University, Ile-Ife
Nigeria.
Kilkeny, W.M. (1968)., A study of the settlement of restored opencast coal sites and their
suitability for building development., University of Newcastle – upontyne
Department of Civil Engineering, Bulletin No. 38.
Lloyd, P.C. (1962) Yoruba Land Law, London Oxford University Press, pp.3.
Mosaku, T.O. (2002) The impact of globalisation on building in the 21st Century.
Proceedings of Conference on Building in the 21st Century, Department of
Building, Ahmadu Bello University, Zaria, Nigeria pp. 356-362.
Ofori,G. (1996) International contractors and structural changes in host countries: case of
Singapore. Engineering, Construction and Architectural Management, vol. 3
No. 4, pp. 271 – 288.
Ofori,G(2000) Developing Citizen Capacity in the face of Globalisation and Foreign
Competition - Proceedings of conference on challenges facing the
construction industry in developing countries. Botswana, CSIR/CIB
Land reclamation management 599
ABSRTACT
Land is a factor of production, essential to the provision of urban housing and
infrastructural services and the production of agricultural goods. The explosive growth of
Lagos State, the nation’s commercial nerve center and former capital territory, will test
the capacity of governments and private sectors to generate jobs and to provide land for
services, infrastructure, and social supports necessary to sustain livable and stable
environments.
The paper, therefore, examined the operational modalities and the requirements for land
delivery in both formal and informal land markets in the state. To accomplish this
research, secondary data were collected from relevant agencies and authorities in the state
through participant observation backed up with oral interviews.
Consequently, problems emanating from both markets were discerned vis-à-vis their
attendant policy implications. For instance, the study revealed, inter alia, the dual
concept (nature) of land acquisition generally in the city, the cumbersome and
bureaucratic process in the land delivery in the formal market in addition to the exorbitant
prices of land, the state of insecurity of tenure in the formal sector. Thereafter, some
conclusions were drawn with a view to improving housing provision in Lagos State.
Keywords: Formal and informal land market, land delivery operational modalities &
urban housing development.
INTRODUCTION
Some cities of developing countries are faced with a daunting task of providing
accommodation for the urban population. These cities are growing two or three times
faster than the country’s overall population, reflecting massive migration to cities
[Girardet, 1999]. For instance, the population of Lagos state grew at an average of 5.6%
per year compared with 3% for Nigeria as a whole [Agbola et al, 2002]. In 1992, Lagos
had an estimated population of about 1,347,000. The population of 75 metropolitan areas
was about 10.9million in 1996. The United Nations predicts that the city’s metropolitan
area, which had only about 290,000 inhabitants in 1950, will exceed 20million by 2010,
making Lagos one of the world’s five largest cities. Thus, recent estimates by Agbola and
Olatubara [2003] on projected housing provision for all the states in the country indicate
602 Aluko, Olaleye, and Amidu
that Lagos State has the highest projection of 570,000, 350,000, 560,000 and 270,000
housing units during the periods of 1991-1995, 1995-2000, 2001-2005 and 2005-2010
respectively. Given the foregoing and, also, with the globalisation of finance, business
services, and production, Lagos State is facing increasing magnitude of housing problem
and the clamour for more productive centres for finance and business services. [Dowall,
1991; and Ajanlekoko, 2001].
But housing delivery process involves series of processes by which housing resources
such as land, labour, finance and building materials are combined to produce new
housing. It also involves the upgrading of existing units as well as the distribution of
housing demanders. Housing delivery system encompasses the process that allocates
housing units to households in a particular country (Agbola and Olatubara, op cit).
Nevertheless, the land question constitutes a major problem in home ownership or
housing development [Aluko, 2002 and Moss, 2002]. In developing cities around the
world, the demand for land for urban use, in the face of globalisation of investment and
urban population explosion, is large and growing. Urbanisation does not take place in thin
air, it requires enormous amounts of land. This leads to both vertical and horizontal
expansion in the size of the cities; although, the vertical or economic supply of land is
limited by the land use planning standards, which vary from one city to another.
Horizontal expansion into the zone of transition within the city therefore is inevitable.
And, lack of access to land is a major bottleneck preventing the urban poor to participate
meaningfully in the urban economy. The Presidential Committee on Urban Development
and Housing, [2002] identified access to building land as one of the fifteen areas, besides
housing, calling for serious attention in the Nigerian cities. They concluded that the
constraint on the access to land for prospective developers could be a hindrance to the
housing stock responding appropriately to any sudden change in the demand for housing
units. In effect, the pressures of globalisation, urbanisation and a fast growing population
have wreaked havoc on land delivery and management for housing development in Lagos
State. The daunting task is that lands are supposed to be released in adequate numbers, at
the right place, right time and at the right (or affordable) prices. Hence, the essence of this
study is to examine some of the foregoing issues vis-à-vis problems of land delivery with
a view to improving upon land delivery and management in the study area.
Facilitating access to land and securing the means of paying for it is one of the most
important prerequisites for the development of sustainable human settlement policy. To
the land users, accessibility to land consists of four elements. These are: land availability,
land affordability, security of tenure to the land question, and the ease with which
transaction can take place in land. [Omirin, 2002]. For the sake of simplicity, Farvacque
and McAuslan [1992], divided access to land into the following categories:
(1) Private-private: This type of access is gained through the transfer of ownership in
private transactions or through the inheritance of land.
(2) Public-private: A state allocation process may give private individuals access to state
land.
(3) Private-public-private: There may be a land banking scheme by which private lands
are pooled together under state monitoring and then redistributed to the private sector.
Land Delivery Problems in Lagos State 603
However, at the beginning of the 20th century when Britain made a colony and
protectorate of Nigeria, there was a multiplicity of land tenure and management systems
in the country [Mabogunje, 2002]. Apart from the system in Lagos colony where an
English freehold system had been established following its annexation in 1861, these
diverse systems can be grouped broadly into two categories. The first obtained in the
Northern Nigeria where the colonial administration had placed all lands under the control
and subject to the disposition of the Governor. This was on the basis that the Maliki Law
operated by the Fulani over much of Hausaland in the 19th century confers on conquerors
rights to the land of the conquered. Without the consent of the Governor, no title to
occupation and use was valid. An ordinance directed that the Governor shall hold and
administer the land for the use and common benefits of the native peoples. The ordinance
laid down maximum of 1,200acres for agricultural grants and of 12,500 acres for grazing
purposes [Government of Nigeria, 1953]. By contrast, in Southern Nigeria, the second
system recognised that land was owned by lineages or extended families. Individuals
have only right of use on such family land. The only land held at the Governor’s disposal
was that which had been expressly acquired for public purposes as Crown land.
From the above, whether in Northern or Southern Nigeria, land was considered by the
people themselves largely within the nexus of a pre-capitalist social formation. This is
why in most Nigerian society, the position at the beginning of the 20th century was that
land was not sold. But, as the colonial era progressed, land alienation and sales not only
grew in volume and geographical spread but also became the cause of considerable
litigation and communal strife, often resulting in violent confrontation. Besides, the land
tenure system of Southern Nigeria created a number of problems for land management
which encouraged the practice of multiple sales of the same land to different buyers by
land-owing families, land speculation and a sharp rise in the prices of land for urban and
infrastructural development, incessant rancour and land litigations, exorbitant
compensation for land and, nonavailability of land for government developmental
projects. Thus, faced with the above problems and the contrasting land tenure systems,
the then federal military Government promulgated the Land Use Decree (now Act) on the
29th March, 1978 with a view to unifying the land tenure system in the country.
According to Mabogunje [2002], the thrust of the Act was largely to extend the northern
system of land management to the whole country as a means of ensuring easier access to
land for government and, ostensibly for individuals. Under the law, all land situated in the
territory of each state in the country is vested in the Governor for the use and common
benefit of every Nigerian. The control and management of urban lands, including
allocation, come under the Governor of each state while land located in rural areas
becomes the responsibility of the various local governments. For ease of management,
urban lands were to be administered by a body known as the Land Use and Allocation
Committee, and similarly, a Land Allocation Advisory Committee is provided to advise
local governments in like manner. By Section 5 and 6 respectively, state and local
governments can grant statutory and customary right of occupancy respectively to any
person for all purposes. The maximum area of undeveloped land that any person could
hold in any one urban area in a state is one half of an hectare; in the rural areas this must
604 Aluko, Olaleye, and Amidu
not exceed 500 hectares and 5000 hectares respectively for agricultural and grazing
purposes. In all, the consent of the Governor is required for any alienation of land right.
The law is also an integral part of the 1999 constitution currently being operated in the
country.
Although, Fabiyi [1990] criticised the Act as an urban legislation, which only
superficially touches the tenure problems in the rural areas, Sections 29 and 48 of the Act
still give recognition to existing interests, such as customary tenure, in land. Thus, a
plurality of land tenure and management systems (i.e. state and customary) prevail in the
country; particularly, in the study area. These systems are poorly articulated and
increasingly cause problems of contradiction and conflict [Kasaga and Kotey, 2001].
Against the foregoing, the sources of land delivery in Lagos state can be grouped into
two, that is, formal and informal. The formal sector comprises institutions operating
within the statutory guidelines under the Land Use act, 1978 such as the state Ministry of
Lands and Housing, the state and federal governments housing authorities and property
corporations. The informal sector includes, individual and families, communities
represented by stools, skins and families, private property companies, estate agents and
estate surveying and valuation companies.
Inspite of these sources, the journey toward the lawful acquisition of a plot of land is a
long and confusing one; access to land, registration of land, permission to develop the
land involve time consuming, unduly cumbersome, and costly procedures which make the
legal system very difficult to access (Farvacque and McAuslan, op cit, Mabogunje, op
cit). Using the case of Harare, Mubvanic and Musandu [1994] noted that the housing land
delivery process is riddled with bureaucratic and administrative procedures and processes
that render the whole process cumbersome, slow and protracted. They concluded that
there are just too many actors involved in the whole process – a factor, which creates
procedural bottlenecks in the delivery process. Furthermore, Moss, op cit, remarked that
the cost of urban land is a big discouragement to urban poor. Only marginal land, with no
title document and infrastructure at the periphery are available for the poor to build on.
He concluded that the cost of land and documentation account for about half of what is
required for housing development. Against the background information, this paper
focuses on the state of art problems of land delivery in Lagos state affecting housing
development.
RESEACRH METHODOLOGY
The study concentrated essentially on the formal and informal sources of land delivery in
Lagos State including the attendant consequences. Lagos state, being a former nation’s
capital territory and political city, constitutes the commercial nerve-centre as well as the
city with the most globalising effects of investments. The data for the paper was obtained
mainly from existing literature both published and unpublished. Some secondary data was
secured from Lands Bureau, Lagos state Governor’s office through participant
observation. This was supplemented by open ended and informal interviews, through
structured questionnaires, with some key informants: researchers, traditional authorities,
public land administrators and private estate surveying and valuation companies in the
study area. The data were later analysed, using simple descriptive statistics, to evaluate
problems of land delivery for housing provision in Lagos State.
Land Delivery Problems in Lagos State 605
Allocation of lands to individuals or corporate bodies can be either from the state
government by direct allocation (formal market) or through purchase of privately owned
lands in informal market. Private lands may be derived from customary rights,
inheritance or purchase of, even, government scheme sites from the original allotees.
This section examines below the procedure, requirements and the consequences of such
allocations for housing development in Lagos state.
There are 46 residential scheme sites all over the state owned by the state government.
These scheme sites are categorised either into prime or general sites. The prime scheme
sites refer to residential sites that are in high demand by the public due to its value,
location, accessibility, etc. On the other hand, general scheme sites are located in areas
with dense population and lower value residential neighbourhoods. Allocation of lands in
urban areas, particularly in the scheme sites, is being handled by the Land Use and
Allocation Committee. However, prospective allotees or applicants are expected to buy
and fill necessary forms, observe the requisite requirements or procedure and make
stipulated payments before such allocations are granted, but subject to the approval of the
State Governor. Although this procedure appears simple and straight forward, it is not so
in reality as it may take a period of 6 months to 2 years, in some cases, to complete. The
process is, therefore, cumbersome and time-consuming. In addition, table 1 below gives
the summary of applications received for both general and prime lands within the
schemes together with the corresponding allocations approved by the government for
1990 to 2004.
Table 1: Number of applications received and approved for land allocation in Lagos State
Year General Prime Total Allocation
received total granted
1990 1,800 300 2,100 310
1991 1,815 350 2,165 300
1992 1,900 360 2,260 250
1993 1,958 370 2,328 308
1994 1,965 388 2,353 300
1995 1,970 395 2,365 280
1996 2,200 400 2,600 250
1997 2,500 450 2,950 320
1998 2,700 500 3,200 360
1999 2,800 550 3,350 370
2000 2,800 600 3,400 450
2001 3,000 800 3,800 600
2002 3,008 1,350 4,358 1,200
2003 3,100 2,500 5,600 1,850
Source: Lands Bureau, Governor’s office Alausa, April, 2004.
As evident from the above table, the numbers of applications are always in excess of the
plots allocated and, there has been persistent increase in the demand or number of
606 Aluko, Olaleye, and Amidu
applications over the years not matched by supply of plots in the scheme sites. Perhaps,
this has meant that the state government has not been able to evolve to cope with the
speed, volume, diversity and complexity of land delivery issues in Lagos State. Besides,
altogether there are 25, 175 plots in all the Lagos State government residential scheme
sites. This is grossly inadequate if it is compared with the projection of housing provision
required in Lagos State for the period between 2000 – 2005 put at 560, 000 units as
reviewed in the literature. It also explains beyond other reasons like cost etc, why people
may be left with no other option than to patronize the informal market or, at times, squat
on lands illegally.
Aside from other requirements like 3 years tax clearance certificate, perimeter survey
plan of the site, payments in respect of development levy and application forms, amongst
others, the intending state lessee, after receipt of letter of allocation conveying the
approval of the Governor, must pay, within a stipulated period, premium, as assessed by
The Land Bureau, for the plot allocated to him. The premium payable varies from one
scheme site to other depending on the size of the plot and, whether it is prime or general
location. Table 2 below shows the premiums (column 3) and average sizes (column2) of
the residential schemes that are still available for allocation in the state. Column 4 in the
same table indicates the going rates/values of the plots in the open market (informal
market).
Table 2: Cost (premium)/ price of obtaining land allocation in some selected residential
scheme sites in Lagos State.
S/N Location Average Premium/prices Market price
size (plot) per plot from informal
area (m2) (Nmillion) market
(Nmillion)
(1) (2) (3) (4)
1 Abijo GRA, Ibeju Lekki LGA 1,000 0.2395 3.0
2 Lekki pennisula phase II, Eti-
Osa LGA 900 1.99302 7.0
3 Isheri North Kosofe LGA 700 0.81795 3.0
4 Ikorodu GRA III, Ikorodu LGA 1,500 0.35925 2.0
5 Ewu Elepe, Ikorodu 1,000 0.2395 1.1
6 Ijanikin, Ojoo 800 0.278 1.5
7 Ayobo GRA, Alimosho LGA 800 0.278 1.3
8 Mosafejo-Aradagun GRA,
Badagry. 1,000 0.2395 3.0
Sources: Columns (2) & (3) – Lands Bureau, Lagos State, April, 2004
(4) – Estate Surveyors and Valuers Practising in the Areas, April, 2004
As shown in the table, the cheapest plot obtainable directly from Government will sell for
N239, 500, especially in Abijo GRA, Ewu Elepe and Mosafejo – Aradagun residential
schemes. If the estates are really meant for low – incomers, the premiums appear very
high. For instance, if our low – incomers are civil servants earning between salary Grade
Level 01 and 06 who are within the income bracket of N111, 710.40 and N190, 648.80
Land Delivery Problems in Lagos State 607
per annum, not withstanding their budget for clothing and food including other financial
commitments, how many years will it take them to acquire plots in the schemes
mentioned above? Even, the highest paid civil servant in Lagos State on a salary grade
level 017 earning N735, 248.52 per annum may still not be able to acquire the plots
comfortably within few years talkless of developing a structure. And, since our civil
servants are just a fragment of the 28% of the developing world’s urban population
[Vanderschueren et al, 1996; World Bank, 1994] having incomes below poverty line,
what becomes of the others who are even poorer as regards affordability of state lands? In
the end, lands meant for the low incomers would be acquired by the rich and highly-
placed people. State delivery of land has, therefore, generally worked against the
interests of poorer groups while benefiting the government bureaucracy and those able to
wield the levers of power in the modern state sector.
In addition to the above, while the legal regime and institutional arrangements appear
absolute, they are also, paradoxically, very weak. Staffing constraints, lack of support
services, low morale and pervasive corruption (favouritism) are endemic and occur at all
levels of land delivery process.
This occurs in an informal land market very frequently in the state. The costs of
acquiring land in this market are usually very high than what obtains from the
government. For example, table 2 as demonstrated in column 4 indicates that if the plots
in the identified scheme sites were given out in the open (informal) market, each plot
could command as high as 4 times the original cost of acquisition from the state
government. Besides, as required under the Land Use Act, 1978, the State Governor’s
consent must be obtainable to perfect title document in respect of any land transaction in
this market. The procedure is usually very long, cumbersome and bureaucratic. For
instance, regularisation or ratification of land title including governor’s consent consists
of about 11stages, which include:
Also, the cost of perfecting title, in addition to purchase price apart from other
requirements of Deed of assignment or Lease, tax clearance certificates, charting and
application fees, tenement rate clearance certificate, etc, as given above, may be as high
as 46% to 60% of the purchase price indicated in respect of state lands in column 4 of
table 2 above. The additional cost of transfer and obtaining Governor’s consent as a
percentage of the land cost or purchase price include the following: Agency fees at 5%,
legal fees 10%, Governor’s consent 15%, Stamp Duty 6%, Capital Gains tax 10% and
Registration 1%. Notwithstanding the above, some of the Lagos State Government
schemes and private properties fall within areas jointly owned by the Lagos State and
WEMABOD Estates Ltd – a subsidiary of Odua Investments owned by the former
Western Regional Government. Where this obtains, double consent have to be paid – one
to the Lagos State Government as above and, the other, including registration fee usually
in the region of 10 to 15%, to the WEMABOD Estates Ltd, making the cost of transfer as
high as 60% above the purchase price. This would further make land beyond the reach of
the urban poor. Apart from this, land acquisition in informal market may be subject of
fraudulent sales, insecurity of title, land speculation, and incessant rancour and litigations.
Although, even under direct allocation by the government, allotees are sometimes forced
by the customary or original landowners, who had earlier obtained compensation for their
land acquired by the government, to pay them the market value of the lands allocated.
This amounts to double payment in respect of plots within the scheme sites.
CONCLUSIONS
The conclusions from the above is that, apart from the state government, there are other
actors in the land delivery process in Lagos State. The challenge of globalising finance
and investments through privatisation and other means like African Union, European
Union or Economic Commission of West Africa States (ECOWAS), therefore, is to rally
these actors and promote public-private partnership in land delivery in the state. This is
because by nationalising land, the Land Use Act, 1978, which was largely a legislative
measure, has not expedite the allocation of state lands as well as issuance of appropriate
titles for the grants made. This development, to the extent that it tried to substitute
administrative processes for allocation through the free market system to which the
society was already responding, must, to that extent, be considered retrograde. More
importantly, it is better to have as many landlords or landowners rather than having the
state as the only universal landowner if land inflation or speculation and land accessibility
to the urban poor are to be controlled. For, in reality, there is no benign, omnipotent,
omniscient landlord, but only the clerk in the land commissioner’s office and behind an
official, both human, prone to the weakness of personal misjudgements, prejudice and
preferences along with everyone else; and, as representative of a dumb and blind
monopolistic state landlord, the wielders of immense and absolute power. Thus, plurality
of land tenure and management systems in Lagos state must be well articulated.
Otherwise, to try and eliminate the traditional authority or other actors input into land
delivery, as currently obtainable under the Land Use Act, 1978, is to invite the growth of
a parallel, unofficial land delivery system as well as conflict and confusion already
identified above, in land management. This will further make land to be out of the reach
of the urban poor. Land as one of the agents of production must be privatised for global
trends toward privatisation of investments to succeed. The land Use Act must be
Land Delivery Problems in Lagos State 609
amended in this light to enable land to be more accessible, less cumbersome and speedier
to acquire for housing development. Registration of land document may be handled by
government, as it will act as an inventory tool of the state/national land resources for
fiscal purposes or it can be used to secure the rights of the owner or occupier of land and
to enable him/her conduct transaction safely, cheaply and quickly.
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Nigeria): issues, constraints, challenges and prospects”, A lead paper presented at
the 2nd Annual National Workshop organised by the Department of Estate
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Fabiyi, Y.L (1990), ‘Land policy for Nigeria: issues and perspectives”, An Inaugural
lecture, Obafemi Awolowo University, Ile-Ife, June.
Farvacque, C and McAuslan, P. (1992), Reforming urban land policies and institutions in
developing countries, UMP Paper5, The World Bank, Washington, D.C.
Federal Republic of Nigeria (1978), The Land Use Act, No 6, Government Printers, Lagos
Girardet, H. (1999)”Sustainable cities: a contradiction in terms?”. In D. Satterhwaite (ed.)
Sustainable Cities, Earthscan, pp413-425.
Government of Nigeria, (1953), The Nigeria handbook, Government Printers, Lagos.
Kasanga, K and Kotey, N.A. (2001), Land management in Ghana: building on tradition
and modernity, International Institute for Environment and Development, London.
Mabogunje, A.L. (2002), “Land management in Nigeria: issues, opportunities and
threats”, Lead paper at the National Conference on “Land Management and
Taxation”, University of Lagos, Lagos, July 16th, pp1-7.
Moss, V. (2002), “Trends on different housing finance systems in Africa: a case study of
South Africa, Nigeria, Tanzania and Ghana”, Monograph, National Housing
Finance Corporation, Johannesburg, South Africa, 14pp.
610 Aluko, Olaleye, and Amidu
OLOYEDE, S. A.
Department of Estate Management, Obafemi Awolowo University, Ile-Ife, Nigeria (e
mail- samoloye@yahoo.com)
ABSTRACT
Property developers are facing micro and macro economic problems in their search for
ways and means of ensuring sustainable growth. Issues such as higher than expected
building period, building cost and interest charged on borrowed capital hinder this noble
idea. Policies of various arms of government in Nigeria had been unstable over the years
due to frequent changes in the polity.
The main objectives of this paper was to assess the acceptability of the National housing
fund programme by the populace from the point of view of their participation, and
evaluate the impact of the scheme on real estate development activities in the country as a
whole.
At the empirical level, the Federal Mortgage Bank of Nigeria (Apex Bank), was studied
with respect to both the collection of the national housing fund and the granting of
mortgage loans to both the primary mortgage institutions and private real estate
developers in the country. Current significant bottlenecks in real estate development as
identified by primary mortgage institutions and private estate developers in Nigeria were
looked into in an attempt at offering workable solutions. The result of this study shows
that for the populace to achieve maximum benefits accruable from the sustainability of
the national housing fund, the Federal Mortgage Bank of Nigeria should enhance its
credibility by promptly considering loan applications forwarded. A situation where
mortgage loan applications are not considered on time or funds not released to
beneficiaries on time, can frustrate individuals. Once this is done, the national housing
scheme would assist Nigerians to face the challenges of housing the masses squarely
thereby achieving global competitiveness.
INTRODUCTION
For a nation to achieve greatness, her government must be willing and capable of
promoting adequate and affordable housing, economic opportunity and a suitable living
environment free from any form of discrimination. Population growth and the preference
for people to live in cities are probably two main reasons for urban expansion [Uher,
1999] and urban growth is in the developing world is increasing by over 3% annually.
[Choguill, 1996] Urban expansion is a growing problem in both developed and
developing worlds and it requires a sustained urban development strategy that can achieve
a functional, comfortable, healthy and environmentally responsible living environment.
[Uher, 1999]
612 Oloyede
As far back as 1978, two thirds of U.S. families own their own homes and the proportion
is rising steadily and that in spite of inflation, high mortgage rates and taxes, home
ownership is still the best, safest and wisest investment a family can make and the only
way to avoid becoming house-poor. [Falcone, 1978] House construction is one of the
largest industries in both developing and developed countries in terms of investment,
employment and world economy. [Spence and Mulligan, 1995] It accounts for directly
and indirectly for 40% of material flow entering the world economy [Roodman and
Lenssen, 1995] and in developing countries for around 50% of the total energy
consumption. [Levin, 1999; Bonini and Hanna, 1997]
Shelter production and improvement can only be achieved on a continuous flow only if
all the five elements and the four actors in the shelter-delivery process are carefully
harmonised. At the first level, issues of land management, basic infrastructure, local and
imported building materials, improved building technology, and finance influence each
other in varying proportions and collectively determine the number of beneficiaries on
one part. The second issue that needs proper harmonisation concerns the actors in the
shelter-delivery process and they include the government, public and private sector
agencies, co-operative societies with collective guaranty schemes and households. It was
in the light of this that the main objective of this paper was to assess the acceptability of
Nigeria’s National housing fund programme by the populace from the point of view of
public participation, and in addition to evaluating the impact of the scheme on real estate
development activities in the country as a whole.
Housing finance has been identified as a key component of a shelter strategy. It is the
provision of finance or capital for housing. It can be taken, first, to mean the capital
required for the construction of housing or housing projects. Second, it may be considered
as the resources required for the construction of housing or housing projects and third, as
the resources required for acquiring or accessing building by households or the credit
supplied by housing finance institutions. [UNCHS, 1991]
In an attempt at providing a continuous inflow of funds into the housing sector at the
national level and for all categories of human beings, there is the need for the objectives
of such a policy to look inwards into the provision and mobilization of savings, reduction
in costs and improvement of the efficiency of financial intermediation to promote free
movement of capital throughout the national economy. It is an attempt at ensuring a
continuous inflow of funds into the housing sector that the Federal Government of
Nigeria introduced the National Housing Policy.
The Federal Mortgage Bank of Nigeria (FMBN) was established in 1976 with the main
aim of considering and granting mortgage loans to Nigerians throughout the country with
the Federal Government providing the funding which is expected to be a revolving source
of funding owner-occupier housing for all cadres of people. Events from 1976 to 1992
proved the government wrong because mortgagors failed to repay the loans granted them
and the laws for loan recovery was too cumbersome and time consuming for it to be
meaningful. In line with practices in other advanced countries of the world, the Federal
Government of Nigeria decided to handoff from the funding of housing hence the
establishment of the National Housing Fund (NHF) as a veritable source and a sustainable
Mortgage Financing Towards Global Competitiveness 613
means of providing funds for housing to the public at reasonable rates of interest through
primary mortgage institutions (PMIs) and private estate developers (PEDs). By this,
government was of the opinion that her mision of housing for all could be achieved faster
and safer if individuals through PMIs and PEDs source mortgage funds. This is expected
to ensure increase in the availability of decent, safe and affordable housing, equal
opportunity in housing for all, promote self sufficiency and asset development by families
and individuals while at the same time, community’s quality of life and economic vitality
is unconsciously improved
The Federal Mortgage Bank of Nigeria accredited 61 primary mortgage institutions (PMI)
As at October 2003, the total NHF deductions collected by FMBN was #155,690,268
(US$ 1,161,867.67) as against the budgeted estimate of #233,668,483. A 66%
achievement was recorded on the set target. As at the end of October 2003, the total NHF
collection stood at #11,902,492,324. The Federal Government mandated all sectors of the
economy to deduct 2.5% of an employed individual to the national housing fund and self-
employed persons who are interested in seeking mortgage loans are advised to do
likewise. In an attempt at assessing compliance, below is the sectoral performance.
Reports by FMBN indicated the harsh opposition of the labour union hence the low
returns from the three tiers of government. It is on record that mass withdrawals had been
consistently recorded from the scheme with a sum of #92,425,642 for 14,115 contributors
out of a cumulative total collection of #11,902,492,324 from 1,983,673 individual
contributors. Thus 0.8% of the sum realised had been withdrawn by 0.7% of individual
national housing fund contributors. At the state level, the performance was not as
encouraging. The staff population of the 36 states put together is more than that of the
Federal Government. A detailed analysis of national housing fund contributions is shown
below.
Since the national housing policy is meant to assist all Nigerians to source for funds to
enable more people own individual houses, the uncooperative attitude of the Nigerian
Labour Congress to date needs to be looked into by the Federal Government with a view
to carrying the Union along.
Out of 36 States and Abuja, which is the Federal Capital Territory, only 7 States (25%)
performed creditably up to and including October 2003. Surprisingly, half of the states
could not even achieve a 25% target while another 8 states (25%) was between 26% and
50% of the target. This is a very poor performance since housing is seen as the second
most important issue after food if family peace of mind, security and continued co-
existence is to be sustained.
Despite the huge sum of money (#11,902,492,324) available as at October 2003, for
mortgage lending; only 10 out of the 41 primary mortgage institutions (25%) had
accessed the fund. The fundamental problem is a gap between potential demand and
effective demand. The differentiating factors include differences in income levels, the
ratio of price of housing to income, mortgage interest rates and employment stability.
A few large-scale contractors such as G. Cappa, Taylor Woodrow and Bouygues were
engaged in nationwide residential housing provisions. Also, large-scale estate developers
such as Alma Beach and Seagate joined in the production of residential houses. Through
the availability of funds from the national housing scheme, 41 other private estate
developers among who are Union Homes Savings and Loans Limited, Lagos State
Building and Investment Corporation, Lagoon Homes Savings and Loans Limited and
Scan Homes Nigeria Limited joined between 1996 and 2003. This new group are
scattered all over the nation in an attempt at providing succor to the needy.
The potential for housing the masses is considerable if recognition can be accorded the
co-operative societies through the collective guarantee schemes especially in the rural
areas as support collateral for individual members or joint application for mortgage loans.
Through this approach, the costly, cumbersome and time-consuming problems
encountered in the process of acquiring a certificate of occupancy can be removed and the
rural dwellers can benefit from the national housing fund.
The demand for mortgage credit is constrained by two major factors namely income and
non-income–related. On the income-related constraints, there is the need to have various
types of mortgage finance portfolio by types of credit. Mortgage credits for home
purchase must be differentiated from the developers housing credit and commercial
development credits in terms of loan/value ratio, maximum amount of loan, minimum
down payment and interest rate chargeable. Affordability is a function of an individual’s
Mortgage Financing Towards Global Competitiveness 615
Non-income-related constraints play a major role in the demand for mortgage loans. First,
human expectations and attitudes to indebtedness and cost of housing relative to other
goods and income vary from one person to another. Second, there are mobility constraints
such as the lack of rental housing that does not permit smooth relocation in cases of
change of employment. Third, is the limit on tenure choice since people who live in cities
while in employment find it difficult to get a comparable building for purchase in rural
areas when they retire. Fourth, due to inherent risks in mortgage lending activities, the
loan-to-value ratio imposed by lenders limit individuals building in less commercial
centers of for own occupation. Fifth, cost of mortgage loan transactions from inception to
mortgage loan closing is enormous. The high transaction fees drive away the low-income
group who feel that such fees would have improved the stage of development on their
sites.
Greater use of housing finance will come about as income rises, real lending rates fall,
and mortgage institutions’ risk positions allow higher loan-to-values. Structurally, as long
as the economy continues to grow and remain stable, mortgage institutions and mortgage
loan seekers are bound to change their attitudes about indebtedness, delinquencies and
defaults.
Mortgage activities in Nigeria rest squarely in the hands of the Federal Mortgage Bank of
Nigeria who is in charge of the national housing fund for disbursement to all accredited
primary mortgage institutions and accredited private estate developers.
A closer look at the activities of the Federal Mortgage Bank of Nigeria with respect to the
primary mortgage institutions from 1997 to June 2003 is reflected in Table 3 below.
Table 3: Applications received and processed by FMBN between 1997 and June 2003
Year Number of packaged Total number Amount Total number Amount
applications received from of applicants Requested of beneficiaries Approved
primary mortgage institutions (N 000) (N 000)
1997 1 7 1,538 7 1,230
1998 3 18 7,213 17 5,488
1999 11 244 193,980 221 149,194
2000 21 260 212,057 246 193,245
2001 16 1,408 807,623 1,382 745,011
2002 26 2,078 3,705,911 105 753,988
June 5 63 137,355 62 95,726
2003
Total 83 3978 5,065,677 3000 1,943,882
Source: FMBN Publications, 2003.
616 Oloyede
A closer look at the performance of the Federal Mortgage Bank of Nigeria as contained in
Table 3 indicate that a total number of 300 individuals obtained mortgage loans within a
period of 6 years. This translates into 500 approved loan applications per annum at an
average rate of #647,960 approved sum per beneficiary. One important point to note is the
gap that exists between the percentage of beneficiaries to applicants on one hand (75%)
and amount approved to amount requested on the other hand (38%). If the basis of
mortgage loan processing is the same for all primary mortgage institutions and the
Federal Mortgage Bank of Nigeria, and 75% of the applications forwarded were
approved, one would reasonably have expected that the same percentage of the sum
requested (#3,799,257,750) was approved. One can safely then examine this phenomenon
on whether the mortgage policy has very clear objectives on assisting Nigerians in the
purchase or building owner-occupier houses and whether the public can see clearly who
benefits from the national housing fund in terms of distributional considerations among
Nigerians across the country as a whole.
Private estate developers’ started to access the national housing fund in the year 2000 and
in all, a total of 23,021 housing units were recommended for approval at a total loan sum
of #27,239,149,160.47. Between 2000 and June 2003, that is, a period of three and a half
years, only the sum of #3,067,305,237 was approved while only #967,700,000 had so far
been released. A detailed breakdown of the activities of the private estate developers’
business transactions with the Federal Mortgage Bank of Nigeria is analysed in Table 4
below.
Table 4: Applications received and processed by FMBN between 2000 and June 2003.
Year Number of Number of Loan amount Loan amount Loan amount
Private estate housing units requested (N’000) approved disbursed
developers planned (N’000) (N’000)
2000 1 16 120,000 99,556 --
2001 6 1917 1,148,147 334,000 ---
2002 19 9439 23,731,853 428,949 957,700
June 22 11649 2,515,000 --- ---
2003
Total 48 23,021 27,239,149 3,067,305 957,700
Source: FMBN records, 2003
Within a period of three and a half years, private estate developers requested for a sum of
#27,239,149,000 out of which the sum of #3,067,305,000 (i.e. 11%) was approved.
Between year 2000 and 2002, only #957,700,000 was released out of the total sum of
#3,067,305 approved. This figure represents 31% of the approved sum. It is also observed
that although seven estate developers applied for mortgage loan in year 2000/2001, no
disbursement was recorded for any of them. A situation where approved mortgage loans
can not be translated into reality within 12 calendar months should be a course for
concern to the Federal Mortgage Bank of Nigeria if there is an expectation of better and
improved national housing collection from the populace. In the six months of 2003, no
single application was considered and approved. For an organization in serious business,
justification for their existence may be hard to substantiate because once the populace
looses confidence in the ability of the institution to perform, monthly collections will
automatically dwindle and the policy of housing the masses may fail.
Mortgage Financing Towards Global Competitiveness 617
Identified bottlenecks
For Federal Mortgage Bank of Nigeria to be relevant, certain sections of the National
Housing Fund Decree 1992 No. 3 will need to be reviewed. First, Part 1 Section 4
stipulated “a mortgage institution which is in default of repayment for a period of three
(3) months shall be refused further access to the fund”. This condition failed to be explicit
on either partial monthly payment, non-payment, cumulative indebtedness accumulating
and equal to 3 months arrears.
Part II Section 5(2) stipulates that a borrower must have a stable employment and
satisfactory evidence of regular flow of income. This condition may have many
interpretations as each mortgage institution outfit deems fit.
Part II Section 8(4) stipulates that 0.05% of the sum approved shall be charged as fee for
services rendered. These services include legal, survey and administrative charges BUT
exclude stamping, registration and other statutory fees. An approved mortgage loan
application may be frustrated by the time the applicant is confronted with the fees payable
for stamping, registration and other statutory fees as may be listed by the appropriate
authorities may be beyond the reach of those concerned. Mortgage institutions should be
able to package all these expenses neatly to put applicants in a better position and make
the loan easily accessible.
CONCLUSIONS
Nigeria has been able to accumulate a huge sum of money for funding housing within the
first six years of implementing the national housing scheme. There is however the need to
sustain the tempo through the encouragement of the savings’ contributors. It was in the
light of this paper assessed the acceptability of Nigeria’s National housing fund
programme by the populace from the point of view of public participation, and in addition
to evaluating the impact of the scheme on real estate development activities in the country
as a whole.
The window of opportunity that the national housing fund scheme could create, if
efficiently and optimally operated, is much because the housing sector has a number of
multiplier effects on the national economy especially in terms of employment
opportunities. To achieve maximum benefits accruable from the sustainability of the
national housing fund, government should purge itself of the disobedience of its own law
by ensuring that all public sector Ministries, Parastatals and Agencies register their staff
under the national housing fund scheme. Also, the Federal Mortgage Bank of Nigeria
should enhance its credibility by promptly considering loan applications forwarded to
them and releasing the result in a manner that will show a high level of transparency. A
situation where mortgage loan applications are not considered on time or funds are not
released for beneficiaries on time, can frustrate individuals.
There is the need to consider the option of encouraging the young couples to embrace the
idea of registering their interest for home-ownership in any part of the country where they
are based right from the time of marriage so that they can save over a five year period and
get an automatic allocation of a house of their choice on the payment of the required
down payment through regular savings. In addition, there should be a provision for
618 Oloyede
interested couples to set aside their own home with an additional payment to move into a
bigger accommodation on request or in the case of a couple relocating to a better
neighbourhood or another town or city, such a couple or individual should be able to trade
in his old building for a new one at another location upon payment of an agreed sum on
request. Through these means, Nigerians would be able to eradicate homelessness with
ease over a short period of time and sustain the need of the young ones easily. Once the
elderly people are proud homeowners and married couples are accommodated, we would
have been able to compete globally with other nations that had been able to accommodate
her citizens.
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countries: a case study- Lagos Metropolitan Area, Nigeria”. Unpublished Ph.D.
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Achunine, B.O.(1989) “Financing investment programmes for human settlements developments in
Nigeria”. Case study Prepared for UNCHS (Habitat) Nairobi.
Achunine, B.O.(1993) “National trends in housing production practices in Nigeria” Case Study Prepared
for UNCHS (Habitat), Nairobi.
Bonini, C.D. and Hanna, R. (1997) “Integration of historic preservation and green architecture”
Proceedings of Second International Conference on Buildings and the Environment
CSTB and CIB, 2 Paris, June 21-28.
Choguill, C.L (1996) “Ten steps to sustainable infrastructure” Habitat International 20(3)
Curwell, S. and Cooper, I. (1998) The implications of urban sustainability. Building Research and
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Diamond, Douglas and Micheal Lea (1992) “Housing finance in developed countries: an international
comparison of efficiency”. Journal of Housing Research 3(1)
Etukudo, A.I.(1995) “Mortgage financing in Nigeria: review of institutional arrangement” Nigerian Journal
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Falcone, J.D. (1978) How to design, build, remodel and maintain your home. John Wiley & Sons Inc. New
York
Gibbs, D. (1994) “Towards the sustainable city”. TPR, 65(1)
Levin, H. (1997) “Systematic evaluation and assessment of building environmental performance
(ASEABEP)” Proceedings of Second International Conference on Buildings and the
Environment, CSTB and CIB, 2 Paris June 3-10.
Merrill, S.R.; Koziowski, E.; Karas, P. and Laszek, J. (2000) “Poland: housing finance at the millennium –
an assessment of achievements and outstanding issues”. The Urban Institute, Washington.
Newman, P., Kenworthy, J. and Robinson, L. (1992). Winning back the cities. Pluto Press, Sydney.
Odimuko, C.L. (1987) “Shelter for all by the year 2000: strategies fir public and private sector involvement
in a depressed economy”. Published in commitment to IYSH by the Urban and Regional
Planning Division, Federal Ministry of Works and Housing, Lagos.
Odimuko, C.L. (1990) “Evaluation of experience with and initiating enabling shelter strategies. Country
case study of Nigeria, prepared for UNCHS (Habitat)
Onibokun, P (ed). (1985) Housing in Nigeria (A Book of Readings), Ibadan, NISER.
Roodman, D.M. and Lenseen, N. (1995) “World watch report 124, a building revolution: how ecology and
health concerns are transforming construction”. World Watch Institute, March.
Rowan-Robinson, J, and Walton, W. (1995) “Sustainable development and the development control
process” TPR, 66(3)
Spence, R. and Mulligan, H. (1995) “Sustainable development and the construction industry”. Habitat
International. 19(3)
UNCHS (1990a) Shelter For All, Nairobi
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Finance Institutions, Nairobi.
MEETING HOUSING DELIVERY TARGETS IN DEVELOPING COUNTRIES:
THE PROJECT MANAGERS CONTRIBUTION IN GHANA.
ABSTRACT
Most developing countries in sub- Saharan Africa are still grappling with meeting housing
delivery targets in the face of acute shortages. This is against the backdrop of the
availability of management techniques that have the potential for increasing productivity.
In Ghana, the late 1980s witnessed a steady interest in the role of the project manager as a
means for achieving project success. Consequently, it became standard practice to appoint
a project manager on Mass House Building Projects (MHBP) with the aim of increasing
productivity. The objective of this paper is to highlight the contribution of project
managers towards overall project success. A critical examination of the role of project
managers and their performance on MHBP is presented. How their roles have helped or
otherwise in meeting project objectives in terms of completion dates and cost are revealed
using information elicited from an in-depth review of project management literature. The
paper highlights the progressive contribution of the project manager on MHBP in Ghana;
how they have successfully been integrated into the Ghanaian construction industry; and
how their roles have impacted on productivity in MHBP. Recommendations are
advanced which will be of interest to project managers and construction professionals in
all developing countries.
INTRODUCTION
Time and cost over–runs are common features in the construction industry in developing
countries and mass house building projects (MHBP) are no exception [see for instance
Odeyinka and Yusif (1997)]. This is despite the availability of proven management
techniques, which have the potential for improving productivity. Faniran [1999] for
instance suggested that not withstanding the prevailing economic conditions in developing
countries, productivity can be improved using appropriate and relevant management
practices. In Ghana, the use of management practices in construction projects and for that
matter MHBP dates back to the pre–independence era when the first government
sponsored housing estate was built in 1945. Since then, management techniques have
been implemented on MHBP with the aim being to increase productivity. However, as a
reflection of the general construction climate in most developing countries, meeting
delivery targets in MHBP has always been a major problem. Ofori [1989] elaborately
620 Ahadzie, Proverbs and Olomolaiye
Following the emerging growth of project management practices globally, Ghana in the
late ‘80s witnessed a steady interest in the appointment of project managers on
construction projects, generally with the aim being to improve project success.
Consequently, quite a number of consultants namely architects, quantity surveyors,
engineers and real estate agents have added project management to their traditional
services. This trend is similar to practices reported by Odusami et al [2003] in Nigeria.
Hypothetically, some evidence currently exists in Ghana of the successful completion of a
number of MHBP, where project managers were appointed [see Amoa–Mensah, 1996].
Amoa-Mensah [1996] further argues that the appointment of project managers on MHBP
does lead to improved housing delivery. However, no attempt has been made to
investigate the role or performance of project managers and to understand how their skills
impact on the productivity levels of MHBP. Against this background, on-going research
is seeking to establish whether there is any causal relationship between the performance
of project managers and productivity levels achieved on MHBP. The aims of this paper
being to highlight the role of the project manager on MHBP in Ghana; and to demonstrate
how they have successfully been integrated into the Ghanaian construction industry; and
how their roles have impacted on productivity. Recommendations made in the paper will
be useful to project managers and other constructional professionals operating in
developing countries.
In Ghana, the shortage of housing has emerged as one of the most critical socio-economic
challenges facing the country in recent times [Owusu-Adade (1995), Tipple et al (1999)
and Konadu-Agyeman (2001)]. Despite several interventions by successive governments,
housing delivery targets remain elusive. For example, in 1986, whereas the annual
housing requirement was estimated at 70,000 house- units, only 28,000 house-units were
delivered. This was at a time when there was already an accumulated backlog of 250,000
house- units [Ministry of Works and Housing (1986), Owusu–Adade (1995)]. Currently,
annual housing stock is estimated at 133,000 house- units and it is projected that 1.2
million units would be needed to bridge the gap by the year 2005 [Home Finance
Company, 2001]. Presently annual delivery is estimated at 37,000 house- units [Amoa-
Mensah, 2003] indicating an annual deficit of 53,000 house-units adding to the
accumulated backlog. The net effect is an acute housing shortage, which has
compounded overcrowding particularly in the urban cities and served to promote an
upsurge in squatter settlements [see for instance Konadu- Agyemang, 2001].
Despite this acute housing shortage, the Government of Ghana (GoG) is still committed to
improving housing delivery stock, but in line with the current global paradigm shift, it has
largely withdrawn from directly providing housing to playing the role of a facilitator. The
housing market is now therefore characterised by private housing developers some of
which have come together to form the Ghana Real Estate Developers Association
(GREDA). The association formed in 1988 is registered under the laws of Ghana [Act
179 of the companies code 1963] as a private company limited by guarantee and key to
their objectives is to promote the development of residential estates by increasing housing
Housing Delivery Target in Ghana 621
stocks at affordable prices [Ashley, 2003]. As a facilitator, the GoG’s main concern is to
create the necessary environment for the activities of GREDA and other private
developers to thrive. In this regard, in June 2001, the GoG managed to procure a loan of
$130 million from Euro–Am cooperation of Delaware, USA to be invested in the
construction of 15,000 high-rise housing units across the country [UK Trade and
Investment, 2004]. Additionally, the Ministry of Works and Housing in conjunction with
the Bank of Ghana procured a loan of a $10 million from the World Bank for GREDA to
construct 6,000 houses of the Accra-Winneba Road [UK Trade and Investment, 2004].
Whilst it is recognised that the provision of adequate funds among others is a key factor in
fulfilling housing delivery programmes, when the funds have eventually been procured,
the implementation of appropriate management practices is necessary to ensure
successful delivery. Consequently, under the revised national shelter strategy, the GoG
apart from helping to secure the necessary funds requires contractors and real estate
developers to undertake training in management and modern construction practices to
help optimise the use of resources [UK Trade and Investment, 2004].
Managing
Director
In-house Design Team
Clerk of
Works
Direct Labour
Fig.1: Typical organizational structure for the then State Housing Corporation using
direct labour
1
Now known as State Housing Company as result of privatisation by the GoG
622 Ahadzie, Proverbs and Olomolaiye
Managing
Director
In-house Design Team
Clerk of Works
Multiple contractors
on serial contracts
Contractual relationship
Fig. 2: Typical organizational structure of the then State Housing Corporation using
multiple contractors
Client
The project on which the SSNIT appointed the first project manager involved the
construction of 300 single storey-housing units each of 82m2 internal floor area in the
Sakumono area of the Greater Accra4 region. The project was initiated in 1989. Figure 4
represents the organizational structure, which emanated from the appointment of the
project manager. Generally the construction industry in Ghana is characterised by several
factors, which impact on project success. Many of these factors outlined below emerged
soon after independence in 1957 and have persisted to the present time [see for instance
Edmonds and Miles (1984), Ahadzie (1995), Addo-Abedi, (1999), Eyiah and Cook,
(2003)]:
2
Currently Director of the Building and Road Research Institute in Ghana
3
Agency which administer employees and employers contribution compulsory deducted into a national
security fund
4
Accra is the capital city of Ghana
624 Ahadzie, Proverbs and Olomolaiye
Client
Multiple
Contractors
Following this, the project manager’s target was to first provide a number of interventions
aimed at addressing the bottlenecks before the actual site works commenced. Faniran
(2000) recognises this approach for ensuring project success. In many developing
countries, contactors operate in an environment where credit payments are extremely rare
hence materials have to be paid for in cash, which puts a lot of strain on their cash-flow.
This means when a client defaults on payment for work done, the project is likely to fail.
To help the client in becoming more responsible to his obligations under the contract, the
project manager computed the working capital required to keep the works on schedule
and came to the conclusion that if the client was able to honour certificates for work done
at three weekly intervals, the average working capital would be in the region of 20% of
the initial contract sum [Amoa- Mensah, 1996]. It was therefore agreed that to improve
the cash flow situation of the contractors, 20% of the contract sum should be paid as a
mobilization fee. Mobilization payments are not actually new in Ghana [see for instance
Edmonds and Miles, 1984] but what is symbolic is that the client was presented with a
cash-flow programme showing their financial obligation during the currency of the
project and the implications of failing to honour certificates on schedule. This was done
in light of the contractors’ financial position and how the mobilization would help to
enhance their performance. Generally, briefing the client on cash–flow requirements
before the commencement of a project is not common practice in the Ghanaian
construction industry.
Cognisant of the limited financial base of the contractors and their lack of access to credit,
it was decided that in order to ensure that their investment in mobilizing the needed inputs
were manageable and could be sustained throughout the project, multiple contracts of
small units of the houses should be awarded so that they would share the risk involved. It
is worth noting that Ogunlana and Olomolaiye (1989) have in the past expressed similar
view by suggesting that most projects in developing countries if divided to smaller
manageable units could aid control on site. Thus, the contract was re-packaged into
substructure and superstructure works of repetitive units and each contractor was given
Housing Delivery Target in Ghana 625
four house- units as a start on a serial contract. Successful completion of the substructure
was a requirement to proceed onto the superstructure. Amoa-Mensah, (1996) explains
that the four house-units were selected because an appraisal of the resources required
showed that the mobilization provided to the contractors could sustain a steady flow of
work on the four house- units until the first certificates were raised and honoured.
To reward good performance, contractors who completed all four house units within the
delivery schedule were awarded eight house- units in the next contract. Similarly,
contractors who then completed the next eight units on schedule were offered 16 house-
units and so on. This incentive scheme generated intense competition amongst the
contractors who strived to increase productivity. According to Amoa-Mensah, (1996),
because the contracts were re-packaged into smaller units, the capital required to turn over
a house-unit also became lower and manageable by the contractors. Subsequently when
the substructure for the first 100 units were completed, works re-measurement undertaken
showed a potential cost saving of 28% [Amoa–Mensah, 1996]. In all, 12 contractors were
selected for the first phase of the project. Of the 12 contractors initially used on the
project, eight were classified as small firms by Ghanaian standard and the remaining four
were classified as large firms. Amoa-Mensah (1996) further espouses that this was the
first time small firms and large firms had operated on the same project in Ghana and that
there was an insignificant difference in their performance rating. Given that in most
developing countries like Ghana, communications systems are not that efficient to
facilitate prompt response to site problems [see for instance, Enhanssi (19970 and Faniran
et al (2000)] the project manager maintained a strong site-based office. The staff
comprised of very experienced and highly qualified representatives of the architect, the
services/structural engineer and the project manager. Furthermore, the project manager
ensured that site meetings were held fortnightly to make sure that progress was on course
and to iron out problems that may be beyond the site staff (under the traditional
management system the usual practice is to hold site meetings monthly). When progress
became steady the site meetings were held every three weeks and when delivery time was
approaching the meetings were held weekly. Other duties performed by the site staff
include the following:
• Preparation of financial forecast for the works showing the clients expenditure
trends as work progressed
• Valuation of works for interim payments and financial and physical appraisal of
works done
• Preparation of fortnightly competitive ranking amongst contractors for
performance assessment
• Preparation and revision of working and detailed drawings when necessary
• Monitoring of the quality of works
Limited technical and managerial knowledge on the part of contractors (particularly the
small firms) is a major concern in Ghana. Another intervention provided by the project
manager was to act as a facilitator by preparing draft works programmes for discussion
with contractors. Thereafter the agreed programme was detailed and each contractor
served with a copy for implementation. Additionally, the project manager introduced the
following innovative construction practices, which was a marked departure from
traditional construction practices in Ghana:
626 Ahadzie, Proverbs and Olomolaiye
• 50mm thick rolled in-situ concrete bed on pounded sand bed as against the 100
– 150mm thick concrete used on compacted laterite5 bed.
• 75mm thick pre-cast reinforced concrete lintels over openings as against the
normal 150mm in-situ concrete ring beam at lintel.
As these technologies were new to the contractors, short training programmes were
provided to enhance their application and understanding. The introduction of the sandy
bed and the 50mm in-situ concrete facilitated early completion of the floor slab and
subsequently early commencement of the superstructure. Similarly, the pre-cast lintel,
which was laid in half of a day, speeded up works on the superstructure [Amoa-Mensah,
1996]. In-situ concrete lintel construction in the Ghanaian construction industry requires
an average of five days [see for instance Schrekenbach & Abankwa (1984)]. This often
results in the lack of continuity in block-laying at the lintel level leading to loss of
productive time in block-work.
Another intervention provided was in relation to materials supply bottlenecks, which are
also a common feature in the Ghanaian construction industry. In this regard, a resources
availability auditing was undertaken at the inception stage and also periodically as the
projects progressed. For the construction industry in developing economies, this
intervention is supported by Mansfield et al (1994) in their recommendation that, ‘there is
the need for improved vendor appraisal of material supplies’ to improve materials
management. The auditing enabled the project manager to evaluate the potential
resources demand at the micro and macro level vis- a-vis the national construction
economy. For instance, the auditing revealed that 4,500 tons6 of cement would be
required for the project and this meant a further demand strain of 0.6% relative to the
previous years national consumption of 700,000 tons [see Amoa-Mensah, 1996]. Relief
was therefore sought in cement component substitutes already being manufactured since
that would already have been accounted for in the national quota for the fiscal year. The
substitutes were:
With these arrangements, the direct contractor cement input (i.e. purchased) was reduced
by about 50% with the relative effect dropping from 0.6 to 0.3% on the previous years
national consumption. Similar exercises were implemented for key materials such as
timber and corrugated aluminium sheets for roof work so as to sustain the availability of
these materials within the national economy.
Following the foregone interventions, within four months, the 12 contractors had
delivered about 160 house-units working to about 40 house-units per contractor for the
year. According to Amoa- Mensah (1996), this rate of performance had never been
5
Laterite is a tropical redish –brown soil rich in iron oxides. This soil is very common and widely used for
hardcore filling in Ghana. It normally requires a couple of weeks to be well compacted particularly when
done manually and can thus delay floor bed construction and subsequently superstructure works.
6
1000kg = 1 ton
7
Cement and sand blocks commonly used for house construction in Ghana
Housing Delivery Target in Ghana 627
achieved in the annals of house- building in Ghana. The effect was, the client became
sufficiently confident to invest in more houses. On the whole a total of 1637 house units
were built in Sakumono phases 1 and 2, using a total of 37 small- scale contractors during
the three years. The average cost per house was 3.39 million cedis8 as against an initial
contract sum of 3.44 million cedis. This represented an average cost saving per house-
unit of 1% at a period when the average annual construction cost increase was estimated
at 16% [see Amoa-Mensah, 1996]. During the first year of implementation in 1989, each
of the small –scale contractors achieved an average annual performance output of about
78 million cedis on the projects as compared with the 25 million cedis upper operational
limit for their class. This represented a financial turnover of 3.12 times their upper limit
suggesting that with an appropriate management system, small- scale local contractors can
expand their operational capacity to achieve increased delivery within the available
resource base.
“This laudable output performance has not only led to higher efficiency but also proved a
case that with meaningful resources management, the small scale contractor can expand
its performance capacity to achieve increased delivery within the available resource base.”
CONCLUSION
This literature review has mainly sought to demonstrate the contribution of project
managers’ to the practice of project management on MHBP in Ghana. Whilst the
conventional system of the architect supervising construction projects is still in common
use, the literature has given an indication of the potential of integrating the project
managers role in MHBP in the Ghanaian construction industry. In principle the evidence
suggest that project managers can help achieve project success in MHBP in Ghana, which
hitherto has been very difficult to achieve using traditional management practices.
However while it is recognised that further studies will be needed, there are some key
lessons to be drawn. The review presented indicates that, project managers handling
MHBP in developing countries need a robust understanding of the peculiar problems
facing the local construction industry so that they can develop appropriate management
solutions aimed at limiting their impact. Limited knowledge of management techniques
particularly by small -scale contractors is a problem in many developing countries like
Ghana but the literature review suggests that with appropriate project management
practices, local contractors can be guided to achieve better performance and also improve
upon their operational capacity with the same resource base. Findings indicate that there
is the potential for using project management practices to improve mass housing delivery
8
Cedi is the currency used in Ghana. 1 US$ = about 300 cedis in 1989. At the time of writing 1 US$ =
about 9,000 cedis
628 Ahadzie, Proverbs and Olomolaiye
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MODELING THE DETERMINANTS OF THE DEMAND FOR HOUSING
CONSTRUCTION IN NIGERIA
ABSTRACT
Houses are constructed to satisfy basic needs of shelter in human societies all over the
world. In Nigeria, studies have shown that housing needs outstrip supply and that though
need exists, housing consumers are unable to translate these needs into effective demand
due to certain factors.
The study aims at identifying the determinants of the demand for housing construction in
Nigeria using economic and social indicators. Data was collected from housing
development companies and from the Federal Office of Statistics’ Annual Abstract of
Statistics, Central Bank of Nigeria’s Annual Reports and the Federal Mortgage Bank of
Nigeria. The data collected was analyzed using Pearson Product Moment Correlation and
the Step-Wise Method of regression analysis and a model was generated for the study.
The results indicate that there is a significant positive relationship between the level of
housing demand and the level of housing supply, money supply, foreign exchange rates,
consumer price index, size of population and property price. The study also revealed that
the main predictor of the future level of housing demand in Nigeria is property price.
INTRODUCTION
The demand for housing arises mainly from the desire of people to provide themselves
with one of the basic necessities of life, namely shelter. Shelter has been universally
accepted as the second most essential human need after food. Housing in all its
ramifications is more than mere shelter since it embraces all the other social services and
utilities that go to make a community or neighborhood a habitable environment. Bourne
[1981] defined housing as a physical entity, a social artifact, an economic good, a capital
stock, a status symbol and at times a political “hot-potato”.
The history of the housing sector in Nigeria has been full of failure and half successes. It
will indeed be noted that the advent of the colonial era and the consequent urbanization
eroded the traditional values and tastes of people in Nigeria because during the pre-
632 Windapo, Ogunsanmi and Iyagba
colonial days lived in simple and functional housing units made of mud walls with
thatched roofs such that housing was not a relevant problem to the populace.
However, the infusion of foreign influence in terms of modern economy, tastes and
preferences set in motion a process of urbanization the rate that was hitherto unknown.
Such that after Nigeria’s independence in 1960, the country was unable to meet the
demand for modern, adequate and suitable housing accommodation to house people
migrating from rural to developing urban areas.
It is the aim of this paper to find out the economic and social indicators that have a
significant relationship with and can predict the future levels of demand for housing
construction in Nigeria and in order to realize this aim; the following specific objectives
are identified:
1. To find out if there is any relationship between demographic and economic factors
such as interest rate, property price, size of population, unemployment and
housing demand and supply.
2. To construct models from the determinants for predicting future levels of housing
demand.
Knowledge of the factors that determine and can predict the future levels of housing
demand is significant because knowledge of the future demand for products and services
is vital to all industries. According to Akintoye and Skitmore [1994], it is a prerequisite
for any viable corporate strategy. Construction contractors/Private Developers need some
knowledge of the likely changes in demand for their services and the extent to which this
will affect their workload in order to formulate appropriate pricing strategies. Clearly, the
earlier contractors/housing developers know of likely changes in construction demand,
the better they are placed to take strategic action. Furthermore, When construction
demand is low, skilled workers leave and many companies go out of business this leads to
lack of investment in human resources and therefore to low productivity in the
construction industry. When construction demand eventually picks up, there is often a
shortage of skilled personnel and a shortage of building materials, plants and machinery
[Short, 1979].
Modeling the Demand for Housing Construction 633
In its common, everyday sense, demand simply implies “what people want”. The
Advanced Learners Dictionary [2000] defines demand as “desire shown by consumers or
the amount of any article, commodity etc, that consumers will buy. Demand is viewed by
Agbola [2001] as a desire or request by people who are ready to buy or pay for the goods
or services. To Bourne [1981], Demand simply means what people want. Housing
Demand is defined in The Second Draft report published by the Federal Republic of
Nigeria [1992] as “the number and quality of dwelling units at a given price that can be
afforded by households within limits of their resources. According to Agbola [2001], the
effective demand for housing is derived from each household’s willingness to pay for the
housing. The level of household income, its distribution, and the prices of available
housing and of other goods and services, demographic patterns and the particular
constitution of the household are important influences on decisions about how much to
spend on housing. Therefore, Housing Demand can be said to be based on affordability
levels.
Bourne [1981] argued that the demand for housing in aggregate represents the total of all
households’ expenditures, government’s outlays and institutional investment in what has
been previously called the housing “sector”. He stated that as in the case of other durable
goods, the level of housing demand depends on the relative balance of changes in several
different factors including:
1) Population growth
2) Demographic structure (e.g., age, household’s size)
3) Disposable income
4) Housing preferences and tastes, and
5) Taxation and investment polices.
Bourne was of the view that changes in any of these factors will alter both the level and
direction of housing demand.
Ganesan [1979] summarized the characteristics of the demand for housing in Sri Lanka as
follows:
1. The demand is less than the need as a large number of households are unable to
translate their need into demand due to low incomes.
2. The demand for housing (through ownership, lease or rental) depends initially on the
consumers’ assessment of the desirability of housing with all the other goods or
services he could buy. This principle operates for only less than 50% of all
households in Sri Lanka who have passed the subsistence level and entered the
modern monetary sector.
3. The social and economic characteristics of the extended family system tend to restrict
the demand for independent housing units even when households move above the
subsistence level.
other goods and services in areas where they do not want interference with their
economics links to the environment.
5. The law of supply and demand has only a restricted application, in view of the fact
that the construction industry is properly tuned into only one component of housing
demand - upper income group housing.
Another factor, which has been identified to affect housing demand, are Government
Policies on interest rates and taxation. Government actions were noted to affect the
construction industry at the microeconomic level.
Akitoye and Skitmore [1994] identified many possible causes of changes in construction
demand including:
1. The Gross National Product (GNP)
2. Real interest rate and
3. Unemployment.
They declared that what is needed is a model or formula that will somehow combine
these leading indicators for the purpose of explaining trends in construction demand.
Hua [1996] itemized some indicators that influence the level of demand for residential
construction as identified by several writers including Ofori [1990]. He stated that the
indicators may be economic or social and their individual’s significance varies from one
country to another. The following is a list of such indicators: -
1. National income per capita
2. General demand for construction
3. Size of population
4. Rate of household formation
5. Interest rate
6. Property price
7. Levels of supply of residential property
8. Disposable income
9. Economic growth
10. Level of unemployment /employment
11. Existing housing stock
12. Rate of inflation
13. Construction cost
14. Mortgage credit availability/supply
15. Household personal savings.
This list is in exhaustive as argued by Bourne [1981]; housing has a number of attributes
that make the question of demand extremely complex. It is expensive to purchase, durable
and heterogeneous. It is also fixed in location and embedded in a particular real estate
market and neighborhood context. This means that the demand for housing in any given
area cannot be easily separated from the demand for land, location and the services (e.g.,
schools) which that neighborhood delivers. This view is buttressed by Agbola [2001] who
was of the opinion that the effective demand for housing is derived from each
household’s willingness to pay for the housing, the level of household income, its
distribution, and the prices of available housing and of other goods and services,
demographic patterns and the particular constitution of the household.
Modeling the Demand for Housing Construction 635
The demand for any type of landed property can also be influenced by a number of
factors such as;
1. Population changes;
2. Changes in the standard of living or in taste or fashion;
3. Changes in society
4. Population movement
5. Changes in social services (shops, schools, cinemas and other facilities ;)
6. Changes in communication; and
7. Changes in statutory requirements such as the town and country planning Acts.
The theoretical statements that formed the basis of the framework used for this study were
deduced and modified from the demand and supply theory, the economic concept of
elasticity and models developed by Akintoye and Skitmore [1994] and Hua [1996].
The determination of prices in housing markets is based on the interaction between the
buyer and seller with prices being offered and agreed before a final transaction is made.
The theoretical framework for this study and models would be focused on the demand
factors and constraints that determine the value of properties in the housing market. Value
constitutes a measure of the relationship between supply and demand. An increase in the
value of an object is obtained either through an increase in demand or a decrease in
supply.
636 Windapo, Ogunsanmi and Iyagba
Akitoye and Skitmore [1994] were able to establish the general factors of construction
demand for the UK as:
a. Economic conditions: A single indicator of economic conditions is the national
income. Among other factors, the quantity and to some extent quality of
construction demand is dependent on the national economy.
b. Construction price: It is suggested that the demand for construction may depend
on the relative price level of construction.
c. Real interest rate: This was used as a proxy variable for credit market conditions.
This evaluation of alternatives ensures that investment projects are undertaken
only if they yield a stream of returns that, in discounted present value, exceeds the
cost of financing.
d. Unemployment level: An increase in unemployment or even a declining rate of
growth of employment in an economy may discourage investment in construction.
This is due to the link between construction demand and the total purchasing
power of the population.
e. Profitability: The manufacturing price: cost ratio could be used as a proxy for
profitability. High profitability in the manufacturing sector may affect the
construction industry either directly as capital investment in new buildings or
indirectly as increased pay to personnel and increased returns to shareholders,
encouraging increased spending on housing or other forms of construction works
associated with the private sector.
Whilst Hua [1996] made use of economic indicators to predict the demand for residential
construction in Singapore. He proposed economic indicators because of his belief that
they are essentially measures of performance of the economy and may therefore be
proposed as reliable inputs for the modeling of residential construction demand in
Singapore. He identified a total of 12 economic indicators, as being significantly related
to the demand for residential construction including: National income per capital, General
demand for construction, Interest rate, Property price, Disposable income, Economic
growth, Level of unemployment/employment, Existing housing stock, Rate of inflation,
Construction cost, Mortgage credit availability/supply, Household personal savings.
Although according to Hua [1996] apart from these, other indicators that have been
known theoretically to influence construction demand but their significances were
disputed by the statistical analysis in the study includes: the size of population, rate of
household formation and Levels of supply of residential property.
Model Structure
From the work of past researchers in this field such as Akintoye and Skitmore [1994],
Hua [1996] and Agbola [2001], a predictive regression model was proposed to help in
identifying those factors that can be used to determine future changes in the levels of
housing demand in Nigerian cities.
Twelve variables are proposed in this study as potential leading indicators of the level of
housing construction demand. These variables include – levels of housing supply, interest
Modeling the Demand for Housing Construction 637
rates, cost of foreign exchange, national disposable income, rate of economic growth,
level of employment, consumer price index, money supply, population growth, and
profitability/income of the housing developers, property price and affordability of
households. Assuming a linear relationship between the level of housing demand and the
demand variables, then the model can be stated as:
The research was carried out in Nigeria however, it was based on findings in the
following cities: Lagos, Port – Harcourt and Abuja (The Nation’s capital). These cities
were selected for the study because of their representative nature. Lagos was picked
because of its prior status as the former capital of Nigeria and can be said to be the
commercial nerve center of Nigeria it also represents the Western part of Nigeria. Port –
Harcourt is a fact growing oil city with lots of development going on because of the
influx of people who work with the ever - expanding oil companies it also represents the
eastern part Nigeria. Abuja, which would be used to represent the North and middle belt
part of Nigeria, is also a fast developing city due to the presence of the Federal
Government, which is bent on developing Abuja into a Federal Capital Territory. All
these cities have a unique similarity in that they experience a continuous growth in the
urban population due to the fact that they are either a commercial city, an oil city or the
Federal seat. People go there daily in search of a form of livelihood.
Three methods were used in collecting the data required for the research: the use of
Questionnaires, Personal Interviews and Secondary Data from Central Bank of Nigeria,
Federal Office of Statistics, Nigerian Social Insurance Trust Fund, National Population
Commission, Local Planning Authorities, Mortgage Banks and Contracting
Organizations. The data collected were annual over a fifteen year period and was
analyzed with the use of Pearson product moment correlation coefficient (r) and multiple
regression analysis were used to reveal possible relationships, contributions, and
dependencies or otherwise between the variables in the study and also to find out if there
were significant results.
638 Windapo, Ogunsanmi and Iyagba
Objective 1
To find out if there is any significant relationship between demographic and economic
factors such as interest rate, foreign exchange rate, national disposal income, economic
growth, level of employment, consumer price index, money supply, size of population,
profitability/income of the housing developers, property price, affordability of
households, levels of housing supply and housing demand.
The results of the correlation co-efficient computed for each of the stated variables, which
are presented in Appendix B and housing demand is presented in table 1.
Table 1. Correlation coefficients computed between housing demand and other stated variables
Variable VHS VIR VFX VNDI VEG VUE VCPI VMS VSP VPMD VPP VAF
Code
Level of .792** -.239 .717* .355 .735 .365 .748* .854** .735* .659* .744* .170
Housing
Demand
(VHD)
1 – tailed signif: *P – 0.01 ** P – 0.001
It can be seen from table 1 that there is a significant positive relationship between the
level of housing demand and the level of housing supply, rate of economic growth and
total savings at P < 0.001 (one tailed level of significance). Table 1 also shows that there
is a significant positive relationship between the level of housing demand and foreign
exchange rates, consumer price index, size of population, average profitability of
developers and property price index at P < 0.01 level of significance. It can also be seen
from table 1 that no significant relationship exists between the level of housing demand
and interest rates, national disposal income, level of employment, construction cost, price
of building material, housing vacancies and affordability (by civil servants).
Objective 2
To find out if future levels of housing demand can be predicted from changes in
demographic and economic factors such as interest rate, foreign exchange rates, national
disposal income, economics growth, level of employment, consumer price index, money
supply, size of population, profitability/ income of the housing developers, property price,
affordability of households and levels of housing supply.
Twelve variables presented in Appendix B are proposed in this study as potential leading
indicators of the level of housing demand. These variables include - interest rate, foreign
exchange rates, national disposable income, economic growth, level of employment,
consumer price index, money supply, size of population, profitability/income of the
housing developers, property price, affordability of households and level of housing
supply.
The data analyzed, which is presented in Appendix B, was annual based over a ten-year
period. Using the level of housing demand as dependent variable, the step wise method of
regression analysis was computed for the level of housing demand and its independent
variables and these results are presented in table 2.
Modeling the Demand for Housing Construction 639
Table 2 Model fitting Results using Step wise Method of Regression Analysis for housing
Demand (dependent varible: HD)
Independent Coefficients Standard Error of t-value Sig. T
Variables the Estimate (SEE)
Property Price (PP) 10.473 2.274 4.606 0.002
(Constant) -253.323 1563.370 -0.162 0.876
R-square = 0.752; adjusted R- square = 0.716
Final Parameter: Standard error of the estimate = 2756.83
Analysis of Variance:
DF Sum of Squares F. Ratio
Residuals 7 53200653 21.213
Equation (1) indicates that housing demand is positively correlated with the property
price whilst the relationships with interest rates, foreign exchange rates, national
disposable income, economic growth, level of employment, consumer price index, money
supply, size of population, profitability/income of the housing developers, affordability of
households (civil servants) and levels of housing supply are unsupported by the data.
The total variation in the level of housing demand is highly explained by the variations in
the property price (R2 = 0.752). This means that this predictor accounted for 75.2% of the
variations in the level of housing demand and that only about 24.8% in the observed
relationship cannot be explained by the selected predictor.
The step-wise method of regression analysis indicates that the t-values of this variable in
equation (1) are statistically significant at the 5% level of probability. The adjusted R2
value of this model is also relatively high (0.716). The regression model also yielded an f-
ratio of 21.213, which is significant at the 5% level of probability. This indicates that the
major source of variations in the level of housing demand can be totally explained by the
regression sum of squares (i.e. within groups) in the analysis of variance of the regression
model.
Based on these findings therefore, it can be concluded that the future level of housing
demand can be predicted by changes in property price. It can however not be predicted by
changes in interest rate, foreign exchange rates, national disposable income, economic
growth, level of employment, consumer price index, money supply, size of population,
profitability/income of housing developers, affordability of households and levels of
housing supply.
5-data points each were used as sub-set data (validation sample), whilst the construction
sample for the originally built models used for predicting future levels of demand and
supply consisted of 10 – data points. (See Appendix B).
Table 3 shows the subset data points used for the validation of the model developed.
Table 3. Subset data points used for model validation of both levels of housing demand
and supply
CASES MODEL VALIDATION FOR
LEVELS OF HOUSING DEMAND
PREDICTED VALUES OBSERVED VALUES
1989 211.48m 24.9m
1990 254.3m 937.1m
1991 404.32m 48.8m
1992 532.87m 390m
2003 36250m 36253m
Fig. 1 shows the plots of the predicted values to the observed values of housing demand
40000
LEVELS OF HOUSING DEMAND (In
37500
35000
32500
30000
Millions of =N=)
27500 O b serv ed
25000
22500 V alu es
20000
17500
15000
P red icted
12500 V alu es
10000
7500
5000
2500
0
Fig. 1 Plot of the predicted values to the observed values of housing demand
It can be seen from fig. 1 that the plots of the predicted to the observed values in some of
the cases were a bit deviated. This means that some factors such as unstable polity, poor
incomes and general instability in the National economy that are extraneous to the ones
used in building the model might have been at play.
Further analysis using the same steps on the five data points described earlier and
presented in Appendix B was used to construct another model for predicting the future
levels of housing demand. The features of these newly constructed models specifically;
multiple R, R2, Adjusted R2 Standard Error and Analysis of Variance were compared with
the characteristics of the original model and shown in table 4.
Modeling the Demand for Housing Construction 641
Table 4. Comparison of the multiple R, R2, adjusted R2, standard error and Analysis of
Variance of the originally built model with the newly constructed model for future levels
of housing demand
Multiple R2 Adjusted Standard ANALYSIS OF VARIANCE
R R2 Error D.F SS MS
Feature of Originally Regressn 1 1.61E+08 1.61x108
Built Model Based on 10 0.867 0.752 0.716 2756.83 Residual 7 5.32x10-7 7.6x106
– Data Points F-Value = 21.21 Sig. F = 0.002
Feature of Newly Built Regressn 1 1.03E+09 1.03x109
Model Based on 5-Data 1.000 0.999 0.999 464.70 Residual 3 6.48x105 2.16x105
Points (Validatn Sample) F-Value = 4774.88 Sig F = 0.000
It can be seen from table 4 that the originally built model based on 10-data points had a
residual mean square of 7.6x106 and a coefficient of determination (R2) of 75.2% whilst,
the validation sample had a residual mean square of 2.16x105 and a coefficient of
determination (R2) of 99.9%.
If the features of the originally built model and the newly built model are compared, it
can be seen that the coefficient of determination (R2) and the residual mean square of the
new data are close to that of the original data and it can therefore be concluded that the
data under investigation is uniformly distributed along the original regression derived. F-
test results also show that the model developed was statistically significant
Based on the results of the validation of the models, the statistical results obtained so far
support the validity of the models that, Property price can be used in predicting future
levels of housing demand.
Summary of Findings
The results of the data presented and analyzed, reveal that there is a significant positive
relationship between the level of housing demand and the level of housing supply, money
supply, foreign exchange rates, consumer price index, size of population and property
price. The study also revealed that no significant relationship exists between the levels of
housing demand and interest rates, national disposable income, economic growth, level of
employment and housing affordability by civil servants. It can be concluded that the
positive relationship between housing supply and demand is due to the fact that the
demand for housing is made only after houses have been built. The relationship with
foreign exchange is probably due to the fact that most of these houses are purchased by
Nigerians based abroad who find these high exchange rates favorable for investment in
housing.
Also, the results obtained suggest that an independent variable property price index was
found to contribute significantly to future levels of housing demand. The total variation in
the level of housing demand is highly explained by the variation in this variable with an
R-square of 75.2% (R2 = 0.752). Akintoye and Skitmore [1994] were able through a
model fitting process using quarterly data to determine the predictors of the future level of
housing demand as price level, GNP and interest rate. Hua [1996] also made use of
economic indicators to predict the demand for residential construction in Singapore’ Hua
642 Windapo, Ogunsanmi and Iyagba
The models developed by Akintoye and Skitmore [1994] and Hua [1996] show some
agreement either this current research study, which has property price index as a major
indicator of future levels of housing demand in Nigeria.
CONCLUSION
The central problem proposed by the research is to find out the economic and social
indicators such as Interest Rates, Foreign Exchange Rates, National Disposable Income,
Money Supply and so forth that have a significant relationship with and can predict the
future levels of demand for housing construction in Nigeria.
The positive relationship found to exist between housing supply and demand is as a result
of the fact that the demand for housing is made only after the houses are built and not
before or during its construction. Furthermore the relationship with foreign exchange
rates can be due to the fact that most of these houses are purchased by Nigerians who are
based abroad and who find these high exchange rates favourable and are thereby able to
purchase these houses which the local workers consider exorbitant. Housing Developers
construct houses due to known existing demand probably from a prior deficiency in
supply to applicants. This serves to explain the research finding of a significant positive
relationship between the levels of housing supply and demand.
The housing demand regression model constructed demonstrates that housing demand
will increase (all else being equal) with an increase in property price index.
Validation of the model indicates enough accuracy to pass the reliability test and strongly
supports the assumption that there is a relationship between housing demand and property
price
REFERENCES
Advanced Learners Dictionary (2000) Oxford University press Great Clearendon street,
oxford.
Bourne L.S. (1981) The Geography of Housing. V. H Winston and Sons. Toronto.
Modeling the Demand for Housing Construction 643
Federal Republic of Nigeria (1992) National Housing Policy; Lagos; Federal Ministry of
Works and Housing.
Ofori, G. (1990) The Construction Industry Aspects of its Economics and Management.
Singapore University Press National University of Singapore, p.115
Levels of Housing Supply (VHS): Hua (1996) argued the fact and was able to prove that
the levels of supply of supply of residential property determines to levels of supply of
residential property determines to a large extent the demand for housing. This variable
measured using the value of housing units constructed within a certain time period.
Interest Rates (VIR): The cost of a mortgage is set by the rate of interest that is charged
on it. This may be set for a certain number of years, but will normally vary. Akitoye and
Skitmore (1994), Hua (1996 and other writers such as Okupe (2000) have been able to
show that interest rate has an effect on levels housing demand and supply. This can be
easily calculated from the nominal interest rates available in the central Bank Annual
Report.
Cost of Foreign Exchange (VFX): Okupe (2000) and Ganesan (1979) identified the cost
of foreign exchange as being responsible for the high – cost of housing in which has led
to the weak demand for housing and therefore the dampened motivation for private
developers to construct buildings for sale. This variable was also measurable and
obtainable from the Central Bank Annual Report.
National Disposable Income (VNDI): The level of income that people have has also
been identified by researchers such as Hua (1996), and Bourne (1981) as a determinant of
the demand for and supply of houses. It is believed that the faster the level of income
people earn is growing the more money they have to invest in their houses and the more
motivated are housing developers to supply of houses it is believed that the faster the
level of income people earn is growing the more money they have to invest in their
houses and the more motivated are housing developers to supply the necessary houses to
meet the stated needs. The disposal income was also calculated from the Central Bank of
Nigeria Annual Report
644 Windapo, Ogunsanmi and Iyagba
Economic Growth (VEG): Akintoye and Skitmore (1994) and Bourne (1981) identified
economic growth as a factor that determines the level of housing demand. A single
indicator of economic growth is the overall level of income in the whole economy which
is known as GDP (Gross domestic product). Such that if the behavior of the GDP is
studied, the growth on the level of income on the average can be ascertained. According
to Akitoye and Skitmore (1994) among other factors, the quantity of construction demand
is dependent on the national economy.
Credit Availability / Money Supply (VMS): This is the total amount of money available
in the entire economy. It is a factor believed by Hua (1996) and Okupe (2000) to
determine the levels of housing demand and supply. It can be calculated from data
available in the central Bank of Nigeria Annual Report.
Population Growth (VSP): This is a measure of the trends in the growth of all the
people who live in a particular area, city or city or country. It is believed by Hua (1996
and Bourne (1981) to be a factor that determines to a large extent the level of housing
demand and supply. It is measured from statistical data obtainable from the Federal office
of statistics and is calculated as a percentage change in population figures.
Profit Motive of Developers (VPMD): Akintoye and Skitmore (1994) and Ganesan
(1979) the difference between the value of outputs and the value of inputs, and identified
profit as production output price/ input cost ratio. it is believed that high profitability may
encourage more investment in that area of the economy due to better employment
conditions and income of workers in that sector and it might also motivate builders/
developers to participate on a larger scale in housing provision leading to improved
housing supply
Property Price (VPP): Hua (1996) and Bourne (1981) identified property price as a
determinant of the level of housing demand and supply. According to Akitoye and
Skitmore (1994) the relationship between demand and price is a recurring theme in
economic literature such that price levels are dependent on the demand for construction.
A measure of trends in property price in the housing industry is the cost of land
transactions between the buyers and vendors. This local land costs can be obtained from
discussions with local developers or real estate brokers and it is best expressed on a per
square meter basis.
Modeling the Demand for Housing Construction 645
Level of Housing Demand (VHD): The relationship between demand and supply has
already been established by different economic literature. The levels of housing demand
would be measured by calculating the number of applications made by willing consumers
/ intending to purchase houses listed for sale by housing developers/ producers.
of
Affordability
(Consumer P
Rates (Prime
(Unemploym
Growth Real
Profitability/
(Civil Svnts)
(land) VPP
Price Index
Lendg Rate)
(Credit Av)
Residential
Property
(1985=100)
Developers
Population
Disposable
Employmt
Aggregate
Income of
Economic
Exchange
YEAR
VAF
Property
Property
Inflation
National
Demand
t Rate/ )
Level of
Foreign
Interest
Income
Rate of
Supply
Supply
VPMD
Money
Size of
Index)
(GDP)
VNDI
VCPI
Rates
VMS
VHD
VEG
VUE
VHS
VFX
VSP
VIR
1989 24.9m 5.02m 25.5% *7.5 N197.5b N222.5b 3.2% N270.3 N27b 84.9m 34% 72 75%
1990 937.1m 85.74m 26% 8.04 N225.6b N260.6b 3.5% N291.9 N37b 86.7m 23.4% 74 25%
8.3%
1991 48.75m 29.65m 20.2% 9.9 *N282b *N324b 3.1% N343.9 N49b 88.5m 22.4% 81 50%
4.7%
2.1%
1992 390m 266m 29.8% 17.3 *N504b N553.2b 3.4% N514.3 N75b 91.3m 24% 87 0%
3.0% 3.2%
1993 N255m N420m 36.1% 22.16 *N766b N821.9b 2.7% N 830.2 N 120b 94.1m 8% 100 96%
1.3% 2.1%
1994 N1296m N140m 20.2% 22.0 N841.6b N911.1b 3.2% N 1317 N 177b 96.8m 16% 140 44%
2.3% 2.1%
1995 N4611m N625m *44.0 N1,840.b N1,961b 3.9% N 2135 N 204b 99.5m 20% 199 17%
1996 N1632m N1101m *44.50 N 2,625b N2,741b 6.1% N 2771 N 241b 102.3m 19% 288 1%
1997 N2105m N1475m 18.4% 81.65 N2,824b N2,835b 6.0% N 3054 N 277b 105.3m 18% 472 2.7%
3.2% 3.0%
1998 N9491m N1783m 19.5% 83.81 N 2,716b N2,722b 4.9% N 3230 N 333b 108.4m 23% 649 0%
2.4% 3.0%
1999 N4311m N3557m 21.3% 92.34 N3,194b *5.1% N 3489 N 393b 111.8m 82% 775 0%
2.8% 3.0%
2000 N14861m N11770m 21.3% 101.65 N4842b 6.3% N 3728 N 638b 115.2m 94% 1096 3.5%
3.8% 3.0%
2001 N11586m N5621m 26.0% 111.9 N5488b 5.4% N 4490 N 817b 118.8m 44% 1287 73%
3.9% 3.1%
2002 N6817m *N8876m 26.0% 126.51 *N5253 *N798 122.5m 33% 1495 0%
2003 N36253m N8949.2m 24.5% 140.5 *N6146 *N997 130m 83% 1754 16%
ROGER-BRUNO RICHARD
School of Architecture, Université de Montréal, P.O. Box 6128 Centre-ville Station,
Montréal (Québec) H3C 3J7, Canada. <roger.richard@umontreal.ca>
ABSTRACT
Two different types of spaces are present in any dwelling unit: the “Serving” and the
“Served” areas. The Serving area includes the kitchen, the bathroom, the laundry, the
mechanical-electrical shaft, the stairs and eventually the elevator. When all its functions
are grouped in a compact geometry, the Serving area becomes a Service Core. And when
the Core becomes the single vertical load-bearing structure of the building, the result is an
integrated building system: a Load-Bearing Service Core system.
A Load-Bearing Service Core system is a Hybrid system: all the complex and
sophisticated equipments & services of a dwelling unit can be industrialised as 3D
modules completely finished at the factory. Once at the site, they support the “Served”
area, which can be built with the available local technology or through factory-made sub-
systems (Slabs, Envelope panels and Partitions).
Full of value-added elements and compatible with the geometry of a container, the Core
can be transported anywhere in our globalised world, to developed or developing
countries alike; or be the object of a transfer of technology. The Load-Bearing Service
Core could be to housing what the “engine” is to the body of the car or to the fuselage of
an airplane.
The Challenge
Urban housing represents a major and urgent challenge in most countries and regions of
the globe: “Slums, especially in the developing world, are forming at a rate five to ten
times faster than the rate targeted by the international community to upgrade them”
[Kajumulo-Tibaijuka, 2003].
There is a solution: industrialisation; more specifically, industrialised building systems. In
general, industrialisation has demonstrated a powerful capacity to reduce costs, improve
quality and get complex products available to the vast majority of people. Today, this is
true not only with the automobile, but with all sorts of products including most building
648 Richard
materials and components; but, so far (it is up to us to change that), rarely with the full
building as a whole [Richard, 2004].
The quantity implies a large market niche which in return will amortise the investment in
a technology capable of simplifying the production and assuring precision, thereby
reducing the costs and facilitating the delivery of quality units to the vast majority of
people, particularly those with limited access to resources.
In the case of construction, the finished product is preferably not a standard building but a
building system, i.e. a set of coordinated details and/or tools applicable to a large quantity
of buildings of different shapes, sizes and functions as well as on different sites; these
variations facilitate the aggregation of the large market needed to amortise the
investment.
The Site-Assembled Kit-of-Parts (“Meccano”) strategy regroups the Post & Beam (“A”),
the Slab & Column (“B”), the Panels (“C”) and the Integrated Joint (“D”). All their sub-
Offering to Housing What the Engine is to the Car 649
systems, including the structure, are usually made at various specialised plants and
transported to the site where an important jointing operation takes place.
The Factory-Made 3D Module consists of the Sectional Module (“E”) and the Box (“F”).
All spaces and all components of the building are entirely assembled and finished at the
plant; as three-dimensional modules they only require simple connections to the
foundations and main service entries once at the site. “The ultimate goal of prefabrication
technology is to transport a finished product to the site” [Utida, 2002]. But carrying the
module from the factory to the site means paying to transport “air”, as most of the volume
is occupied by empty space.
The Hybrid strategy reaches for the best of both worlds, manufacturing at the plant the
complex parts of the building and arranging the site for the simple and/or heavy
operations; it proposes three completely different approaches: the Load-Bearing Service
Core (“G”), the Megastructure (“H”) and Site Mechanisation (“I”).
It is generally accepted that there is no such a thing as the “best system in the world”; but
only more or less appropriate systems for a given context. For instance, a Post & Beam
system is more flexible as it is basically a skeleton open to various types of infill; the
wood-framed factory-made module is the most economical way of building a single
detached house (“bungalow”) in North America. However, the Hybrids do represent a
“balanced” option between the factory-intensive and the site-intensive strategies;
moreover, the Load-Bearing Service Core combines the technical advantages of the
Hybrid solutions with a very logical approach to planning, exploiting the distinction
between the Serving and the Served areas.
Wherever the location, whatever the cultural patterns, two types of spaces will share the
floors of any building, the Served and the Serving areas.
• The Served area: large spaces planned for the activities of the building and
occupying most of the floor areas (± 70 to 80%); in housing they usually include
the living room, dining room, family room, bedrooms, etc. Most likely, the
Served spaces are completely open spaces.
• The Serving area: support facilities usually of generic nature and occupying a
limited but strategic part of the floor areas (± 20 to 30%); in housing, they
normally include the Kitchen, Bathroom(s), Powder Room, Laundry Room,
Staircases, Elevator Shaft, Mechanical Shaft (water heater, electrical panel,
HVAC machinery, etc.) and they integrate most of the electrical-mechanical
conduits. Basically, the Serving spaces are full of complex and sophisticated
equipments & services.
In an office building, the Serving spaces are usually clustered into a volume called the
“Service Core”, mainly because of its key role in the structure of the building: the Service
Core is usually a node located at the very center of the building, in order to leave the
window frontage to the Served areas.
650 Richard
In a residential building, the Serving spaces would usually be either centralised in the
case of a point tower or spread out on both sides of the central double loaded corridor in
the case of a linear building. The word “Service Core” is not often used for residential
buildings, since there is usually no structural function attached to the Serving spaces: that
is a missed opportunity, as integrating structural functions to the residential Serving
spaces and thereby generating a residential Service Core offers a venue to simplify the
industrialised production of housing.
In housing, the Service Core can adopt a pointed, a longitudinal or a transversal geometry
[Richard, 1991]:
• Longitudinal Cores are stretched at the center of the dwelling unit or on both
sides of a central double loaded corridor; they require a load-bearing façade to
support the floors of the Served areas.
• Transversal Cores, perpendicular to the façade, can play the role of a “thick”
party wall and become the single vertical load-bearing element of the building,
they can, at the same time, generate a completely transversal space offering
natural cross-ventilation, continuous availability of the sun and a 360° view.
halves means a lighter Core and a format close to or identical to that of a container (± 6.0
M). As it is the single vertical load-bearing vertical element of the building, the name
“Load-Bearing Service Core” is completely justified.
But there is a significant constraint with the Transversal Cores: the presence of the
Serving spaces on the façade will proportionally increase the width of the unit compared
with the situation where those spaces are longitudinal and centered as it is the case with
the Longitudinal Cores.
Due to the very simple and concentrated forms usually associated with the Service Cores,
the variations will mainly involve the “inside”. For instance, changing the thickness of the
wall according to the level of the floor in a multi-storey building, changing the staircases
according to the floor to floor height, changing the configuration of the Kitchen or of the
Bathroom, modifying the mechanical conduits, introducing new HVAC equipment,
“personalising” according to the requirements of the occupants, etc. As far as the
perimeter (or “outside”) is concerned, the main variations will concern the doorways and
the connections to the rest of the structure.
• The Service Core itself has standard dimensions but is OPEN AS FAR AS ITS
CONTENT IS CONCERNED; a variety of Core layouts can be produced within
the same basic shell: Kitchen-Laundry, Water-Closet(s), Bathroom / Master
Bathroom, Kitchen / Bathroom Combination, Middle-Landing Staircase (for the
Split-Level option), Scissor Staircase (to provide two means of egress), Elevator
Shaft, Miscellaneous Ancillary space, etc.
• The Slabs and Envelope wall panels are OPEN SUB-SYSTEMS, open to off-the-
shelf technology: the Slabs can be pre-stressed hollow-core, ribbed, or composite
(i.e. steel + concrete) or, in the case of townhouses, stressed-skin panels or open-
web joists in wood; the Envelope wall panels can be made of a pre-cast concrete
“sandwich”, aluminium curtain walls, metal “sandwich”, FRP “sandwich”, etc.
The presence of transversal Cores at regular intervals (depending on the span of the floor
structure – usually between 4.5 and 7.0 meters) does impose a strict planning discipline
(see Fig. 3), but a useful one: those “thick” party walls meet both the soundproofing and
the fireproofing criteria while providing the services required by the rooms next to them.
A discipline is not a constraint. A discipline can become an incentive for creativity: the
discipline of the piano notes is the starting point for a great concerto by an artist who
masters them. To an imaginative designer, the transversal Cores are the elements of an
architectural language offering:
Fig. 5 The Load-Bearing Service Core applied to a staggered layout – Ginter System
(Roger-Bruno Richard Architect - 1982)
Fig. 6 The Load-Bearing Service Core applied to Multifamily Housing: Linear and Semi-
Circular Buildings – Richardesign System (Roger-Bruno Richard Architect - 2000)
654 Richard
A major cost saving can be projected with the Load-Bearing Service Core. For instance, a
feasibility study done in Montreal demonstrates an economy up to 20 % for the
Richardesign System (Fig. 6) when compared to traditional cast in place concrete
construction of the same quality (medium to high priced condominium). Five factors are
contributing to that economy:
• A single material can be used to meet the fireproofing and soundproofing criteria,
as well as to form some of the equipments (Ex. the kitchen counters) and to
facilitate the maintenance (round corners and polymer finish).
• Since all the complex and sophisticated equipment & services are completely
produced and finished at the factory, the full advantages of prefabrication are
available:
Climatic protection;
Rationalisation of the tasks along a production line;
Specialised tooling and handling equipment;
Semi-skilled labour;
Better quality control;
Bulk purchasing of raw material due to the single delivery
point.
• The transportation cost are marginalised by the geometry of the typical Core (its
width and length are within the standards for road transportation) and by the fact
that most of its content would have to be transported to the site anyway.
• The site activities can be limited to simple and “dry” operations: casting the
foundations, installing the Cores, fixing the Slabs between them, connecting the
plumbing and electrical conduits between the Cores, installing the Envelope
panels, installing the roofing (thermal insulation, drainage and membrane), etc.
CONCLUSION
Full of value-added elements and compatible with the geometry of a container, the Load-
Bearing Service Core can easily be transported anywhere in our globalised world, to
developed or developing countries alike and/or be the object of a technology transfer.
REFERENCES
Kajumulo Tibaijuka, A (2003) Meeting the challenge of the urban poor, Address to the
31st World Congress of the IAHS (International Association for Housing Science)
Montreal, Canada, June 23.
Richard, R-B (2004) Applying Industrialised Strategies & Technologies to the
Production of Building Systems, Proceedings of CIB World Building Congress
2004, Toronto, Canada, May 6.
Utida, Y (2002) The construction and culture of architecture today: a view from Japan.
Ichigaya Publications Co. Ltd, Tokyo, Japan, p 53.
Yeang, K (2000) Service cores. Detail in Building collection, Wiley-Academy,
Chichester, Great Britain, p.9.
Richard, R-B (1991) Répertoire des systèmes de construction industrialisés en habitation.
Canadian Housing and Mortgage Corporation, Ottawa, Canada
656 Richard
GLOBALIZATION, SECONDARY MORTGAGE BANKING AND
CHALLENGES BEFORE NIGERIA
OGEDENGBE P.S,
Department Of Estate Management, Obafemi Awolowo University Ile-Ife Nigeria E-mail:
psogedengbe@yahoo.com
ABSTRACT
The paper addresses the problem of inadequate funds for primary mortgage institution to
finance long-term loan for housing development in Nigeria. Studies have shown that
developed countries particularly the United States of America have overcome this
problem through the establishment of secondary mortgage markets.
The study aims at examining the viability of this secondary mortgage market in a
developing country (Nigeria) so as to reap the benefits of globalization. The research
examined the views of primary mortgage institutions, financial and real estate experts on
the prospects and implementation difficulties of secondary mortgage market in Nigeria. It
was revealed clearly that this secondary mortgage market is likely to be a viable option in
Nigeria provided that the problem of mindset of the people and political will of the
government are addressed through proper and intensive enlightenment campaigns. The
paper recommended among others, a model that combines savings and mortgage for
housing provision and that government should try to create an enabling environment
(Legal framework, regulatory institutions, and enlightenment campaign e. t. c) for this
secondary mortgage market to become operational within the next five years.
INTRODUCTION
Shelter has been universally accepted as the second most important essential human need
after food, housing goes beyond mere shelter to embrace all the social services and
utilities that go to make a neighborhood live able [National Housing Policy 1991].
Provision of housing has been a global phenomenon that drew the attention of the
government of most countries over the years. Despite this given attention, the problem of
housing has continued unabated till date particularly in developing countries (Nigeria).
Housing problems in Nigeria are enormous and complex which exhibit apparent and
marked regional differences: Housing in Nigerian urban centres is characterized by
problems of quantity and poor quality of available housing units and the environment;
while the rural areas are faced with the problem of quality of housing and inadequate
infrastructural facilities like roads, drainage, water, power supply e.t.c.
658 Ogedengbe
Consequently, the National Housing Policy of 1991 was formulated by the Federal
Government of Nigeria with the realization of the major role of finance; the National
Housing Fund came into being with the responsibility of making fund available to meet
the target for the entire policy. The National Housing Fund scheme was structured such
that the Federal Mortgage bank of Nigeria would function as the sole institution at the
federal level to encourage the flow of funds from various sources to the housing sector.
The primary mortgage institutions (P M Is) were adopted as channels through which
lending to individuals to fund building, purchasing or renovating their own house would
be effected.
The problem
Any system of housing finance is sustainable only if it is relevant to the economic, social,
political and regulatory environment of the country concerned. The experience of
mortgage banking in Nigeria can simply be summarized as utter failure as observed by
Nubi [2003]. Without a well-organized and efficient housing finance system, it is difficult
to mobilize substantial financial resources for channeling funds into the housing sector.
Nigeria’s present housing finance system is severely underdeveloped and iII- equipped to
mobilize and channel savings to the housing sector. Although a Federal Mortgage Bank
has been created to essentially serve as a wholesale and apex institution, the other
institutional components of the finance market in terms of primary mortgage institutions
have not developed.
The present scenario for funding housing delivery in Nigeria is that the primary mortgage
institutions are faced with inadequate funds to finance long-term loans. Their financial
base can only cater for a few people, so once loans are disbursed to a set of people on a
long term, the needs of other sets of people who require loans for house construction are
not met by these primary mortgage institutions simply because the little amount of money
at their disposal is tied down in the hands of the few beneficiaries, hence they appear
ineffective. However, the global slogan of ‘Housing for all by the year 2000’ that brought
Secondary Mortgage Banking in Nigeria 659
about the Nigeria’s National Housing Policy of 1991 has not been achieved due purely to
poor financial arrangement to fund the housing sector among others. Most Nigerians are
yet to own or have access to a decent accommodation even four years after the target of
year 2000.
The capacity of secondary mortgage market to tap broader source of fund across national
boundaries especially with the advancement in information technology and globalization
makes it an inevitable option in mortgage banking development. It also facilitates
improved risk management for primary market lenders.
Arising from the above discussion, the study tries to examine the workability of
establishing a secondary mortgage market in Nigeria with a view to strengthening the
financial arrangement towards housing delivery in the country so as to reap the benefits of
globalization. Also to be addressed by this study, are the necessary frameworks to be put
in place to make the secondary mortgage market work in developing countries (Nigeria).
It involves a transaction whereby, the secondary mortgage institution can issue mortgage-
backed securities (MBS) in exchange for pools of mortgages from lenders instead of
paying cash. That is, instead of paying cash, the secondary mortgage institution buys by
paying through the means of mortgage-backed securities to the primary mortgage
institutions. These mortgage- backed securities (MBS) are guaranteed by the secondary
mortgage institution to the investor and the investor will receive timely payment of
principal and interest regardless of what happens to the underlying mortgages. In return
for the guaranty, a fee is charged. The advantage of these MBS (Which are highly liquid
investments are tradable through security dealers) is that it provides the lenders with a
more liquid asset to hold or sell to achieve desired liquidity options.
A secondary mortgage market transaction that is more sophisticated involves the buying
of mortgage portfolios from lenders (mortgagees) repackaging the mortgages into
securities and selling the securities duly guaranteed to investors. This process is termed
securitization. Securitization is defined as the conversion of property assets into tradable
instruments [Ebie 2002]. The underlying principle is that the investor receives in return
for his capital outlay the benefit of income and capital growth arising from the
underlying. It is the quality and value of the underlying collateral of the mortgage that is
critical to the success of the securitization. Secondary securitization is the repackaging of
existing loan assets into securities as distinct from primary securitization, which relates to
the process of raising new finance by issuing securities on the capital market.
660 Ogedengbe
To fund the mortgages being bought, the secondary mortgage institution issues debt
securities to investors, banks, savings institutions, insurance companies, pension funds,
and credit monies. Significant income is derived from the difference between the yield on
these mortgages and the cost incurred to buy them. Secondary mortgage market is meant
to be a constant source of replenishing and increasing the stream of funds available for
primary mortgage transactions. It links mortgage lenders with security investors. It is a
means to an end (to increase the flow of funds to housing).
Globalization
The world is gradually becoming a global village and for developing countries like
Nigeria to reap the benefits of globalization, there is need to improve on the mortgage
financing processes. Globalization is the integration of national economics through trade
and financial interaction [Obaseki 1999]. Globalization has progressed with developments
in the world economy. The phenomenon has benefited immensely from the multilateral
trading and investment arrangements, advance in technology and communication, and the
opening up of trade and investment through liberation of current and capital account of
transactions.
Recent developments in the world economy had shown that it is futile for countries to
isolate themselves in a rapidly integrating world. The search for flexible funding sources
further enabled the globalization of the capital markets. Over the years, securitization of
credit, proliferation of mutual funds and financial consolidation all have propelled global
markets in the 1990s alone; the global bond market has also tripled [Nubi 2003].
Methodology
The study requires information on the present mortgage financing arrangement in Nigeria
with a view to determining the problems that hamper the effective mobilization of funds
for financing real estate developments. In addition, information on how these problems
can be solved with the establishment of a secondary mortgage market in the country as
obtains in developed countries like the United States of America is required if Nigeria is
to reap the benefits of globalization. Information on the viability of this secondary
mortgage market in the Nigerian situation is also needed.
Accordingly, primary mortgage institutions and financial and real estate experts in
Nigeria were contacted on the prospects and implementation difficulties of secondary
mortgage market as a way out of the present mortgage financing problems in the country.
Simple descriptive statistical methods were used for data analysis and presentation.
The data gotten from the interviews conducted with the officials of some primary
mortgage institutions and some financial and real estate experts coupled with the
secondary data from the Federal Mortgage Bank of Nigeria form the bases of analysis.
Secondary Mortgage Banking in Nigeria 661
Nigeria’s present housing finance system is severely underdeveloped and ill equipped to
mobilize and channel savings to the housing sector. Although a Federal Mortgage Bank
has been created to essentially serve as a wholesale and apex institution, the other
institutional components of the finance market in terms of primary mortgage institutions
have not developed.
It is generally accepted that despite high demand for mortgage loans, the Federal
mortgage bank has not been able to meet up with such demand and for it to make any
meaningful impact on the housing sector; other sources of funds must be found. The
above situation later improved with the establishment of some primary mortgage
institutions, that is a two-tier financial structure, with the Federal Mortgage Bank as an
apex institution and a decentralized network of Building Societies, Housing co-
operatives, Housing Associations, Credit Unions and Saving Banks forming the second
tier at the grass root level. With this development, the Federal Mortgage Bank
concentrates on wholesale mortgage lending to primary mortgage institutions that in turn
perform retail mortgage lending to private individuals.
Table 1 above clearly shows the beneficiaries from the housing finance scheme across the
country. It should be noted that a total number of 489 beneficiaries as at 2000 is not
encouraging since there are lot of applicants that could not be attended to due to limited
662 Ogedengbe
funds. This manifests itself into stringent conditions upon which loans are approved and
disbursed.
Secondary mortgage markets originated from America with the establishment of the
Federal National Mortgage Association (Fannie Mae) in 1938 as a government owned
agency. It was authorized to buy only Federal Housing Administration insured loans to
replenish the supply of lend able funds by primary mortgages. Later in 1981, it started
doing business in mortgage Backed Securities as an alternative for the purchase of
mortgages instead of paying cash. However, it does not lend money directly to home
buyers but works with lenders. It current mission statement is “our mission is to tear
down barriers, lower costs and increase the opportunities for home – ownership and
affordable rental housing for all Americans.
In 1970, the Federal Home loan mortgage corporation (Freddie Mac) was created to
stabilize the nation’s mortgage market and expand opportunities for home ownership and
affordable rental housing. However, it is privately owned by shareholders. It buys
mortgages from lenders and repackaging them into securities and selling them to
investors. Through this securitization technique, mortgage lenders obtain and use the
proceeds to fund new mortgages constantly replenishing the pool of funds available to
mortgagors. Later, Ginnie Mae that is purely a government agency was created and was
adequately funded for government loans insured by Federal Housing Administration.
Competition among these agencies ensures that the benefits of the secondary market are
passed on to homebuyers.
Indonesia
In 1992, the feasibility and process of establishing a Secondary Mortgage Facility (SMF)
(which differs from a true secondary mortgage market) a government supported
institution that refinances bank-originated mortgages funded through the issuance of
bonds was carried out. They opted for this because of relative lack of sophistication of the
Indonesian institutional investors, their bond market was thin and illiquid; the nascent
state of the legal and regulatory system as regards securitizations; the lack of performance
history on mortgages and unknown servicing capabilities of primary mortgage lenders.
The beneficial effects of SMF as put forward by Ebie [2002] include the fact that it would
provide a source of long-term financing for private banks, removing major obstacle for
mortgage investment; it would facilitate investment in mortgages by pension funds and
insurance companies potentially improving their investment performance and increasing
the supply of funds available for housing and it would help stimulate development of a
bond market, which would benefit private companies and government enterprises in their
efforts to raise capital.
Secondary Mortgage Banking in Nigeria 663
The Nigerian culture encourages home ownership hence there is high demand for
housing. The national Housing policy of 1991 targeted 700,000 housing units annually on
the estimated population of 80million in 1991 and this target has not been met up till
today which makes housing demand to be very high. This situation is conducive for
secondary mortgage market to thrive.
4) Mortgage instruments
The cash flows from mortgages must be predicable. There must be relative
standardization of the instrument, documentation, and underwriting, standardization of
the mortgages should be pooled with similar characteristics to facilitate large pool size
and more liquidity and to reduce the due diligence costs of investors and rating agencies.
In Nigeria, buildings vary in size, shape, height and construction, pooling them will be
difficult because of the array of risk combination they possess. Origination of mortgage in
Nigeria depends to some extent on the existing relationship between the borrower and the
lender hence loans given are hardly recovered.
Presently, PMIs originate, fund, underwrite and service mortgage. i.e mortgage is
unbundled. This doe not allow for transparency of information, but rather creates high-
risk mortgages. Unregistered lands are sometimes used as collateral making foreclosure
difficult.
The country is still struggling to understand traditional mortgage practice. The good news
is that the banking sector is evolving and is trying hard to meet with international
standard. Diversification into secondary mortgage market will only require short-term
training. The insurance industries in Nigeria also present opportunity for understanding
what unbundling is all about. In the insurance sectors, there exist main insurance
companies with network brokerages firms, working on commission. Other service
provides like value adjusters also exist. Unbundling will not be totally strange if
perceived from the insurance point of view.
It is obvious from the paper that an enabling environment for secondary mortgage market
to operate effectively has not been created in Nigeria; it is also clear that the mortgage
environment in Nigeria is not adequately developed for both primary and secondary
mortgage banking. The paper has however shown that the introduction of secondary
mortgage banking (if it is well understood) would solve some of the problems particularly
that of inadequate finance hence the need to improve and strengthen the existing
traditional mortgage practice through the followings:
1. The essence of mortgage is to make housing affordable to both medium and low
income earners, to achieve this, the pre-requisite high equity participation of 20%
- 40% by most PMIs should be discouraged since this arrangement makes
mortgage loan unattainable to them. The Government through the Central Bank
can reduce the lending policies in order to increase the credit expansion of
primary mortgage institutions so that more borrowers will have access to credit.
Central Bank guidelines that stipulate a particular percentage of loan able funds of
banks be earmarked for the housing sector should be enforced.
2. Public enlightenment is necessary so as to change the mindset of the general
public who are not keen about investing in the mortgage sector. They should be
educated about the various investment opportunities in this sector and should be
666 Ogedengbe
REFERENCES
Agboola, S.B. Olatubara (1996): “Cost recovery in Nigeria public housing” Habitat
International Vol. 16. No. 1, pp. 83-94.
Federal Government of Nigeria (1991): National Housing Policy. Federal Ministry of
Works and Housing Lagos.
FMBN, (1997) Handbook on establishment of mortgage institutions. & five years of the
National Housing Fund. (NHF) Lagos.
FMBN (2000) An In-Housing Journal of Federal Mortgage Bank of Nigeria. March
2000.
Fortune-Ebie S. P.O (2002) “Secondary mortgage market as a long term funding tool”.
The Estate Surveyor & valuer, Vol 25, No 1.
Iyagba, R. & Asunmo,(1997) “Housing crisis in Nigeria’s urban and rural areas –a
challenge to the construction industry and technology. The Lagos Journal of
Environmental Studies. Vol. 1 pp. 39-47.
Lea, M. J. (2000) “Models of secondary mortgage market development” in Watanabe M.,
(ed.), New Direction in Asian Housing Finance Washington, D.C. International
Finance Corporation.
Nubi, T. O. (2003) “Flying with one wing- dilemma of mortgage bank”. The Estate
Surveyor & valuer. Vol 26, No 1.
Obaseki (1999) “Policies and strategies for dealing with the problems of globalization”.
A paper presented at the One-Day Seminar of the Nigerian Economics Society
(NES) on globalization and economic development in Nigeria, at the Nigerian
Institute of International Affairs.
HOUSING POLICY AND STRATEGY TO REMOVE PEOPLE AND
COMMUNITIES FROM FLOOD PLAIN IN UBONRATCHATHANI
SDHABHON BHOKHA
Faculty of Engineering, Ubonratchathani University, Ubonratchathani 34190, Thailand,
sdhabhon@eng.ubu.ac.th
ABSTRACT
Ubonratchathani is a province in North - Eastern Thailand, which has suffered from the
“Mun river” flooding long in history as well as in recent years. Results from simulating
the mathematical model and field surveys confirm that the local administration’s proposal
to construct retaining structure along the riverbank up to the elevation +118 MSL (where
the elevation +112 MSL is considered “critical”) would not be the proper solution to
prevent flooding for two reasons. First, almost all the people and communities have
settled and lived in the flood plain along the river illegally, few of them are now living in
harmony with the river i.e. cultivation or fishing. Secondly, constructing the retaining
wall still needs further improvements to infrastructure e.g. waste treatment or disposal,
road, electricity as well as residents. As the Government has launch the housing policy
for relatively low-income and homeless people through the National Housing Authority
(NHA), one possible alternative is to remove the people and communities away from the
flood plain instead of constructing the retaining wall or paying compensation. Housing
policy and management strategies should be established i.e. land acquisition, investment
of infrastructures, appropriate type of housing, cost, payment schedule and period as well
as criteria for the people to occupy the housing unit. Accordingly, the flood plain should
be considered “risk area” and legal action should be taken i.e. limiting the amount of
compensation and encouraging the people to move away gradually. The on-going project
has acquired information and data i.e. numbers of household, size of family, profession,
average income, construction plan and technique and preferences of the people (type of
housing, location, cost, terms of payment). Two alternatives would be compared, which
are: 1) constructing the retaining wall and improving related infrastructures with perhaps,
occasionally paying compensation to the people when unusual flooding occurs; or 2)
implementing the housing project for the people who would be removed from flood plain.
Preliminary results show that the latter alternative would be the promising solution for the
people and local administration and would be a good approach to solve the similar
problems in other areas.
Keywords: Ubonratchathani, Mun & Chi river, flood plain, compensation, housing
policy, risk area.
668 Bhokha
INTRODUCTION
L o as P D R
A m natchareon
Yasoth on
Sri Saket
C o m b odia
: Vegetation 51 0.3%
: Others 40 0.3%
: Cultivation 2 0.5%
As it is situated in the large basin, the Ubonratchathani province has long historical
records of flooding over vast areas especially, in the recent years. The Mun river has its
maximum capacity at 2,400 m3/sec on average, while the maximum flow in 2002
measured at the station nearby the bridge connected between the two main districts
(called station M7) is 6,800 m3/sec. This results in high water level and flooding in the
area along both sides of river, including the urban area, which has great economic
impacts. Figure 3 shows the minimum and maximum water levels at the controlled
station M7 during 1985 - 2003. The minimum water level has changed slightly, in 1995,
it is +106.21 MSL (measured in dry season). The maximum water level varies widely.
Recently, it is +115.77 MSL in 2003. However, the historical maximum level in 1978
was +118 MSL.
118
max 115.77
116
min
114
112
Water level
MSL 110
108
106
104 106.21
102
100
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
Year
In the past, there seemed to be no complaints from the people as those who had water-
related life or activities lived in the flood plain along the Mun river (e.g. cultivation,
fishing and earthenware products). Now-a-days, more people have settled and lived in
the flood plain even though the land belongs to the public. Although their living activities
are not water-related, they have no choice to have better residences because of relatively
low income. Temporary or rather permanent residences have been built without
permission from the local administration. Therefore, their living do not conform with the
town planning and they live with inadequate infrastructures or utilities such as road, water
supply, electricity, waste water treatment and solid waste disposal. When it is flooding,
the local administration could support the people only as necessary with limited budget,
lack of adequate planning and management to protect the people even warning them in
advance. The local administration could only support moving the people to another safe
place, provide temporary residents, transportation, pay compensation for fatalities,
Housing policy and their strategy 671
injuries, lost of properties or joblessness because of flooding. This way, the local
administration has to prepare a certain amount of emergency budget, which might vary
from year to year. Even though the budget for compensation has been increased rapidly, it
seems that the compensation can not satisfy the people or definitely recover all the
damages, repairs or losses. In 2002, the compensation averaged 30,000 Baht per
household. Figure 4 shows examples of flooding effects to the people and communities
on the flood plain along the Mun River banks i.e. slope failure, solid waste disposal
problems, motor transportation, loss of resident, lack of food and water as well as
diseases and health problems.
Fig. 4 Examples of the Mun river’s Flooding Effects on People and Communities.
The local administration requested the Ubonratchathani University (UBU) and regional
sector of Royal Irrigation Department (RID) to prepare research project proposal in 2002.
The project is divided into three sub-projects, which are: 1) modeling and simulation of
river flow and flooding; 2) social, economic and environmental impacts from flooding
and resolutions; and 3) constructing a canal to increase the flow capacity by diverting the
flow from down stream of the Mun river away. Total project cost is 4.9 Million Baht,
which is sponsored by the Government of Thailand. The project was planned to complete
by end of 2003. However, it is extended to end of 2004. The main purposes of the project
are as follows:
672 Bhokha
1. Computer simulation model would be constructed capable to forecast the flow in the
Mun River and flooding according to various situations. The model deals with
hydrological and hydraulic data (i.e. rainfall intensity, flow and water level at each
controlled stations along the river) and Geographic Information System (GIS, which
consists of terrain topography and flood plain, cross section of the river, buildings,
hydraulic structures and other obstructions to the flow).
2. By means of the computer model, the possibility of various proposals to prevent
flooding is to be simulated or verified.
3. Economic, social and environmental impacts due to flooding in the two main districts
(Muang and Warin), feasible alternative or solution as well as planning and
management strategies for implementation are to be proposed.
4. Possibility to divert the flow from the Mun River in rainy season by means of the new
excavated canal is to be verified by means of the computer model.
Former studies, which had been carried out by the Public Works Department (PWD) and
the consultant in 1994 recommended that the flood protection structure, called “retaining
wall” should be constructed along both sides of the Mun river bank in the urban area
(total length is 2 to 4 kilometer). The project had been designed for 100-year return
period, with the top elevation of the retaining wall being +118 MSL and estimated cost at
500 Million Baht, approximately. This is to protect the urban area in the two main
districts from flooding even though it would cause more serious side effects (i.e. higher
water level and longer period of flooding) in the upstream or down stream areas, where
most land are paddy field or cultivated. Recently, new proposal with similar concept but
slightly different in alignment and details, has been launched by the Department of
Disaster Prevention and Mitigation (DDPM). Figure 5 compares the proposed alternatives
by the PWD and DDPM
Even if the proposal to construct the retaining wall were approved or implemented, there
are guarantees that the expensive structure is capable to withstand the unusual flow when
a devastating flood occurs. From social and environment points of view, the rather high
retaining wall obstructs the river view as well as accessibility of the people to the river for
their usual consumption, cultivation, transportation or recreation activities. Further, the
communities along the river banks need to be provided with infrastructure or
improvements continuously e.g. road, electricity, water supply, waste water treatment
Housing policy and their strategy 673
plant, solid waste disposal zone, irrigation for agriculture (cultivation or farms) and
especially, the quality of the residences. Figure 6 illustrates examples of poor quality
residences, which need to be improved or modified. The people may not accept the
proposal to construct the retaining wall, as such, alternative solution needs to be
proposed.
The computer simulation model had been built and calibrated to fit the flow parameters
using historical data. Consequently, various proposed alternatives to prevent flooding are
simulated and tested by means of the model. The simulation results show that there is no
single alternative or solution that can solve the flooding in Ubon and Warin,
independently (even the third sub-project). In other words, a number of alternatives
should be implemented together. Even when one alternative seems useless for preventing
flooding, it would be of some other use in storing the excess water for consumption in the
dry season. Figure 7 presents the computer simulation output i.e. the boundary of
flooding when the water level is +116 MSL. It is recommended that the people and
residents in this coverage area should be removed to another safe place permanently, and
the area then should be considered “restricted or risk area”. Moving the people, residents
or communities then need interdisciplinary collaboration e.g. legal action, political,
architectural, engineering, planning and management, social and economics, health and
environmental science.
674 Bhokha
Fig. 7 Computer Simulation Output: Boundary of Flooding at Water Level +116 MSL.
One possible alternative to resolve flooding problems is to remove the people and
communities away from the flood plain. The local administration should support the
people and communities in seeking a safe place from flooding to settle and live
permanently instead of paying compensation or constructing the retaining wall with
further additional costs for improving infrastructure and utilities (since unusual flooding
can still be occur). This sustainable alternative seems to be the promising solution as the
Thai Government has launched the housing policy for relatively low-income and
homeless people through the National Housing Authority (NHA). So far, the NHA used
to support the improvement of residents and environment of few communities in the flood
plain in Ubon and Warin. If low-cost residences can be acquired, and it allows the buyer
a rather long paying period, almost all the people would attempt to purchase the first
permanent house for themselves and families. Accordingly, the flood plain should be
considered a “risk area”. The people should be allowed to extend living in the flood plain
for a considerable period i.e. five to ten years. Perhaps, the local administration has to pay
for compensation due to flooding during this transition period to encourage the people
having new houses and prepare to move gradually. After that, strict legal action should
be taken to the illegal people or residents.
Unless the local administration implements the proposed alternative, the amounts of
compensation and repair to damaged infrastructure after flooding are increasing,
continuously. Table 4 presents the changes in communities, households, and population,
which were damaged or affected from flooding during 2001-2003. The numbers of
damaged or affected community, household and population increase 20 to 26.8% (2001-
2002). Even though there was no critical flood in 2003, half of them were still damaged
or affected.
Housing policy and their strategy 675
Nos. of household 1,160 1,505 2,665 1,606 1,640 3,246 21.8% 875 1,201 2,076 -36.0%
No. of population 5,430 7,144 12,574 6,833 9,110 15,943 26.8% 3,278 4,383 7,661 -51.9%
Remark: no critical flooding in 2003, only those who live in the flood plain, which elevation is lower than
+112 were affected.
Housing policy and management strategies should be established systematically and need
multi-disciplinary approach i.e. urban planning and management, architecture,
engineering, social economics, legal aspects, environment and health care. Land
acquisition or location of the project should be selected based on the preference of the
people and availability of infrastructures and utilities i.e. road and access, flood protection
dike and drainage system, waste water treatment plant, solid waste disposal, water supply,
electricity, and telecommunication system. Design of houses should conform to the local
life style, topography and climate. Therefore, typical local housing styles are planned to
be modified to achieve good engineering design i.e. using durable material, easy for mass
construction and cost saving. The functional areas of each house should be arranged
such that it is adequate for various sizes of family. Necessary infrastructure i.e. road,
drainage, waste treatment plant, solid waste disposal, water supply, electricity and
landscape should be provided for the housing project. Figure 8 shows some typical local
housing style to be modified.
The on-going project is now collecting further data i.e. size of family, profession, average
income, preferred type of housing and location, acceptable cost (or preference price to
purchase), terms of payment and paying period as well as construction planning and
technique. Two alternatives would be compared by means of economic evaluation: 1)
existing alternative (constructing the retaining wall with improvements of the
communities and occasionally compensation to the people when unexpected flooding
676 Bhokha
occurs); and 2) new alternative (implement the housing project for the people who would
be removed from flood plain).
CONCLUSIONS
Conclusions of the computer simulation sub-project and recommendations for the two on-
going sub-projects can be drawn as follows.
1. The computer simulation model had been developed. It can be used as a tool for
forecasting occurrence and effect of flow in the Mun River along Muang and Warin
districts (Ubonratchathani province), water level and duration of flooding when
rainfall, upstream flows or water levels are known.
2. The results from computer simulation show that there is no single proposal or
alternative that can resolve the flooding problems in Ubon and Warin. A number of
proposals or alternatives should be implemented together to prevent flooding as well
as to store the water for consumption in the dry season.
3. The model also strongly confirms that constructing high retaining wall along both
sides of the Mun River bank in Ubon and Warin would not prevent flooding
adequately.
Based on the obtained result from computer simulation model, the existing alternative of
constructing the high retaining wall would not be appropriate to prevent flooding for the
urban area of Mung and Warin districts. A numbers of problems especially, the illegal
settlement of people and communities in the flood plain could not be resolved adequately.
On the other hand, the new proposed alternative of housing policy and strategy to remove
the people and community from flood plain is a promising solution. As the planning and
management of infrastructure project, the new proposed alternative needs
interdisciplinary approache especially, legal, social, economics and environment.
Additional data is now being collected and analyzed so that the policy, implementation
plan and management strategies could be set up. The local administration should arrange
public hearing, as the most important key for the success of this sub-project is acceptance
by the people and communities in the flood plain. When this sub-project is accepted and
implemented, diversion of the down stream flow from the Mun river (the last sub-project)
would be unnecessary. Hence, the housing policy and strategy to remove the people and
communities from the flood plain in Ubonratchathani as proposed by this sub-project
would be a good solution for similar problems in other areas.
Housing policy and their strategy 677
REFERENCES
ABSTRACT
200 firms were surveyed in Lagos, Nigeria. The problem of the absence of databases was
overcome by asking valuers to value recently sold properties without knowing the sale
price. Using several tests, (ranges, mean deviation, regression analysis, and analysis of
variance), significant degrees of valuation unreliability were found, which suggest that
valuation estimates cannot yet be acceptably used for property investment decision
making in Nigeria. The causes were traced to non-uniformity in valuation input
determination. These causes were in turn traced to some deficiencies in the educational
and practice structure of Nigerian valuation.
The paper recommends that Nigerian valuation regulatory institutions should improve the
accuracy of its valuation by facilitating a regularly updated property databank and a
valuation practice standard handbook.
Introduction
In recent years, the issue of valuation accuracy and the reliability of commercial property
valuation as an effective proxy for property sales has received considerable international
interest and debate in the UK, US, Canada and Australia. This has been exuberated by the
increasing worldwide trend of investment on portfolio basis and the fact that “most
property portfolio decisions are based on valuations and not prices” [Brown and
Matysiak, 2000]. Even in countries where portfolio management is still in rudimentary
680 Ogunba
Much work has been done in the UK, Canada and Australia on valuation methods in the
past twenty years [Parker, 1993 p.370], and this is a result of continuing concern on the
need for accuracy, reliability and credibility [Gallimore, 1995, p. 15]. “Equivalent US
studies have added to the debate” [Newell and Kishore, 1997]. Valuation accuracy studies
in developed countries are usually conducted drawing from databases such as the IPD of
the UK or Australia’s CPM. Unfortunately, the databases that developed countries rely on
to carry out such valuation accuracy studies are not yet present in developing countries
such as Nigeria [Ogunba, 2002]. This is probably why in developing countries, the re-
examination of valuation practice is either non-existent or just beginning. In Africa for
example, (outside of preliminary studies in Nigeria), one is not aware of any published
literature on valuation accuracy except one that is yet to be completed in Zambia
[Musole, 2000]. Even in Nigeria, most studies have focused on a single place (Lagos
State metropolis).
In Australia, Newell and Kishore [1998] undertook an empirical test of the accuracy of
commercial property valuations as an effective proxy for sales using the commercial
property monitor (CPM) database, MSW value-Generals records and the Independent
Property Trust review transaction details. Two hundred and eighteen commercial property
sales (comprising 101 office and 117 retail properties worth $15.5 Billion from Sydney
over 1987-96 were examined. The regression based procedure of Matysiak and Wang
[1995], was used in their statistical analysis after proper adjustment were made to
accommodate time lags between timing of valuations and respective sales using the PCA
property indices. After accommodating lags between valuations and sales, and different
market conditions by introducing dummy variables, the resulting regression equation
demonstrated that valuations on average are an effective proxy for sales particularly after
adjustments are made for valuation timing and the state of property market. Parker [1998]
also conducted an empirical test on valuation accuracy adopting a plus or minus ten
percent (+/- 10%) test of inaccuracy. Each of the seven properties considered were
independently valued by one major national firm of valuers as at the date of close of
tenders and the prices nominated by the seven potential purchasers. Though none of the
valuations matched the market price exactly, he concluded that valuations are a good
proxy for price in the Australian investment property market.
In the United Kingdom, statistical investigations into valuation accuracy started with a
paper in the UK by Hager and Lord [1985] who conducted a small sample survey where
ten surveyors were invited to value two properties. In one case the range of valuation was
±10.6% and in the other ±18.5% suggesting a relatively low level of valuation accuracy
relative to the accuracy standard of ±5% considered by these authors. Brown [1991]
carried out a larger and more vigorous study using regression based analysis on a sample
of 29 properties over the period 1975 to 1980. He found a very high correlation between
valuation transaction and price with prices explaining about 99%. A similar procedure
was adopted by IPD/Drivers Jonas [1988]. They ran a series of regressions on a sample of
1442 properties sold between January 1982 and March 1988, which were preceded by at
least two open market valuations in the two years prior to sale. They analyzed these
samples using a simple least square model to regress price on value (the inverse of
Brown’s model). They concluded that valuations are a good proxy for price. IPD/Drivers
Jonas [1990] updated their analysis to consider 2,400 properties for which there were
transactions and valuations. A high correlation between valuations and transaction prices
was again arrived at. Lizieri and Vienmore–Rowland [1991] questioned the statistical
methodology adopted by Brown and IPD/Drivers Jonas. The examined data and size
effects and concluded that the statistical methodology adopted by IPD/Drivers Jonas
[1988, 1990] and Brown [1991] was flawed. Matysiak and Wang [1995] also analyzed
317 sets (obtained from the Jones Lang, Lasalle Property Performance Analysis System
(PPAS) of valuation and transaction data covering the period 1978 to 1991. They found
that the probability of achieving a selling price with ±10% of the valuation was only 30%,
rising to a probability of 55% within 15% of the valuation and 70% within ±20% of the
valuation.
Recently, Mokrane [2002] addressed issues of valuation accuracy and consistency in five
countries of which UK is included. He covered a period of 1990 – 2000 and arrived at the
conclusion that there exists only a short “distance” between transaction sales and adjusted
valuations. Mokrane [2002] also addressed issues of valuation accuracy and consistency
in four other counties - France, Germany, the Netherlands and Sweden. The accuracy
682 Ogunba
tests made provision for the adjustment of previous valuation for market movements and
capital expenditures and receipts that may have taken place between the valuation date
and transaction date. On France, Mokrane’s study covered the period of 1997-2000 and
about 2000 properties. He arrived at the conclusion that the level of accuracy results is
satisfactory. He pointed out that the skewness arrived at was positive indicating that
valuations slightly lag the market. In Sweden, Mokrane, covered a period of 1997 – 2000
and studied an average number of 1800 properties. considering consistency he found that
the change-in-valuer effect was statistically significant. On accuracy, he found out that
there was positive skew ness, which is indicative of the fact that valuations slightly lag
the market. With regard to the Netherlands, Mokrane covered the period 1999 to 2000.
On accuracy, he arrived at the conclusion that valuations slightly lag the market. His
analysis in this regard covered a period of 1999-2000 with four hundred and fifty-six
sales considered. The period 1997-2000 was the focus in the consistency study in
Germany. On accuracy, he considered one hundred and ninety-five sales and found out
that there was a slight lag between adjusted valuations and sale price.
Prior studies in Nigeria have been preliminary, focused on only one metropolis. Ogunba
[1997] and Ogunba & Ajayi [1998] took the first major step to empirically study of
accuracy and variation in investment valuations in Nigeria. They analyzed the capital
value estimates from thirty valuation firms in Lagos State metropolis who were asked to
value two properties; on the basis of a variety of tests (i.e. the range, interquatile range,
mean-deviation from market price, regression and correlation analysis). They concluded
from their findings that valuations are not a very good proxy for market prices, since all
the measures of dispersion adopted demonstrated a dispersion of values far in excess of
the norm of ±5%. Aluko [2000] carried out study of 59 firms’ prior valuations of
foreclosed mortgage interests in Lagos State metropolis. Using regression/ANOVA-based
tests, he concluded that valuations are a good proxy for price and that despite anecdotal
evidence to the contrary, mortgage valuers are doing a very good job of price estimation.
Ogunba [1997] extended the accuracy discussion to an examination of factors responsible
for inaccuracy. He drew from Bains’ [1968] work in industrial economics. Bain’s theory
is called the structure-conduct-performance theory. Bain’s main postulation was that if
industrial performance is faulty, then causes for this can be found first in the conduct of
the industry and ultimately in the structure of the industry. Ogunba [1997] applied this to
the valuation industry, and consequently envisaged that if freehold valuation performance
is faulty (i.e. if valuations are inaccurate), then factors responsible for this can be found
primarily in valuation conduct (that is, the differential or wrong use of three valuation
inputs: rental value, outgoings and yield). He suggested that somewhat more remotely,
causal factors can be found in valuation structure (the way education and practice is
organized) Specifically, valuation accuracy is affected by the type of training and
qualification of respondents e.g. HND versus B.Sc.; the length of professional experience
and the departmental structure of firms (general practice versus specialization in
valuation). These postulations require empirical consideration. This paper examines the
proposition by evaluating whether inaccuracy (if it is proved) can be traced to factors in
the conduct and structure of Nigerian valuation practice.
Research methodology
Valuation Accuracy in Nigeria 683
Data collection was in 2003. The sample frame for the survey was obtained from the
Directory of Estate Surveyors and Valuers in Nigeria [NIESV, 2002] which gave the total
population of valuation firms in the study area (the six states in southwestern Nigeria) as
two hundred and sixty-six (266). The break down shows that Lagos State has a total
number of 228 firms, Ogun state 2; Ondo state 3; Ekiti state 0 (and therefore this state is
excluded form consideration); Oyo state 20; and Osun state 3. A sample size of seventy-
five percent (75%) of the sample frame in each of the states was adopted as follows: Total
sample size - 75% of 266 = 199.5: Lagos State State: (171); Ogun (1.5 rounded up to 2);
Oyo: (15); Osun: (2.25 rounded up to 2); Ondo: (9.75 rounded up to 10). Stratified
systematic sampling was adopted as most appropriate for the study. The data collection
instrument was questionnaires administered through field assistants. Respondents were
asked to estimate the most likely selling price of eleven residential properties located
within their own state, very recently sold by private treaty The sale prices were not made
known to the respondents. The respondents all indicated that they had valuation
experience of residential properties located within their state. Duly completed
questionnaires represented just about 22.5% of the sample size. Osun State and Ogun
State recorded 100% while Ondo State, Oyo State and Lagos State recorded 70%, 46.7 %
and 15.8% respectively. We believe nevertheless, that the data obtained adequately
reflects the market in the study areas. The data was analyzed by means of several
statistical measures including the range, interquartile range, mean deviation [the approach
of Hager & Lord, 1985], regression analysis [the approach of Brown, 1985 and the IPD,
1990 etc] and ANOVA.
The Results
(a) Range/Interquartile range - The range is the difference between the highest valuation
estimate and the lowest estimate. In using this technique, we define the standard of
accuracy by a range not exceeding N 500,000 (this seems to be the maximum range
Nigerian clients can accept according to Akinremi, 2004). The interquartile range
provides the range of the more accurate 50% of valuations (i.e. third quartile – first
quartile of valuations). For accuracy, this should not exceed N 250,000 according to
Akinremi, [2004] The range/interquartile ranges of the valuations in the five states are
represented below:
The above ranges are much higher than the ranges expected by clients as suggested by
Akinremi, [2004], particularly those for Lagos State.
(b) Mean deviation from market price - Mean deviation from market price refers to the
mean (in absolute values) of the distances of the valuations from the actual market price.
Mathematically, this is represented by the expression:
(c) Regression analysis - Drawing from UK regression based tests, we note that accuracy
is measured by whether the slopes of the regression equations are statistically
distinguishable from one and the intercepts are from zero. In the Nigerian test, sales
prices were regressed into corresponding valuation estimates with the following results:
and the respective intercepts are distinguishable from zero. The summary R2 shows that
of the sales prices can be explained by the valuations to a 58.6% level. We conclude that
there is some disparity between valuation and market price in each of the locations.
(d) Analysis of variance (ANOVA) - The results obtained from the analysis of variance of
valuations versus prices are presented in the table below. Accuracy is measured by testing
the hypothesis that value (V) is statistically equal to price (P). This can be seen through
the p value. A p value beyond 0.05% suggests that V is not equal to P.
Generally, the p values suggest that for southwestern Nigeria, valuations and market
prices are not uniformly equal. The very bad case is that of Ogun state.
Having concluded that valuations are not a very accurate proxy for market prices, the
attempt here is to investigate the causes using Ogunba’s [1997] adaptation of Bain’s
[1968] structure-conduct-performance theory. As stated in the literature review, Ogunba
suggested that if valuations are inaccurate, then reasons for this can be found in conduct
(the use of valuation inputs) and ultimately in valuation structure (the way education and
practice is organized). The paper’s evaluation of valuation conduct (the use of valuation
inputs) focuses on an examination of valuers’ usage of outgoings, rental values and yield
in the sales valuation calculations in respondent questionnaires. Leasehold valuations are
not common in Nigeria and are therefore excluded from the analysis.
(i) Outgoings - Respondents were asked if they make deductions for outgoings. 84.44%
stated they do make deductions, while 8.88% do not. Even among those who do deduct
for outgoings in calculations, the manner of deduction is not uniform. The majority
(63.16%) said they provide for outgoings based on actual outgoing expenditure, while
21.05% use rule of thumb rates for property types. Others (7.89%) use a rule of thumb
rate for all properties. The inconsistent determination of net rental value is a clear
pointer to inconsistent valuations.
(ii) Rental Value - In evaluating the impact of the manner of estimation of rental value on
valuation accuracy, the approach was to examine the mean deviation of rental value
estimates of valuers in respect of the eleven properties valued. The ranges vary
between 2.04% (Ondo State) to 42.7% (Lagos State). Only the Ondo State valuations
fell within a + 10%. This validates Ogunba (1997’s proposition; faulty estimation of
rental value is a cause of valuation inaccuracy.
(iii) Yield – Reponses to questions showed that the manner of determining the yield for
use in investment valuation calculations varies from firm to firm. Some calculate the
686 Ogunba
yield from current market evidence while others rely on rules of thumb established
from past general evidence for the property type or location. The differential use of
inputs is therefore a probable cause of inaccuracy and inconsistency.
Following Ogunba’s adaptation of Bain’s theory, the causes of valuation inaccuracy can
in turn be traced to industrial structure (the educational and practice structure of the
valuation profession). In this section, the attempt is to determine if the educational and
practice structure of the valuation industry contributes to the causes of valuation
inaccuracy. Drawing from the literature review [specifically,. Ogunba, 1997], a number of
factors were considered. These include the type of training and qualification of
respondents, the length of professional experience and the departmental structure of firms
(general practice versus specialization in valuation). The procedure is to examine the
relative accuracy of valuations of respondents of differing educational background and
practice structure. First, market prices were regressed on the valuations of respondents of
different educational attainments (HND holders, B.Sc. holders only and those who have
professional qualifications - ANIVS/ FNIVS). The results are as follows:
The test of accuracy is the extent to which the slope factor is statistically distinguishable
from one and. the intercept from zero. On this basis, the ANIVS/FNIVS valuations are
obviously more accurate. This agrees with Ogunba’s [1997] suggestion that valuation
accuracy is affected by type of training. For increased accuracy therefore, firms should
not allow any degree/diploma holder without professional qualifications to handle
valuations.
Second, market prices were regressed on the valuations of respondents with varying years
of professional experience with the following results:
The intercept –slope test and the R2 show that those with higher professional experience
(i.e. above 10 years) are better predictors of price. Valuation inexperience can therefore
be accepted as one of the structural factors of inaccuracy, which should be addressed.
The intercept –slope test and the R2 suggest that that specialization increases accuracy. An
increased level of specialization in practice might yield more accurate results.
Concluding remarks
The study has shown that it is possible to conduct an in-depth accuracy study in a
developing country in the absence of a property database such as the IPD in the UK. The
procedure was to request valuers to value properties recently sold without being aware of
sales prices. We suggest that other developing countries faced with an absence of
databases can adopt the paper’s procedure so that their valuation professions can ascertain
how accurate their valuation estimates are and thereby undertake corrective action, if
found necessary.
There is a significant degree of valuation inaccuracy in the Nigerian situation. The paper
has identified causes from an examination of the conduct of valuation practitioners as
well as the educational and practice structure of the valuation industry using the structure
conduct performance theory as adapted by Ogunba [1997]. The Nigerian inaccuracy
problem is not insurmountable, and we offer a number of suggestions to assist in the
search for greater accuracy: First, we believe that the regulatory institutions (The
Nigerian Institution of Estate Surveyors and Valuers and Estate Surveyors and Valuers
Registration Board of Nigeria) should facilitate a regularly updated property databank to
which all surveyors would have access. Secondly, a valuation or practice standard
handbook (similar to UK’S Red Book) should be made to aid standardization and
uniformity in the conduct of valuations. We must also advise that estate surveying and
valuation firms should adopt a departmentalized structure that will encourage
specialization and make use of only experienced professionally qualified staff for
valuations.
REFERENCES
ABSTRACT
Several developed countries have since the 1960s employed a variety of probabilistic
techniques for addressing downside risk in pre development viability appraisals. In
contrast, pre development risk adjustment in Nigeria is still done by rudimentary
methods. The paper explores perceptions of three stakeholders (development surveyors,
development lenders and corporate developers) on what Nigerian property appraisers
should do to fully adopt probabilistic risk adjustment and reap benefits of globalization.
Surveys in this regard covered the six states of southwestern Nigeria. Questions sought
answers to two issues: reasons for non-use of probabilistic analysis, and most appropriate
technique for the country. Responses demonstrated that the three stakeholders do not
employ quantitative risk adjustment by reason of lack of training in probabilistic risk
analysis, the complexity of the techniques’ statistical requirements, the absence of
computer programs and the absence of a property database.
The appropriate risk adjustment technique for Nigerian development appraisals in the
short term was recommended as an adaptation of sensitivity analysis, while for the long
term, the paper emphasized the embracing of probabilistic techniques. To facilitate this,
there would be need for a property database, substantial re-education in risk analysis and
statistics, availability of computers and empowerment in its use.
INTRODUCTION
Property developers the world over are often confronted with a situation of economic
volatility, which makes estimates of costs, returns and profit diverge significantly from
actual results, with the result that predevelopment predictions of financial viability are
rendered futile. In fact, Ratcliffe & Stubbs [1996 p. 280] have pointed out that “risk is the
very business of property development and uncertainty the prevailing climate within
which development takes place”. It is therefore advisable to begin the management of this
risk in the financial analysis prior to construction work. A well-prepared risk analysis in
pre-development appraisal provides a substantial level of professional shielding of
property developers from the ravages of risk and volatility [Baum, Mackmin &
690 Ogunba
Nunnington, 1997 p. 152]. Indeed, risk is the fundamental focus of all modern investment
analysis [Baum & Crosby, 1988, p. 211].
In this paper, risk is defined from the downside perspective as the possibility of achieving
a lower developer’s return than expected. In other words, our consideration of risk
focuses on the expectation that construction costs may be higher than expected, the cost
of borrowed funds may be higher than expected, rents expected in the future may not be
realized, increases in rent may not occur when expected, the investment may not realize
the principal sum, the property may be out-performed by other investments etc.
Unfortunately, the observation is that in parts of the developing world such as Nigeria,
risk analysis in pre-development viability appraisals is almost non-existent, or at least
does not exist in the vigorous probabilistic format which are at times seen in countries
like the US and UK [Ogunba, 2002]. Looked at from viewpoint of globalization, the
lopsided nature of use of probabilistic risk analysis by advisers of property developers
across the developed and developing world has sober consequences. This paper examines
these consequences and seeks ways to redress the international imbalance in professional
appraisal evolution. The focus is on a developing country – Nigeria, but it is hoped that
the results might be useful to other developing countries.
Across the world, a large number of development projects that were advised by estate
surveyors - by way of pre-development appraisal reports - have turned out to be
unprofitable, by reason of higher interest rates than anticipated on non-equity funds, or
upward variations in estimated construction costs [Cadman & Austin-Crowe, 1978 in the
UK; Thal, 1982 in the US; Ajayi, 1996 and Ogunba, 2002 in Nigeria etc]. From the
demand viewpoint, there have similarly been several instances of lower than expected
yields and longer void periods than anticipated. It certainly appears that in a large number
of cases, development appraisers (estate surveyors) have not making accurate predictions
in their development appraisals. This problem, which began to be noticed in the late
1960s, has not been peculiar to developing countries alone. As far back as 1982, Thal
[1982] for instance, pointed out that in the United States, virtually every real estate
disaster is preceded by at least one feasibility analysis that assured its success.
Correspondingly, in the U.K., Cadman & Austin-Crowe [1978 p. 16] also point out that
as far back as the late 1973 – 1974 period, several developments with optimistic viability
reports began to be shocked by higher than expected interest rates, lower than expected
building prices, long void periods, higher than expected building costs and property
losses. In Nigeria, a developing country, Ajayi [1996] has made the similar observations
especially from the1980s.
discount rates and mean variance analysis (certainty equivalents) respectively. Marshall
& Kennedy [1992] shows that 5% of UK practitioners used Monte Carlo simulation. In
the Netherlands, Dirk & DeWitt [1996, p. 132 – 135] indicated that 31% of appraisers
employed risk adjustment in development appraisal while in Australia, Boyd & Schwartz
[1991 p. 361 – 73] showed that up to 90 per cent of appraisers “corrected for risk
explicitly”. It appears that this evolution towards probabilistic risk analysis has not been
not followed in developing countries. There are consequently yawning disparities in the
balance of teaching and practice of probabilistic risk analysis between developed and
developing countries. In Nigeria where the present study is focused, it has been
established that when surveyors do adjust for pre development risk, they to do so by
means of rudimentary adjustments of volatile variables such as construction costs rather
than through probabilistic analysis [Ogunba, 2002]. A similar position might be true of
most of the developing countries of Africa and perhaps Asia.
The seriousness lies first in the allegation of unreliability - that professional advisers in
the property development market of the developing countries are finding it difficult to
predict the development variables accurately in an atmosphere of volatility. Second, is the
observation that against the background of unreliability, inadequate consideration of risk
(that is, inadequate attention to measurement of the probabilities possible outcomes of
appraisal estimates) by second and third world development appraisers makes their
appraisal practice lag far behind the rest of the world. No profession should remain static
in a world increasingly characterized by rapid advances, lest it become obsolete. There is
the danger that in a globalized market, sophisticated clients may consider appraisal
practice in developing countries an anachronism and shift their patronage elsewhere. To
avoid the charge of becoming out of date, there is a basic need for studies on how
development appraisal in Nigeria and the developing world can become more
sophisticated to face mounting challenges of a more complex and demanding
international investment market.
In response to this problem, some questions agitate the mind: Would Nigerian
development appraisers (estate surveyors) be prepared to make a change toward
quantitative assessment of risk? If not, what are their constraints? Can the constraints be
addressed? With these questions in mind, the paper adopts the aim of identifying
prospects and implementation hurdles facing a developing country - Nigeria - in the
process of catching up with the rest of the developed world in the adoption of
probabilistic risk analysis in development appraisals. It is hoped that the results of this
692 Ogunba
study would be useful to policy makers in Nigeria and other developing countries of Asia
and Africa.
The residual method of valuation is the financial technique used (the world over), to
appraise the expected level of developers profit in development valuation. The technique
involves deducting the total development costs from the total expected development
revenues of a proposed property development.
Development appraisal before the 1960 was unmodified for risk (i.e deterministic). In
other words, the appraisers estimates - in the traditional format - were point estimates,
meaning that there is no provision made for flexibility of expectations. With increasing
volatility in world economies and the inflationary effects on variables used to calculate
developer’s profit, appraisers in countries such as the US began to account for risk in one
form or the other in their pre-development viability appraisal.
Initially, the risk adjustment was not always by probabilistic means. Literature suggests
that risk adjustment evolved from simple adjustments of development variables along the
lines of a worst-case scenario in the calculation of developers profit [Dubben & Sayce,
1991, p. 133; Harvey, 2000, p. 83]. This most basic form of risk adjustment (rudimentary
risk adjustment) is often intuitive and deterministic. Typically, the appraiser starts by
identifying best estimates of variables (usually what currently obtains), and then
intuitively adjusts them (i.e. adds a risk premium) to conform with his somewhat more
pessimistic expectations. For example, construction costs can be calculated as somewhat
higher than what currently obtains and rental values can be calculated as lower than what
currently obtains. Ajayi’s [1996, p. 37] paper suggests that this is the form of risk
adjustment popular among Nigerian development analysts and investors who have
“traditionally declined to attempt quantification of perceived risk”. In other words,
Nigerian valuers have not evolved beyond rudimentary risk adjustment. This is likely to
be the pervasive position in most of the developing world.
From the 1960s, quite a significant number of more sophisticated techniques that account
for risk explicitly were developed in finance literature. These challenged the determinism
that characterized the unmodified residual method of valuation and the rudimentary risk
adjustments that went with it. The essence of these new techniques was to provide a more
detailed, explicit and clearer incorporation of the downside risks inherent in the
development process into development appraisal and thereby facilitate more rational and
informed decisions before the commencement of investment/development. They include
the following:
(a) Sensitivity Analysis, which seeks to answer the question: the performance of any
investment is the product of many variable factors. If any factor changes, what effect
will that have on the overall performance? Are there any factors that will have a
greater effect than others? The investor is then able to pinpoint those variables that
require additional care in valuation and management.
Risk in Nigerian Development Appraisal 693
The literature suggests that these quantitative risk explicit techniques have come into
various degrees of use in the developed countries. For example Louargand [1992, p.367]
suggests that the techniques are “routinely taught in US business schools” though he
observed that the level of actual usage does not faithfully match the level of teaching. In
the UK, literature points out that appraisal practice has tended to favour probabilistic
techniques such as risk-adjusted discount rates [Dubben & Sayce, 1991 p. 150] or
certainty equivalent cash flows [Baum et. al., 1997, p 142] for appraising development
projects. In Australia, a survey conducted by Boyd & Schwartz [1991 p. 361 – 73],
showed that the use of risk adjustment in development appraisal was very pervasive;
indeed, up to 90 per cent of appraisers “corrected for risk explicitly” In the Netherlands,
Dirk & DeWitt [1996, p. 132 – 135] who surveyed about two hundred real estate
respondents found that 31% of appraisers employed risk adjustment in development
appraisal. However in Nigeria - which is perhaps a classical example of a developing
country - a study by Ogunba [2002] showed that the use of sensitivity analysis or
probabilistic methods was almost non-existent. Appraisers generally preferred to adjust
for risk by means of rudimentary adjustments of volatile variables.
The essence of this paper is to examine reasons for this disparity in risk adjustment and
examine perceptions on how the imbalance between developed and developing countries
can be rectified. There is a gap in the literature on this area. We intend to begin the
process of filling the gap through an examination of the perspectives of various
stakeholders.
694 Ogunba
Research method
Three groups (corporate developers, the development lenders and the appraisers) were
chosen as the study groups for this study. The study area was southwestern Nigeria,
which consists of six states (Lagos, Oyo, Ogun, Ondo, Osun and Ekiti states). The
sample frames for surveying firms (261), development lenders (122) and corporate
property developers (19) in southwestern Nigeria were obtained from the Directories of
the Nigerian Institution of Estate Surveyors and Valuers, the Central Bank of Nigeria and
the Nigerian Stock Exchange/State government records respectively. In defining a
suitable size of sample for this study, the researcher employed a demographic formula in
calculating how large a sample of appraisers (n1) and bankers (n2) and corporate
developers (n3) should be taken in order to be 95% confident that the probable error - of
using a sample rather than surveying the whole population - will not exceed 0.05%. With
this procedure, sample sizes of 193 surveying firms, 111 development lenders and 18
corporate developers were considered satisfactory, and these were distributed
proportionally (with reference to the sample frame) between the six states. The sampling
method considered as most adequate within each state was systematic sampling, though,
for reasons of exigency, the research eventually had to adopt purposive sampling. The
researcher and his field assistants had interviews with the selected respondents based on
structured questionnaires. A total of 113, 32 and 10 responses were obtained for surveyors,
lenders and corporate developers respectively.
The findings
Data was collected and analyzed between August 2000 and May 2001. Questions sought
answers to two issues: reasons for non-use of probabilistic analysis, and most appropriate
technique for the country. The results are as follows:
The main reason for the non-use of probabilistic methods is that they are statistically
complex (Table 1 shows that 64.6% of respondents are of this opinion); property data
banks are unavailable, (46.0% of respondents); and respondents were unaware of such
methods (36.3% of respondents). It is obvious that a lot of implementation hurdles exist
in the direction of implementing the probabilistic methods in Nigeria.
Table 1: Surveyors’ Reasons for Not Presently Employing Probabilistic Risk Analysis
Inquiry was made into what benefits were anticipated from adopting probabilistic
methods. The results are as contained in Table 2. The responses show that 58.4 per cent
of respondents believe that the beneficial consequences of adoption of risk analysis would
be less development failure while 31.9 per cent believe that clients would be permitted a
wider choice based on their risk profile.
Respondents were asked whether they possess certain rudiments for successfully
operating probabilistic methods of development appraisal. The responses to this inquiry
are outlined in Table 3. From a consideration of the Table, it becomes obvious that a large
number of respondents have a computer (81%) and consider themselves proficient in
statistics (67.3%). However, the majority of respondents do not possess proficiency in the
use of computers for spreadsheet purposes (55.8%) and do not possess a computer
program for calculating development risk explicitly (78.8%). They are therefore
inadequately equipped for the challenges of employing probabilistic methods.
Respondents who believe the property market is ready for risk analysis in the near future
were asked to give reasons for this answer. Responses are as contained in Table 4. The
majority (12.4%) believe that investors are now more enlightened in risk analysis and
appraisals should therefore follow suit. Others (4.4%) believe that the property market is
ready for such adjustment, as moves to acquire a property data bank by the Institution of
Estate Surveyors and Valuers are at an advanced stage. Some surveyors (1.8%) are of the
opinion that risk analysis should be adopted to stem the tide of development failure,
whilst a few surveyors (0.9%) say probabilistic analysis is required to meet the need of
the increasing number of risk sophisticated foreign investors. The missing responses
696 Ogunba
(80.5%) refer to those surveyors who do not feel the property market is ready for
sophisticated risk analysis.
Table 4: Reasons For Signifying That the Property Market is Ready for Quantitative Risk
Analysis and Adjustment
As a corollary to the above question, respondents who believe the property market is not
ready in the near future were asked to adduce reasons. Responses are in Table 5. The
table shows that 73% of respondents believe the absence of a property database is a major
drawback to adoption of probabilistic risk adjustment. This is followed by those who
believe that practitioners are not sufficiently versed in software packages (59.3%) A
significant percentage of respondents (38.9%) believe that the absence of computer
programs is a strong drawback. A surprising response is that of a small number of
respondents (4.4%) who say “risk analysis is not important in practice”. The last response
is of course an unfortunate one; especially viewed against the background of the
substantial worldwide economic volatility, which has induced several unsuccessful
developments.
Table 5: Reasons for believing the property market is not ready for quantitative risk
analysis and adjustment
Next, respondents were asked what they would like to see done before they made a
change over to probabilistic risk analysis. Responses are reported in Table 6. The highest
response in the above table (28.3%), .is that of those who believe that training workshops
should precede the adoption of probabilistic risk adjustment methods. This is followed by
those who believe there should be the development of risk adjustment software (27.4%).
Some respondents (6.2%) believe there should be a more stable economy, ostensibly
because they want to make predictions that are more accurate. However, this is not a very
good prerequisite, because the purpose of risk analysis is to address volatility. To insist on
the reduction of volatility before adopting a measure to address volatility is paradoxical.
CONCLUSION REMARKS
From the above responses, certain conclusions can be drawn. All three stakeholders
(surveyors, development lenders and corporate developers) would wish to adopt
probabilistic risk adjustment in the foreseeable future due to envisaged substantial
benefits. Obviously, in this developing country, there is substantial awareness of potential
benefits of a risk-sophisticated approach to development appraisal. The three stakeholders
however consider themselves unready for quantitative risk adjustment in the near future
by reason of the complexity of its statistical requirement, and the absence of computer
programs. Such complexities draw attention to the fact that readiness for sophistication in
risk adjustment in developing countries must be approached against the background of
possession of rudiments for sophistication and an enabling environment. A large number
of respondents have a computer and consider themselves proficient in statistics. However,
the majority of respondents do not possess proficiency in the use of computers for
spreadsheet purposes and do not possess a computer program for calculating development
risk explicitly. Moreover, there is currently no functioning property database. The
valuation profession is therefore not adequately equipped for the challenges of
globalization through the use of probabilistic methods. This is the reason that the majority
698 Ogunba
of respondents believe that Nigeria is not ready for probabilistic risk adjustment right now
(see Table 5). The provision of an enabling environment would certainly be one of the
ways forward for adoption of probabilistic methods. To address these and other
implementation hurdles, respondents rightly point out that there should be training
workshops, the development of local risk adjustment software and the speedy
implementation of an institutionalized data bank.
REFERENCES
A. ENSHASSI
Civil Engineering Department, Islamic University of Gaza, Gaza, Palestine
enshassi@mail.iugaza.edu
S. A. TAHA,
Engineering and Management Consulting Center, Gaza, Palestine
P. E. MAYER
Lehrustuhl Für Tunnelbau und Baubetriebslehre, TUM, Germany
ABSTRACT
The current crises in the West Bank and Gaza Strip has created extreme levels of
unemployment and a related decrease in overall economic activity. At the same time, the
social services, as well as the social and economic infrastructure remain inadequate and in
an urgent need for improvement and expansion. The closure and armed confrontation
have a direct impact upon infrastructure, agriculture, public buildings and private
buildings. The municipalities have commonly been forced to eliminate new projects. As
from September 2000, several donors committed funds for emergency job creation. The
primary objective of such programs is to relieve economic hardship by creating temporary
jobs by offering short term contracts and low wages. This study includes a list of
emergency job creation projects with a total of US$ 11,559,087 which is disbursed
through four emergency programs during Al Aqsa Intifada period (September 2000 –
March 2003). The allocated total fund of these projects was US$ 12,750,000. About 178
of small scale, emergency and labor-intensive projects were implemented. The aim of
this paper is to assess the achievement and efficiency of emergency projects, selection
criteria, procedural and contractual aspects, financial aspects, responsibilities,
employment generation and the managerial development during the two years period in
Gaza Strip.
INTRODUCTION
The loss of unemployment and income has negatively impacted the ability of Palestinian
municipalities and local authorities to provide basic services to a population already at
growing risk because it has reduced municipal revenues. At the municipal level, the
pressure on the budget is also severe. Municipalities revenues in the Gaza strip declined
704 Enhassi, Taha and Mayer
largely because consumers cannot pay water and electricity charges. These municipalities
have been forced to reduce overall expenditures compared with pre-Intifada levels.
The current crises in the West Bank and Gaza Strip has created extreme levels of
unemployment and a related decrease in overall economic activity. At the same time, the
social services, as well as the social and economic infrastructure (roads, water,
wastewater systems, agriculture, and public facilities, such as schools, health centers,
parks, etc.) remain inadequate and in urgent need for improvement and expansion. Both
financial and human resource constraints prevent the Palestinian Authority (PA) and its
institutions and municipalities from meeting these infrastructure and services needs,
which are increasing constantly as a result of rapid population growth.
Upon the start of Al Aqsa Intifada most of infrastructure projects in Gaza Strip have been
directed towards emergency programs and projects that have been committed by donors
to relieve economic hardship. The infrastructure projects in this period have been
characterized by flexibility, small size and fast disbursement. Procurement rules have
been simplified and procedures decentralized, with an increasing trend toward
consultation with municipalities and village councils on the choice and design of projects.
The crisis in Palestinian Territories has caused severe economic shocks to the Palestinian
economy due to the escalating of Israeli-Palestinian conflict. Several International
Agencies decided to initiate emergency measures in Palestine through the Peace Facility
administered by the World Bank. The Emergency Projects are dedicated to finance small
sub-projects in the social development sector and providing emergency employment
opportunities in the construction sector in Palestine.
Targeted communities
In general, the projects targeted the whole municipalities and Village councils of Gaza
Strip, except the Emergency Job Creation Project that funded by DANIDA (EJCP-
DANIDA), which targeted the middle area only, LGUs (Local governmental Units) and
some of the local benevolent institutions.
Background
Several countries and institutions that have been working with infrastructure have
developed methodologies for implementing labor-intensive projects. These projects have
positively contributed to the development of job creation programs. The following
examples show some of international experiences in this field.
and local economic development, it is up to rural people to make it work for them. The
Government of South Africa is committed to basic levels of infrastructure development,
for instance in water availability, sanitation, access to schools and clinics road
development and energy provision. All of these will reduce the burden of poverty in rural
areas, and allow rural people to invest their time more productively and so contribute to
national growth [Notice 1153, (1995)].
Developing the private sector capacity in the UK is in need for integrated technical and
business training and draws upon the experience of the International Labor Office. The
small-scale enterprises offer a variety of advantages [Miles, (1994)]:
Making use of materials and resources that may otherwise not be drawn into the
development process;
Creating jobs at relatively low capital cost (small-scale contractors are more liable to
choose employment-intensive solutions than large contractors);
Providing a vehicle for introducing a more equitable income distribution;
Employing workers with limited formal training, who then learn skills on the job and
provide a pool of local skills that will favor future economic development;
Improving forward and backward linkages between economically, socially and
geographically diverse sectors of the economy;
Providing opportunities for developing and adapting appropriate technological and
managerial approaches;
Promoting special subcontracting arrangements and acting as ancillaries to large-
scale enterprises; and (last but far from least in a turbulent environment)
Adapting flexibly to market changes.
Several emergency job creation projects were implemented since the beginning of Al
Aqsa Intifada in September 2000 in West Bank and Gaza Strip. The emergency programs
included projects that targeting two levels of development; national and municipal level.
National projects were targeted the Palestinian ministries, municipalities, other
governmental organizations and Non-Governmental Organizations (NGOs). Municipal
Projects were targeted the municipal projects and some NGOs. This paper discusses only
infrastructure emergency job creation projects that were implemented in Gaza Strip at the
706 Enhassi, Taha and Mayer
municipal level. These programs targeted unemployed workers through labor intensive
and emergency employment activities.
The implemented infrastructure job creation projects at the municipal level targeted
municipalities and village councils in Gaza Strip. The EJCP – DANIDA project targeted
specifically the middle area of Gaza Strip municipalities, village councils and local non-
governmental organizations.
The projects at national level targeted ministries, municipalities, village councils and
other governmental institutions. An example of the national level projects is the Islamic
development bank- Arab Summit League. The program was proposed after the Arab
League summit in Cairo at the beginning of Al Aqsa Intifada. About US$ 0.8 million was
allocated to help the Palestinian people. This program targeted several ministries,
municipalities, university students and benevolent non-governmental organizations.
Another example is the Emergency Services Support Program (ESSP). The World Bank
has prepared the project to finance part of the needs for services in response to the
numerous requests for emergency assistance from municipalities. The ESSP is in the
amount of US$ 20 million from International Development Association (IDA) and is
considered as a credit to respond positively to the emergency needs, mitigate the
Assessment of the emergency job creation projects in Palestine 707
deterioration of basic services and municipal services. After closing the first phase of
ESSP (ESSP-I), the World Bank and the funding agencies proposed the second phase
(ESSP-II) and trust fund agreement (US$25 million funded by the World Bank).
The maximum allowed value of the projects controls the components of the proposed
projects and its sector and method of achievement. The funding agencies have identified
a maximum value of the sub-project that proposed under their funds. The following
observations were recorded:
The contracted values of all projects were below the estimated values. Only the
ERSP which has a contracted value more than the estimated value by US$ 75,000 as
approving the initial short list of projects to included 95 projects instead of 92
projects. The lower contracted values were justified as the high level of competition
between the local contractors and their willingness to work with low rate of profit.
Table 1 Illustrates the allocated fund, estimated cost of sub projects and the
contracted cost.
The lower maximum value of sub-project helps to serve more communities by
distributing the allocated fund between more projects in different communities.
The projects improved the services provision conditions in the targeted communities
as the programs implemented several basic infrastructure services. Table 2 shows
the achievement of job creation projects components and targeted sectors.
Employment Generation
The aim of the implemented emergency projects was to ease the unemployment crisis
resulting from the prevailing hard political situation in Palestinian territories. So, the
projects were labor intensive and it was stipulated in the contract documents that
contractors should not use machinery for such activities that can be performed by labor.
It was also enforced labor employment with a minimum percentage (20-25%) of the
contracted value of each project. Each municipality or village council employed a clerk
to monitor the employment of labors in the projects site. As shown from Table 2, the
lower project contracted cost the higher percentage achievement of job opportunities. In
general, for the most implemented sub-projects through the emergency programs the
actual generated employment was less than that committed by contractors in the
contracts.
All the listed Job Creation figures are the direct employment on the work activities in the
site of project. Several employment opportunities also were achieved for the involved
parties; implementing agency (PECDAR or MOLG), Owner (LGUs) and the Consultants
in addition to create indirect job opportunities to workers in the local workshop and
factories. After implementing the first emergency project (ERSP) which achieved the
required labor content, the administrator and the implementing agencies decide that it is
708 Enhassi, Taha and Mayer
possible to increase the labor content from 20% to 25% of the total contracted value of
each project. The contractors were requested to submit a list of total labor employed
during the project activities.
MANAGERIAL ISSUES
Appraisal and identification reports that described the sub-projects and their objectives,
technical issues, beneficiaries, environmental and social impacts and priorities were
conducted before approving the initial list of the sub-projects for three of the projects;
EJCP funded by DANIDA, IDB and DFID.
In general, the projects were selected considering the following criteria:
Several institutions were involved in project's phases. Each institution has a sit of
responsibilities. There was an administer, implementing, implementing agency, owner
and consultant.
The role of the World Bank was to make available the required fund for the program to
facilitate processing the weekly payment to contractors. The responsibilities of the Bank
included:
Approve the accounting, auditing and reporting procedure set by MLG.
Approve the fund allocation and project selection criteria set by MLG.
Approve the technical and financial reports prepared by the Auditors.
Conduct spot site visits to selected projects to monitor the general progress of work.
The owners (municipalities and village councils) are the main beneficiaries from the
infrastructure development projects, which support the municipalities and help them to
complete their development plans. As proposed, the municipalities and village councils
have several roles; identify the priority projects, prepare design and projects documents,
assign a local supervisor engineer and review the payments certificates before submission
to the implementing agency. According to the revision of the available documents and
discussion with key staff from the key involved institutions; World Bank, PECDAR,
710 Enhassi, Taha and Mayer
Establish criteria for selection of appropriate projects for implementation and approve
lists of LGUs priority projects.
Review the project contracts, drawings and documents before tendering and Participate in
bid evaluation.
Conduct site visits to monitor the work activities.
Review the financial and technical reports of the program.
PECDAR, was involved with three projects only as shown in table 2. The main
responsibilities of PECDAR were:
Review the monthly reports of the technical, financial, environmental and social
consultant audits.
For all emergency programs that were implementing and administered by the World Bank
a local consultant was appointed in order to assist the involved parties in the technical and
financial activities of the projects. The higher supervision and role of the consultant in
the emergency projects was to:
Contract types
Three procurement methods were used in EJCP to provide flexibility and speed up the
disbursement process, thus coping with the urgent needs of the area for immediate
employment opportunities and support to the labor sector that was hardly impacted by the
closure of Gaza Strip.
Price Quotation: The tender was awarded to the least cost responsive bid. Contracts were
awarded to the lowest evaluated cost responsive bid advertisement in newspapers.
Direct Hire: The municipality or village council can directly hire the services of a
contractor if they can justify his selection. The contractor’s offer is negotiated based on
the prevailing local market prices of similar activities or materials.
Force Account: The municipality or village council can use their own resources or
directly employ labor to execute the activities. They also provide the materials through
the project account.
Shopping: The owner buy the required material needed from the local market after
negotiated the quotation collected from the suppliers with the implementing agency.
Table 5 summarizes the most contract type that was used with the implemented
emergency projects.
712 Enhassi, Taha and Mayer
ERSP (92) Projects: Price Quotation, (2) projects: Direct Hire and (1) project:
Force Account
The Emergency Projects are characterized by fast and easy procurement and
disbursement process. Most of projects were completed according to the approved
timetable, others finished after few days, and few projects were delayed to weeks or
months. The main reason of delay was the closure of the Palestinian areas and limitation
of construction materials mainly with the first implemented project, ERSP.
In general, most payments were received by contractors after submission to the LGUs or
the implementing agency within 3 weeks. The implemented agencies in some projects
limit the maximum value of each payment by a considerable value or within a time limit.
This is to ensure more flexible implementation and quick disbursement of labors wages.
About US$ 11,559,087 were disbursed through four emergency programs during Al Aqsa
Intifada period (September 2000 – March 2003). The allocated total fund of these
projects was US$ 12,750,000. About 178 of small scale, emergency and labor-intensive
projects were implemented. All were administered by the World Bank, Implemented by
Ministry of Local Government in cooperation with PECDAR and audited by a local
consultant. In general, the projects were geographically distributed in all Gaza Strip
municipalities and village councils.
The enforced labor content 25% were not achieved, but it was achieved partially in most
of the implemented projects. The roles of the involved agencies were not developed and
there is no improvement in the capacity of the municipalities staff. Community roles was
limited and ignored and some times they were involved in the identification phase only.
The projects have improved several services and increased the efficiency of the local
infrastructure systems and networks. The following points are recommended:
Assessment of the emergency job creation projects in Palestine 713
ACKNOWLEDGEMENT
Authors’ thanks are extended to Alexander von Humboldt Foundation for its kind
encouragement and continuous support
714 Enhassi, Taha and Mayer
REFERENCES
ANDI
Department of Civil Engineering, Petra Christian University,
Jalan Siwalankerto 121-131, Surabaya 60236, Indonesia. a_sunyoto@yahoo.com
ABSTRACT
In its serious effort to improve and enhance its national economy, the government of
Indonesia intends to invite private investors to participate in development of Independent
Power Producer (IPP) projects with BOO scheme. Relatively new, however, the method
of project development may not be well understood and accepted by the society or the
government agencies handling it. This paper aims to represent inherent critical country
risks facing the IPP in Indonesia by studying actual projects. It draws on important
lessons of political, legal, and economical risks from the projects. The paper reveals
dilemmatic problems resulted from the distinction between public law and private law,
and the contradictory principles of odious debts and sanctity of contract. Some
recommendations are presented at the end for future studies of private power projects in
Indonesia.
INTRODUCTION
In dealing with funding problems, privatization has been identified as the general solution
by which governments can invite the private sector to provide goods and services more
efficiently than the public sector. In the case of provision of infrastructure services,
privatization by way of built-operate-transfer (BOT) model has been identified to be a
viable option and is becoming more prominent in both developed and developing
countries. Using BOT family of procurement options, the government tenders the projects
to the private sector, which assumes responsibility for its financing, construction, and
operation.
However, some stories of unsuccessful BOT projects [Ogunlana, (1997)] alert us that
BOT is not a sure-win business. A BOT project is a contract between two main parties:
the host government and the concession company. If any of the two parties should fail
fulfill its responsibilities under the contract, the expectation from the project will not be
met. In addition, the risks associated with BOT projects are far greater than those
considered under conventional forms of contracts. The uncertainty of revenues, cost of
finance, length of concession periods, levels of tariffs, effect of commercial, political,
legal and environmental factors are only some of the risks to be considered by promoter
organizations.
716 Andi
Indonesia, as one of developing countries in the Asia Pacific region, is making serious
efforts to improve and enhance its national economy through essential private sector
investments. The government policy intends to invite private investors to participate in
development of such infrastructure projects as toll roads, telecommunications, power
plants, and water supplies. Relatively new, the scheme of project development may not be
well understood and sometimes may not well be accepted by the society or the
government agencies handling it. Therefore there are grounds for caution for government
as well as bidders in considering the project proposals by paying special attention to
critical risks. However, to date there is lack of experience and information of the system
in Indonesia compared to those in other countries in Asia Pacific region. This paper thus
aims to study private infrastructure projects in Indonesia, concentrating on Independent
Power Producer (IPP) projects. The focus is to represent inherent critical country risks so
that appropriate risk management strategies can be formulated to deal with the risks.
Three country risk factors are discussed in the paper; they are political, legal, and
economical risks.
The issuance of law concerning electricity in 1985 has opened the opportunity for
cooperatives and private business entities to participate in producing electricity, although
the State-owned Electricity Company (PLN) would still remain as the power holder of
electricity. The opportunity of the private sector to play a role in the electricity sector,
however, was only realized when the president of Indonesia at that time issued a
Presidential Decree in 1992. This decree, which is also known as the Private Power
Decree, states that the private sector is allowed to participate in the electricity sector and
to take part in the generation, transmission, and distribution of electricity. The changing
of the status of PLN from a general company to a limited corporation in 1994 later
followed this policy [Suhud, (2002)].
From 1994 to 1997, PLN signed contracts with most of the 27 existing IPPs under the
BOO scheme for the purchase of a total capacity of 11,000 MW (Motoyama and
Widagdo, 1999). These IPPs were joint enterprises owned by a consortium of foreign
power corporations and local companies. Major multinational corporations such as
General Electric (US), Siemens (Germany), Sumitono (Japan), PowerGen plc (Britain),
and others were involved in those projects. Meanwhile, financial backing was provided
by major public agencies such as the Japan’s Ministry of International Trade and Industry
(MITI), Japan’s Overseas Economic Cooperation Fund (OCEF), US Exim Bank, Japan
Exim Bank, Overseas Private Investment Corporation (OPIC), and the World Bank’s
Multilateral Investment Guarantee Agency (MIGA).
Under power purchase agreements (PPAs) with the IPPs, PLN was obliged to continue
paying for the power that they bought from the IPPs for a usual 30 years period at a
dollar-linked rate and to obey “take-or-pay” conditions by guaranteeing a minimum
purchase of power regardless of the actual demand. With the signing of its PPA in 1994,
Paiton I was the path-breaking Indonesian private power project and the model for
subsequent Indonesian IPPs. It is the largest IPP currently operating, with a 1,230 MW
coal-fired power plant on Eastern Java. However, because of the occurrence of the
Country risks facing IPP projects in Indonesia 717
economic crisis in 1997, many ongoing IPP projects were either postponed or cancelled.
Until 1999 less than 10 plants were producing power [Motoyama and Widagdo, (1999)].
It was only through the issuance of Presidential Decree on March 2002 that the present
government finally revoked the suspension decision. This means that the said electricity
project of the private sector can be continued. Until mid 2003, there have been efforts to
renegotiate with the 26 of 27 IPPs in deals, which will all attenuate the PLN’s severe
financial burden. This included a successful debt restructuring deal of the Paiton I and
other thirteen IPPs. Moreover, seven projects were finally closed out and five were
acquired by the state. Yet, one IPP, the Karaha Bodas project, remains in jeopardy after
years of legal wrangling between its contractor and the state-owned oil and gas company
Pertamina.
RESEARCH METHODOLOGY
The methodology developed for this paper uses a case-studies approach. The political,
legal and, economical risks were discussed in detail by studying actual IPP projects. This
was done by collecting and analyzing information from various sources, such as books,
magazines, newspapers, and research reports (published by Indonesian and international
agencies). The paper discusses the risks by taking into account both the private and public
perspectives.
POLITICAL RISKS
KKN Practices
Many sources have reported that the IPP contracts were largely drawn up through
corruption, collusion, and nepotism (known as KKN in Indonesian). Unambiguous signs
of KKN were the allocation of orders without previous public tendering procedure,
granting excessive prices and fees, payment of so called commissions and project
718 Andi
development cost, as well as the involvement of certain parties in Indonesia without any
payment of even one cent [Bosshard, (2000); Abdurrasyid, (2003)].
These KKN practices thus resulted in very high costs of construction, operation, and
maintenance of the plants. The cost of privately produced electricity was nearly 50
percent higher than PLN’s cost and was extremely high compared to neighboring
countries. Paiton I, for an example, sells the electricity to PLN for a renegotiated price,
after a four-year dispute, of $6.62 cents/kwh in real rate [Sudja, (2002)]. It is way above
the rates of a coal steam-powered power plant in Malaysia ($3.19 cents/kwh) and the Na
Duong steam-powered power plant in Vietnam ($4.2 cents/kwh), and is also far higher
than the rate set by the PLN-owned Suralaya steam-powered power plant in West Java
(about $3.7 cents/kwh). It can be said that the excessive cost of KKN projects has
successfully been shifted to the society. In other words, there will be public money to be
used to pay the “take-or-pay” obligation.
Political Pressure
It was noted that most of the IPPs were developed through deals made through high level
political lobbying and a government-enforces “local partner” condition. One former
president director of PLN at the time many similar contracts were being set up was on
record as saying he was forced by political pressure to sign 17 contracts, which were full
of corruption and mark-up practices [Asia Times, (2002)]. Government officials and PLN
staff actually did not want and could not afford the plants, but they were powerless to
challenge the projects as it had the backing of the president. He admitted that it was
impossible to refuse signing the contracts under such situation, where he was directly
faced with the contract signing ceremony, an occasion attended by the president and
international counterparts.
Uncertainty and inconsistency of government policy have been noted by private sector as
serious political problems in Indonesia. The sign of the problem was first signaled in
1997 by the suspension and cancellation of some projects in Indonesia, including 17
concession power projects. In addition, in the last five years there were three
administration changes in Indonesian government. Following the changes, as also
experienced in Thailand and India [Ogunlana, (1997)], there usually were changes in
government’s policy and program. Based on one interview with government official,
under the new government all KKN projects would automatically void.
Another political risk factor worth to mention is internal resistance to the IPP. Motoyama
and [Widagdo (1999)] explain that it has partly come from the PLN workers. PLN has
already frozen salaries and cut bonuses for its nearly 50,000 employees despite a high
level of domestic inflation in 1999. It was anticipated that privatization of PLN assets
would lead to a large layoff of PLN workers and its subsidiaries. It is no wonder that the
Country risks facing IPP projects in Indonesia 719
workers would then resist such privatization program. Meanwhile, resistance to foreign
investors has also referred to the protest of the society and the long debate in parliament
[Suhud, (2002)].
LEGAL RISKS
Under the legal risk factors, many regarded Indonesian legal process as inefficient and
uncertain. Some indications of the inefficiency are that Indonesian district courts, without
apparent authority,
• assumed jurisdictions of the cases through a contract provision never intended for that
purpose,
• prohibited the private sponsor in Paiton I from seeking its contractually guaranteed
right to international arbitration in case of dispute,
• disregarded the arbitration clauses in the Dieng and Patuha case and then prevented
the Indonesian arbitrator from participating in the hearings (Abdurrasyid, 2003), and
• issued injunctions prohibiting enforcement by private sponsors of arbitration awards
in the Karaha Bodas case. By mid of 2004, a final decision is yet being made to the
case and the claim brought by the private company has reached $295 million,
including the interest.
ECONOMICAL RISKS
By the time that Paiton I was fully commissioned and ready for commercial operation,
Asia had suffered a devastating economic crisis, and Indonesia was one of the economies
worst hit by its aftermath. The average exchange rate of Indonesia’s currency, the Rupiah,
against the $US plunged immediately to about one-fourth of the pre-crisis value—it once
even sank deeper to about one-eighth. While its revenue is in Rupiah, PLN pays for its oil
and gas and private power in dollars, as well as most of its borrowings. Because of this
foreign exchange rate risk, in 1999 PLN was compelled to purchase electricity from the
IPPs at 5-8 cents/kWh or more, while the selling price to the public is only 2-3 cents/kWh
with the help of Government subsidies. The virtual force majeure caused by the plunge
set PLN on a fast track to its current perilous state.
To the private sector, the economical risks have indirectly caused 17 out of 27 projects
being postponed or cancelled by the president in 1997. Many IPPs claimed that they
suffered financial losses because of the decision. For an example, The MidAmerican, the
shareholders of private power companies of Himpurna CallEnergy Limited (Dieng
project) and Patuha Power Limited (Patuha project), said that one of its geothermal
generating plants, which was under construction, became redundant. The total investment,
the MidAmerican affirmed has already exceeded US$ 500 million. The suspension
decision has lead PLN and IPPs to long disputes, which have been detailed above.
LESSONS LEARNED
The country will suffer a serious power supply problem in 2004 and 2005 unless there is
sufficient new investment in the power sector to generate more electricity amid fast-rising
720 Andi
demands. PLN’s own master plan shows that electricity demand will grow almost at 10%
annually up to 2010. This thus needs $28.5 million investment in new power generation,
transmission and distribution up to 2010. In order to cope with this need, though badly
shaken by the problems, Indonesia will and should continue with the IPPs. This is
because PLN has made no new investments since 1998 due to a total lack of funds. From
the discussions of the country risks in IPP projects above, the followings are several
lessons that can be drawn by both the public and the private parties.
For major projects such as power development and other similar projects, a stable
investment climate is a prerequisite, such that investors can plan for the future with a
quantifiable degree of uncertainty. Being long-term arrangement, however, private
projects are subject to be executed under different administrations. Obviously, the
unstable political systems and the absence of legal instruments in Indonesia pose special
problems to private concessionaires, since the power projects render public services that
are of public concern and politically sensitive. To counteract to the political risks, one
method for the private sponsor is to obtain equity political risk insurance, as proven
successfully in the Dieng and Patuha cases.
Another crucial key for future IPPs in Indonesia is to develop and foster necessary degree
of certainty through risk sharing arrangement, in which each party understands
completely what risks the public will be prepared to incur and assume, and what risks the
other parties will be prepared to incur and assume. The most important characterization of
risk sharing is that the allocation should be appropriately balanced, in that the various
risks are assigned to the party that is best able to assume and manage those risks.
Appropriate and careful risk allocation, in the end, serves to minimize overall project cost.
This thus needs to be addressed in further study.
The Indonesian court system has been said to be patrimonial in nature. Whether or not
that is true, it seems to be the perceived condition by international investors. This is one
of the reasons that the Indonesian court system has been avoided over the years by most
foreign investors. One of the considered methods used to deal with the problem is to
include a choice of law clause or international arbitration clause in the contracts between
the various parties. In theory, this gives the international investor a certainty that
international norms of contract law will be followed. However, the problems faced by
private sectors in Paiton I, Dieng, Patuha, and Karaha Bodas projects have led both legal
scholars and practitioners to question whether project finance involving state-owned
entities are really arbitrable as a practical matter [Kantor, 2001; Banani, (2003)].
Transparency of the bidding process may help in preventing public’s accusations of KKN
projects. The reasons cited for the nullification of several PPAs with the PLN was that
there was no open bidding for the projects. 26 out of 27 orders for private power plants
were allocated without a previous invitation to tender. Negotiated tenders provide
ammunitions for ‘self-righteous’ government officials willing to gain political points
[Ogunlana, (1997)]. As such there is a real need to ensure that the PPA negotiations and
similar privatizations are made transparent and, if possible, include public participation.
An independent regulatory body for oversight of the power sector might be proposed to
ensure the competitive practices are pursued by all participants. Acknowledging that
Indonesia is ranked 6th as the highly corrupt country [Transparancy International, (2002)],
this can be one important effort to battle the widespread corruption practices and thus to
improve Indonesia image in the eyes of the world.
However, to lay the blame for corruption solely on Indonesia or other host countries is
unfair and politically unacceptable. In the future, if influential government officials are
offered enormous bribes and succumb to the temptation, the fault must be shared equally
by those who offer the funds to secure some considerable unfair advantage for themselves.
In cases where corruption leads to the construction of unproductive and therefore useless
projects, Indonesia should be free to terminate the corresponding contracts. This thus
brings the doctrine of odious debt on track. Odious debt is defined as debt incurred
without the consent of the people of the country and not for their benefit (Kremer and
Jayachandran, 2002). Thus according to the doctrine, the debts of an autocratic regime
that borrows and then loots the funds or uses them to finance repression are odious.
Consequently, the government guarantees for corrupt projects should be declared void.
Thus, the companies involved will have to pay the price for corruption and unproductive
projects, and not the public sector. This is to say that in an ideal world, every company
that makes a sweetheart deal will take a huge haircut [Bosshard, (2000)].
The fact that several IPPs were willing to renegotiate price terms in their contracts
suggests that they accept the government's view that, though the contracts inspired by the
previous regime are holding the country to ransom and are distinctly unfeasible
commercially, new agreements were a much better option than costly litigation and public
exposure of their original sins as it were.
722 Andi
Equally important, export credit and investment insurance agencies, such as Exim Bank
and OPIC, should support the program in preventing corruptions. Accordingly, private
developers, when applying for a guarantee, are to provide a binding declaration that their
order is free of corruption. If later on, an act of corruption should emerge in the context of
the corresponding order, the government guarantee is to become void. In addition,
companies that have deceived export risk agencies by engaging in corruption are not to be
granted further guarantees for a period of for example five years. This procedure
corresponds to the rules of the World Bank and a proposal of the OECD convention re-
garding government orders. It is also being supported by the Jakarta Declaration for
Reform of Official Export Credit and Investment Insurance Agencies, which was
endorsed by 333 NGOs from 44 countries in May 2000 [Bosshard, (2000)].
CONCLUSIONS
The decades of Indonesian successful industrialization and development has left the
community almost wholly dependent on power. Not just the industrial sector, but home
industries and small factories, even in the most rural areas, depend on power. Private
participations in the power sector thus continue to be an essential, if not mandatory, need.
However, the previous experiences with the private power projects have been far from the
original objectives of the BOO-type scheme. Instead of improving efficiency and
therefore cutting down production costs, the power projects brought high electricity price
to the society and ended with a string of disputes and arbitration proceedings. Political,
legal, as well as economical risks discussed in several actual power projects have been
found to trigger such problems.
One thing that is necessitated from the government, in order to attract private investments
and bring the investors’ trust back in the power and other infrastructure projects, is not
protecting the investors, but providing a condition conducive for investment. The
government must immediately formulate a law and other legal instruments on the
privatization of stated-owned enterprises and resolve the electricity contract of the IPPs.
Transparency is one key ingredient that should be reinforced in the bidding process and
the current renegotiation process with the IPPs to prevent accusations of wrongdoing by
the public society. The IPPs must equally carry the financial losses brought about by
business practices that are tainted with KKN (corruption, collusion, and nepotism).
Whilst this paper has thrown important lessons of inherent risks in Indonesian private
power projects, a further research is needed to formulate an appropriate risk allocation
between public and private participants. Additional researches are also encouraged to
analyze the asymmetric perceptions that exist between the private developers (which are
usually from developed countries) and the host government in developing countries on
the best way to achieve international economic integration. This thus requires in-depth
understandings towards the public law versus the private law, and toward the principle of
odious debt versus the principle of sanctity of contract.
Country risks facing IPP projects in Indonesia 723
REFERENCES
CHARLES Y. J. CHEAH
School of Civil and Environmental Engineering, Nanyang Technological University, 50
Nanyang Avenue, Singapore 639798. cyjcheah@ntu.edu.sg
ABSTRACT
INTRODUCTION
A lot have been written and reported on private participation in infrastructure projects
globally. In developing countries alone, committed total investments involving private
participation amounted to more than US$750 billion during the period 1990-2001,
according to the World Bank’s Private Participation in Infrastructure (PPI) Project
Database. As of the late 1990s, private share in infrastructure investments now ranges
from lows of 9% and 13% in Germany and France to highs of 47% and 71% in the U.S.
and U.K. [Roger, (1998)]. Likewise, Asia has been witnessing a growth in concession
projects since the 1980s [Kwak, (2002), Chatterjee, (1996)]. Lately, trends of increasing
burden are observed in public finance due to heightened concerns of security, warfare,
social disorders and environmental issues. All these potentially trigger distortions in
736 Cheah
allocation of tight public funds. It follows that private sector’s financial and technological
contributions in projects that are traditionally under the purview of public agencies would
become more important and apparent.
On the other hand, competitions within the market for private participation in
infrastructure projects are also getting more intense. Some has even resorted to
unsolicited proposals in order to gain business access [Hodges, (2003)]. While there is
definitely a need to garner more support from the private sector, it is equally important to
distinguish between competent participants, who genuinely pursue a “win-win” interest,
and opportunistic “speculators and arbitrageurs”, who seek to exploit systemic soft spots.
Properly structured, collaborations formed between the public and the private sectors help
to alleviate some of the challenges currently faced by governments and work towards the
betterment of the society.
In the context of most infrastructure development projects, risks span different categories
including start-up, operational, financial, technological, political and market risks. The
list goes on with further decomposition into subcategories – as financial risks would
encompass interest rate and currency fluctuations, and political risks could be linked to
expropriation and regulatory concerns. Overall, the process of risk management can be
viewed as consisting of identifying, mapping, analyzing, allocating and controlling risk
components that exist in different stages of a project life cycle. The process often draws
ex ante strategic considerations of project stakeholders in assessing various options such
as risk avoidance and risk transfer. Risk avoidance and transfer naturally result in a
zero-sum game. From a broad perspective, total risks are not necessarily reduced when
they are merely transferred from one party to another, perhaps at the price of a premium
as in the case of insurance. In contrast, positive-sum collaboration could be established in
the ideal case of risk allocation among parties who are in the best positions to manage
each respective type of risks. Additional values can thus be created in the case of proper
design of project execution and risk allocation.
In the current age, risk management process enjoys advancements and contributions from
both quantitative and qualitative fronts. Quantitative approaches, largely classified into
deterministic and probabilistic approaches, have expanded beyond conventional
techniques such as sensitivity analysis and decision tree analysis to more “modern” ones
such as Monte Carlo simulation and Value-at-Risk. While quantitative approaches
attempt to provide objective measures of the likelihood and impact of undesirable events,
sometimes risks can be simply described as one’s subjective interpretation and socially
constructed judgment of the uncertainties and threats of such events [Giddens, (1991)].
Probabilistic rules, inherent in many quantitative approaches, may give a false impression
PPP: Value, Risk and Negotiation 737
of control when risks are conveniently translated into figures. On this ground, Hancock
(2004) commented that one should focus upon the limits of probability theory to arrive at
less ambitious, but ultimately more realistic, risk modeling. The same logic forms the
rationale of many “softer” approaches to manage risk. In the case of Terminal 5
Heathrow, Hancock showed how a properly configured risk workshop was proven to be
effective in formulating satisfactory resolutions to “messy and wicked problems” that are
inherently unsolvable through strict probabilistic means.
Assessment and allocation of risks, in both quantitative and strategic aspects, are even
more critical in unsolicited proposals submitted to governments. Unsolicited proposals
are not uncommon and have been linked to many of the world’s most controversial
private infrastructure projects [Hodges, (2003)]. In some of these proposals, projects
developed by sponsors are attached with overly optimistic assumptions in order to gain
business in the infrastructure market. Furthermore, unsolicited proposals attempt to
bypass the competitive bidding process, meaning that independent checks against
alternative proposals on financial terms and technical solutions do not exist naturally. The
lack of transparency in the procurement process implies that risks and difficulties of
major tasks are sometimes underestimated or even intentionally downplayed. Granted, not
all unsolicited proposals are ill-intentioned. Yet, with incomplete and shifting institutional
arrangements in many developing countries, it is no surprise that these projects often have
a lower probability of success.
VALUE CREATION
Governments need to be shrewd in project delivery strategies. Simply put, the bar has
been raised and traditional procurement methods alone are no longer sufficient (Miller,
2000). New arrangements and innovations often call for detailed negotiations so that
solutions can be customized and worked out based on individual party’s concern and
expertise. Such negotiations exist not only in unsolicited proposals but may also occur
after an initial tendering process is completed [Tiong, (1996)]. Given the fact that
transactions in large engineering and infrastructure projects often involve lumpy,
dedicated and irreversible investments, the importance of design and planning of project
execution strategy is elevated. Project implementation needs to be strategically segmented
to incorporate innovations and flexibilities. When major decisions and actions in a project
life cycle are anticipated, brought forward and discussed during the initial negotiation
stage, more opportunities are created to align risks and additional values can be derived
from innovative and flexible solutions.
Many infrastructure projects are embedded with items such as subsidies, guarantees, price
caps, credit support and other types of concessions granted by the public sector. Already,
738 Cheah
credit facilities and guarantees are gaining prominence in the world of project financing
(Devapriya and Allen, 2003). Almost by default, these elements are introduced into
contracts to promote economic feasibility of a project and alleviate risk concerns of the
private sector. Perhaps due to complexity in evaluation, these subsidies and incentives are
often granted on a “give-and-take” basis without fully realizing the value added to the
contract. Truly, guarantees are a form of options and all options have values (Mason and
Baldwin, 1988). By properly accounting for these values, the level of risk tolerance of
concessionaires and grantees who receive such subsidies and incentives should be higher.
For example, in a power purchase agreement, a lower tariff level would seem more
acceptable if the concessions granted are evaluated and considered in a total perspective.
Although it may be hard to quantify an exact value, efforts pursued in this direction
should be encouraged as they will ultimately lead to a more equitable alignment between
risk and reward. In many ways, the real option approach stands as a promising tool to
achieve this goal as will be discussed in the next section.
The aforementioned aspects are largely financial in nature. Value can also be created
through structuring operating options and flexibilities in the course of project execution.
Creating options to allow for a greater range of responses in line with uncertain future
outcomes is one of the critical steps within [Lessard and Miller’s (2000)] layering model.
They noted that many successful projects are not selected a priori, but shaped and
structured along the way – projects are shaped in episodes to gradually transform the
initial hypothesis, make progress on critical issues, and solidify initial coalitions of
players to achieve temporary and final commitment. In addition, contractual devices can
be designed to avoid rigidities in project execution. Flexibility can be built into contracts
by introducing special clauses which can be used to alter the timing and sequence of
activities to achieve reduced risks [Floricel and Miller, (2000)].
A good example of creating flexibility and using options to shape project execution is
given by an acquisition project described in [Ceylan and Ford (2002)]. In that project, a
new and improved laser glass production technology is required, but the technical
uncertainty is very high. Failure of the technological development efforts would have
severe implications to the project. Rather than relying on a usual one-vendor strategy, the
client made initial investments in independent development efforts by two producers, thus
increasing the likelihood that at least one effort would be successful so that the project
could carry on. If only one effort was successful, the failed development effort would be
abandoned and subsequent investments could be channeled only to the successful one. If
both were successful, the client would have the benefit to choose the better among the
two. Obviously, such flexibility would not come free; it cost the client approximately $12
million to invest in a second vendor. Presumably, the additional cost was justified when it
was weighed against the probability of technological failure and consequential damages.
It is evident that options create values, and these need to be considered in conjunction
with risks in infrastructure project delivery. The next section introduces the concept of
real option which serves as an evaluation tool to quantify the value of flexibility.
Real option is not a new concept and has been applied to sectors and industries such as oil
and gas, pharmaceutical, manufacturing, airlines, mining, real estate, and others. By
definition, an option is a right, but not an obligation, to exercise a certain action in the
face of uncertainty. The fundamental theory was first developed to value options on
financial assets. The theory was subsequently “exported” and applied to value options on
“real” assets (e.g. development of a piece of vacant land; exploration of an oil field);
hence the term real options. Literatures on real options have now built up into a rich
repertory. For a general exposition to the subject, readers may refer to [Trigeorgis (1996),
Amram and Kulatilaka (1999), Copeland and Antikarov (2001)].
Some typical types of options that can be identified in large engineering and
infrastructure projects are as follows:
(a) Call option. This refers to an option to secure/procure an underlying asset when the
asset value exceeds a certain threshold known as the “strike price”. Some common
examples include: capacity expansion; procurement option; splitting of projects into
two phases, whereby execution of the second phase would be contingent on the
success of the first.
(b) Put option. This refers to an option to sell away an underlying asset at a strike price
when the asset value is lower than this threshold. Effectively, a put option provides a
floor to the asset value (analogous to insurance). Some examples include: capacity
contraction; shutdown or sale of assets; abandonment option; guarantees granted by
government.
Fig. 1 shows the payoff structure of both call and put options from the option owner’s
standpoint. The payoff structure for the option writer (seller) will simply be a mirror
image across the horizontal axis.
Payoff to option
owner if option
is exercised or
when option
expires
K S K S
Strike Value of Strike Value of
Price Underlying Asset Price Underlying Asset
Call Option Put Option
Fig. 1 Payoff Structure of Call and Put Options from Owner’s Standpoint
(c) Switching option. This refers to the flexibility to alter the modus operandi of any
given business, so as to adopt the path that would derive the largest payoff. Some
examples include: switching of operation/production mode; switching of fuel source.
(d) Timing option. This refers to an option to defer a specific action such as to develop a
piece of vacant land or to commence construction. In many ways, the timing option is
technically similar to the call option since it entails an action of “buying in”.
740 Cheah
(e) Compound option. This is a combination of two or more type of options. For
example, when a project is split into multiple phases, the execution of subsequent
phases is contingent upon the success of the initial phases. In total, this represents a
series of call options. When evaluating a compound option, interactions among two or
more types of options impose greater complexity as the total value is usually not a
simple sum of the parts. Furthermore, the value is affected by correlation between the
movements of asset values that underlie the different types of options.
(f) Learning option. This is a more subjective type of option as it treats the entire project
or business initiative as a learning ground or as part of a larger strategic plan to pursue
future goals. For example, in its entirety, a pilot project in a politically unstable or less
developed country is a learning option for a corporation to explore future business
opportunities in the country.
Obviously, project components do not automatically appear with “real option” labels. It is
therefore important for different project stakeholders to identify scenarios or settings that
give rise to flexibility and options. For example, imagine a project, under high public
scrutiny and being politically sensitive, has its internal rate of return capped at 16% by the
government. Meanwhile, this project is also exposed to substantial sovereign risk,
whereby expropriation of the project assets will lead to a total loss of the initial
investment. Although not initially obvious, the payoff structure as shown in Fig. 2 shows
that the sponsor of the project has essentially written a call option to the government with
a strike price of K1. This is because when IRR reaches 16%, the government would then
have the right to “call up” surplus return that is above 16%. In addition, the sponsor has
also written another binary call option that has a strike price of K2 which would result in a
maximum loss of a -100% return. This total loss is caused by the sovereign risk arising
from the government’s temptation to expropriate the underlying asset when its value
exceeds K2. It is interesting to note that K2 is not fixed and will vary with the probability
of expropriation – the higher the value of the project, the more probable that
expropriation is triggered. The payoff structure reflected in Fig. 2 can be evaluated using
RO theory and this provides additional insights to assess the position of the sponsor.
More importantly, the value of the options granted in this scenario has not been
conveniently neglected.
Payoff from
project in terms
of IRR
16%
K1 K2 S
Strike Price of Value of Underlying
0 written Call
(Varies)
Assets of the Project
-100%
(Project Assets Expropriated)
Fig. 2 Payoff Structure faced by Sponsor of Project in a Hypothetical Scenario
PPP: Value, Risk and Negotiation 741
Though more commonly applied in other industries, the RO concept remains largely alien
to the engineering, construction and infrastructure community who plays a key role in
structuring multiple flexibilities during various stages of the infrastructure project life
cycle. Limited applications and publications currently exist on this subject related to
construction engineering and management. By broadly categorizing RO models into
continuous-time and discrete-time models, [Garvin and Cheah (2004)] commented on the
merits and challenges of applying each of them to the context of infrastructure projects.
They subsequently illustrated the use of a simple binomial model to evaluate the
deferment option in a toll road project. [Ford et al. (2002)] also used a similar approach to
quantify the value of design flexibility in an engineering project. Other works include [Ho
and Liang (2002)], who had adopted the RO approach to solve for the equity value in an
infrastructure project; and[ Ng et al. (2004)], who had set up a continuous-time model to
value a price cap contract in construction material procurement.
The implications of risks and values need to be taken together during the course of
negotiation. Too often, parties are overwhelmed by their concerns about risks. Value of
options and flexibilities should be evaluated and matched with the risks. This would lead
to a higher probability of reconciling differences among stakeholders. The negotiation
process may then proceed on a more informed and equitable basis.
Producer / Sponsor
Level of Government /
benefits to Off-taker
each party
x y z
Tariff level
subjected to
Feasible Bargaining Range negotiation
The implications on negotiation principles are illustrated in Fig. 3. The figure summarizes
hypothetical positions of a power producer and a government agency that is going to enter
into an off-take contract with the producer. The overall contract may be attached with
arrangements such as a minimum guaranteed return, a right of access to built plants in an
adjacent state, etc. The tariff level, subject to negotiation, would translate into a certain
level of benefits to both parties (e.g. profits for the producer; social benefits to the local
community). Note that the positive and negative slopes of the lines are consistent with the
742 Cheah
positions of the producer and the government respectively. Given the initial scenario
(bold lines), there would be no feasible negotiating range, as the government would not
accept a tariff level higher than y, while the producer is unwilling to construct and run the
plant if the tariff level is lower than z. If the values of the concessions and guarantees are
properly accounted for, the producer, having priced in such additional benefits, may be
willing to accept a lower tariff level at x (dashed line). For the producer, the vertical
distance between the dashed and the bold line effectively represents the benefits of having
such guarantees and options. This in turn creates a feasible negotiating range of (y – x)
and a win-win situation as both parties enjoy positive benefits. The project would have
avoided cancellation simply due to a negotiation breakdown when individual parties
focus solely on risks, thereby unknowingly ignoring the value of options that they obtain
from the transaction. Of course, on the flipped side of the argument, a party that is
granting too many concessions and options should be alert of exploitative terms, since its
true position really reflects a lower level of benefits when the value of these options
granted are taken into account.
The RO approach is not without its limitations. Emphasis has been given previously on
the importance of shaping and structuring a project along the way to incorporate
flexibility. However, there are cases whereby operational, technical, financial or political
constraints render difficulties in adopting flexible strategies such as modularity or
divisibility of project into several phases. Second, in the context of large engineering and
infrastructure projects, commitments (e.g. in the form of investments) are often utilized as
a signal to communicate keen interest and strong credibility to other project parties and
the host government [Miller and Olleros, (2000)]. Furthermore, by nature, a project could
progress only when some irreversible investments are made. This is particularly critical
when information required to reduce uncertainty could only be obtained ex post – after
some preliminary progress in a project. Certain aspects of flexibility are thus illusive, as
these irreversible investments effectively eliminate options such as deferment. Third,
option pricing models are mathematically complex. One can never be sure of the right
choice of stochastic processes to model the underlying variables. Moreover, estimation of
some input parameters such as volatility is notoriously difficult and ambiguous especially
when the underlying asset does not have an active trading market, which is usually the
case for infrastructure assets and facilities. Fourth, some options are close to impossible
to value. For example, in the Clover power project in Virginia, U.S., the owner was
contractually allowed to change specifications during design up to two months before the
start of construction. This is clearly a form of flexibility that bears value to the owner.
However, it is not clear at all how this could be modeled and evaluated.
Critics of RO like to question the accuracy of option values evaluated based on the RO
approach. This criticism, nevertheless, loses sight of the larger picture. An extra
evaluation result, which comes with a strong theoretical backing, should help in the
process of decision-making and negotiation. It cannot be worse than totally ignoring the
value of flexibility or simply attaching a subjective figure to it.
Ultimately, the RO thinking process itself is valuable from a strategic dimension. In this
respect, Ford et al. (2004) outlined benefits that can be reaped from improvements in four
PPP: Value, Risk and Negotiation 743
areas of managerial thinking: (1) project objectives, not solutions; (2) multiple project
futures; (3) continuous strategy testing and evolution; and (4) valuing and developing
project flexibility. Ford et al.’s argument basically expands beyond Miller, Olleros and
Floricel’s latent hypothesis that strategic planning is limited to the project planning or
shaping phase.
In principle, strategic benefits can be reaped throughout the entire project execution,
although the degree of freedom of structuring options would decrease with time as project
stakeholders move along the decision journey – from initial searching and shaping, to
constructing the facility and finally operating it. During the initial stage of a project when
many uncertainties are unresolved, options are valuable, and premature lock-in can be
costly as in the case of the choice of drilling technology for the English Channel Tunnel.
Thus, deferment option is valuable [Garvin and Cheah, (2004)]. In the presence of
uncertainty, commitments ought to be low and flexible until sufficient exploration allows
a viable concept [Utterback, (1994)]. On the other hand, the fact that the facility is in
service does not necessarily preclude the existence of options. Options to exercise
expansion, contraction, switching and abandonment still largely exist, although with
varying degree of constraints. Stakeholders could also undertake business and financial
restructuring while incorporate additional flexibility in the future. The entire project
experience also provides numerous learning options along the way in setting up future
ventures. In many ways, the underlying philosophy is not too different from the familiar
concept of the life cycle cost influence curve.
CONCLUSION
REFERENCES
ABSTRACT
The BTS skytrain project is now at the operation stage and being patronized by people in
the metropolis. The concession for the BTS was awarded to the Bangkok Mass Transit
System Public Company Limited (BTSC) in 1992. The BTSC was permitted to retain all
revenues deriving from the system operation for 30 years. The objectives of the project
are to assist in alleviating the chronic traffic problem within the city and to provide
Bangkok citizens with a fast and efficient means of transportation within the central
business district.
In this study, surveys, of users (757) and non-users (1530), were been made between
November 2003 and January 2004 using questionnaires as the research instrument, to
evaluate the real benefits of the BTS. The study results show that promoters, users and
non-users are satisfied with the benefits derived from the project. Users are happy with
the convenient transportation system, which has improved the traffic situation, but they
suggest that the system should be extended to bring more benefits to commuters.
INTRODUCTION
The BOT scheme represents the commitment of a private enterprise to “Build, Operate,
and Transfer” public infrastructure to a concession granting public agency after a certain
period. The private sector invests in the development of public infrastructure and has the
right to operate the infrastructure by imposing tolls or user charges to recover capital cost
of construction and make a certain amount of profit under a specific concession period.
At the end of concession period, the infrastructure is to be returned to the host
748 Tangkitsiri and Ogunlana
government [Levy, 1996]. A PPP infrastructure development can be defined as: the
permission private sectors obtain from the host government to provide infrastructure
services under specific agreement and conditions of market mechanism [Walker and
Smith, 1995]. The most noticeable and current type of PPP mechanism in transportation
infrastructure development is the Build-Operate-Transfer (BOT) scheme [Walker and
Smith (1995), Dias and Ioannou (1996), Malini and Raghavendra (1996), Mohamed-
Asem et al. (2001), Zhang and Kumaraswamy (2001), Zhang et al. (2002)].
The BOT scheme is gaining popularity and acceptances as an innovative way to finance
the construction of infrastructures in both developed and developing countries [Jirapong
et al., (2003)]. For instance, it was estimated that the developing countries would spend
US$ 200 billion annually on infrastructure, of which Asian countries account for 80%.
Furthermore, many privately financed infrastructure (PFI) projects have been executed in
the Asian region. A few of them are in Thailand. These infrastructure projects are large,
and large projects often influence the community significantly. Usually studies are made
before constructing these projects as part of the feasibility or impact assessment study.
However, studies can be done on the same projects to evaluate and determine the effects
or benefits from projects while operating. In order to understand whether the intended
benefits of the projects really exist, this research studies the real benefits from a BOT
project in Thailand. It will be extremely useful for the policy makers to study if the
objectives of the projects done in the past have been achieved and to know how it can be
improved on when undertaking future projects.
The main objective of the study is to determine how well the BTS project has delivered
the intended benefits to stakeholders, to evaluate the perceived extent of achievement of
benefits on the project, and to propose recommendations on how to improve the services
of the project.
On the 9th of April 1992, the Bangkok Mass Transit System Corporation Limited (BTSC),
a special purpose company formed by Tanayong Public Company Limited, signed a
concession agreement with the Bangkok Metropolitan Administration (BMA) to build,
operate and transfer an elevated mass transit railway system on two routes in Central
Bangkok. The concession was awarded by the BMA following a competitive tendering
process and approval by the Ministry of Interior and the Thai Cabinet. The Bangkok
Transit System (BTS) was opened and became operational in 1999. BTSC operates and
derives revenue from the 23.5 kilometers railway for 30 years before handing it back to
the BMA. BTSC was established with the sole purpose of constructing and operating a
mass transit railway system, on prudent commercial principles, in order to ease the
increasingly severe traffic problem in Bangkok. The main objectives of BTSC are to
provide a safe, comfortable, fast, convenient, reliable, and affordable public transit system
for the public and to give the shareholders of BTSC a reasonable return for their
investments.
According to BTSC (2003), BTS would result in change in traveling pattern in Bangkok.
The problems of traffic and inability to arrive at destinations on time would be solved.
Real benefits of BTS study 749
Since traveling has an impact on economic development, BTS also affects the economic
growth of Thailand. Consequently, BTS benefits were expected to be economic and
social.
BTS passengers can save on travel expenses and time. As per the research conducted by
BTS, the project can assist all passengers, altogether resulting in net saving of about 15
million Baht per day. The economy will be expanded due to the increase in working
efficiency resulting from reduced commuting time, and the reduced cost of solving traffic
problems. The quality of life, both physical and psychological, is expected to be better.
Family members would have more time to rest and spend with each other. In short, the
project benefits the people by improving their quality of lives.
METHODOLOGY
The intersecting area from two sets can represent the term “satisfaction”; namely BTS’
services and the needs of stakeholders. BTS is the service provider. Similarly, each
relevant stakeholder in the BTS system also possesses a certain set of expectations. If a
service provided by BTS to the individual is well accepted, it is likely that the recipient
will be satisfied with BTS services on different aspects. The extent of satisfaction would
relate to the extent of achievement of the perceived benefits. This extent of satisfaction
concerns both physical and psychological aspects that can be measured through a
questionnaire. Figure 1 illustrates each physical and psychological condition by the area
of intersection between BTS Services and stakeholder satisfaction. The larger the
intersecting area, the better the emotional stage of the involved persons.
Average
Satisfied
Imparted Service
(Intersected Area)
Data collection
Data collection for this research was accomplished through the administration of
questionnaires. Responses from a large number of users formed the main input to the data
analysis. Users of the system were random sampled within the transit system. Since the
answers from the respondents was predominantly qualitative in nature, a rating or ranking
scales were used to convert the answers to quantitative values [Miles and Huberman,
(1994)]. The study was also based on qualitative research conducted through in-depth
face-to-face interviews. Thus, it enabled the research team both to gain an initial
750 Tangkitsiri and Ogunlana
understanding of the studied problem and to identify phenomena, attitudes, and influences
[Maxwell, (1996)].
First, interviews were conducted with the officers of the Traffic and Transportation
Department (TTD) and BTS to know the intended benefits of the project. Part of data
collection was through the official documents from the BTS. Questionnaires were
prepared to obtain responses from the users of the facility. Data were obtained
exclusively from contingent stakeholders such as passengers, vendors and people working
near the project. Next, both of the BTS-user and non-user surveys were conducted in
November-December 2003, and January 2004. Besides, pilot tests were initiated early in
November 2003.
Before going through this step, however, the BTS-user and non-user questionnaires were
made as clear as possible to convey the true intent of the research team to the respondents.
Effort was made to reduce the time needed to answer the questions, yet making them
comprehensive enough to avoid any informational error. Long questions were avoided in
order not to cause any undesired rejection from the respondents. Questionnaires were
handed over personally to the respondents as well as collected personally from them to
encourage participation.
Data analysis
The responses to questionnaires were analyzed using various statistical methods. The chi-
square test was used to determine the relationship between characteristics of BTS
respondents and factors such as service, safety and operation factors. The influence of
gender, age, occupation, income, frequency of use, and main purpose for using BTS were
tested using the chi-square test. The Statistical Package for the Social Sciences (SPSS)
and Microsoft Excel were employed for the tests.
SURVEY RESULTS
The local user questionnaire was completed by 627 individuals, of which 32% were male
riders and 68% were female riders. The profile in Table 1 shows that the majority of the
users are within the active working age between 20 and 50 years. Many young college
students also use the system.
Real benefits of BTS study 751
Overall, 64% and 9% of the BTS riders are satisfied and very satisfied respectively on
service factors; besides, 64% are satisfied, and 11% are very satisfied on the safety factors
(Tale 2). On the operation factors, 60% are satisfied, and 6% are very satisfied while 337
skytrain users (54%) are satisfied and 73 users (12%) are very satisfied on other factors
“Being able to lift up your life (Physical and Psychological),” with an item mean of
3.74/5.0. 304 BTS users (49%) and 188 users (30%) are also satisfied and very satisfied
respectively with the factor “Having a role to solve traffic problem in the city,” with item
mean of 4.04. There are 230 respondents (37%) rating at the average level for the item
“Saving cost of traveling” while 169 riders (27%) are satisfied and 47 passengers (8%)
are very satisfied. The mean of the item is 3.06. 288 BTS riders (46%) are satisfied with
the item “Saving traveling time”, and 274 BTS respondents (44%) are very satisfied; the
item mean rises to 4.32.
Non-Thai BTS users were also surveyed. There were 130 respondents comprising 65
male riders (50 %) and 65 female riders (50%). There were 7 (5%) youngest users below
the age of 20. There were 68 persons whose ages are between 20 and 30 and it is the
largest group (52%). The number of 31-40 year-old users is 40 (31%), and 13 people
(10%) are within the age range 41-50. Again the smallest group is the 2 (2%) riders who
are older than 50 years.
Overall, 75% of the foreigners (98 riders) using the BTS system are satisfied and 14% (18
users) are very satisfied on the service factors; there is no one who is either very
dissatisfied or dissatisfied (Table 3). In addition, 94 foreign users (72%) are satisfied
overall on the safety factors as well as 27 passengers (21%) are very satisfied on it. For
overall satisfaction on operation factors, 97 BTS users (75%) are satisfied, and 19 persons
(15%) are very satisfied. No one is dissatisfied or very dissatisfied. On the “other
factors,” 85 foreign users (65%) and 30 users (23%) are satisfied and very satisfied
752 Tangkitsiri and Ogunlana
respectively with the item “Being able to lift up your life (Physical and Psychological
Health),” and the item mean is 4.12. 70 Foreign BTS Users (54%) are also satisfied as
well as 33 riders (26%) are very satisfied with the factor “Having a role to solve traffic
problem in the city,” and the item mean is 4.03. There are 64 respondents (49%) rating
the item “Saving cost of traveling” at the satisfied level and 28 users (22%) are very
satisfied; therefore, yielding an item mean of 3.89. 48 Foreign BTS riders (37%) are
satisfied with the item “Saving time of traveling.” Not only satisfied with this factor, but
80 non-Thai respondents (62%) are also very satisfied. No one is dissatisfied or very
dissatisfied with this item; the item means being 4.60.
Foreign users reported that traffic in Bangkok has improved over the years; thereby
making the city a more attractive tourist destination.
This research also studied the relationship between the BTS users’ satisfaction on various
factors and their demographic characteristics, (i.e., gender, age, occupation, monthly
income), as wee as frequency of use per week, and the main purpose for using BTS
services. The result of the Chi-Square Test (Table 4) shows that “frequency of use per
week” is related to satisfaction with “quick and convenient steps of using BTS services”
with the significance level at 0.026 but most riders in each class are satisfied. Next,
“occupation” and “frequency of use per week” are related to “the appropriateness of
service times (6:00am - 12:00pm daily)” with the significance level at 0.021 and 0.009
respectively. Students who ride BTS very often are satisfied but those who need to travel
at odd hours are less satisfied. “Age” and “frequency of use per week” are related to
satisfaction with “the appropriateness of BTS fare” with the significance level at 0.031
and 0.000 respectively. It is found that the riders younger than 31 years old are sensitive
to BTS fare if they travel on it lower than four times a week. In addition, “age” and
“frequency of use per week” are related to satisfaction with “services and shops in BTS
areas” with the significance level at 0.031 and 0.018 respectively.
There is only one variable, frequency of use per week, related to satisfaction with “the
sufficient number of security guards” with the significance level at 0.044 and using the
BTS services two or three times a week. “The main purpose for using BTS” is related to
satisfaction on “the appropriate speed of the BTS skytrain” with the significance level at
0.034, for the persons who study or work and go shopping. Besides, only gender is
related to satisfaction with “sufficient routing of the BTS” with the significance level at
Real benefits of BTS study 753
0.000. This means that female BTS users are less satisfied than their male counterparts
and, as such, want the system to extended to reach other areas. The result of the Chi-
Square Test illustrates that “age,” “frequency of use per week,” and “the main purpose for
using BTS” are related to satisfaction with “the passenger managing system in each
station” with the significance level at 0.004, 0.018 and 0.043 respectively. It is specific
that the 20-30 year-old users who ride the skytrain more than two times a week and to go
study, work, or shopping are more satisfied with this factor than others. “Age” and “the
main purpose for using BTS” are related to satisfaction with “the punctuality of departure
and arrival times” with the significance level at 0.005 and 0.001 respectively. Young
people going to study want trains to be more punctual than the others.
Furthermore, the result of the Chi-Square Test demonstrates that “age” and “monthly
income” are related to satisfaction with the factor, being able to lift up your life, with the
significance level at 0.013 and 0.012 respectively. It means 20-50 year-old riders who
earn 5,000-35,000 Bath per month are satisfied with this factor. Those who earn less and
young people are less satisfied than others. Next, “gender” and “the main purpose for
using BTS” are related to the factor, having a role to solve traffic problem in the city, with
the significance level at 0.011 and 0.001 respectively. Results show that 50% of the
female users are satisfied and very satisfied with the factor in order to work, study or go
shopping. Finally, “age,” “usage frequency,” and “purpose of use” are related to “saving
cost of traveling,” with the significance level at 0.002, 0.043 and 0.012 respectively.
Most BTS passengers younger than 31 years old and using BTS for going to study, work,
home, and shop lower than four times a week rate levels of satisfaction at the average.
Frequency
Purpose
Income
Gender
Age
BTS-User Factors
Service Factors
The convenience from the start point to the BTS station
Quick and convenient steps of using BTS services *
The appropriateness of service time * *
The appropriateness of BTS fare * *
Services and Shops (Convenient Stores) in BTS areas * *
Free BTS Shuttle Bus service
Safety Factors
The sufficiency of warning signs
The safety of stairs and Skybridges connecting BTS stations
The sufficient number of security guards *
The alerting system of skytrain doors while opening and closing
The reliability in safety systems of the BTS skytrain
The appropriate speed of the BTS skytrain *
Operation Factors
Sufficient routing of the BTS *
The efficiency of using BTS tickets to enter and exit stations
The passenger managing system in each station * * *
The surroundings and cleanliness of BTS stations
The punctuality of departure and arrival times * *
754 Tangkitsiri and Ogunlana
The research also surveyed the attitudes and satisfaction of several secondary
stakeholders of the BTS skytrain. Shopkeepers, van and bus drivers, taxi drivers, and
personal-car users are included in this category. The main purpose is to understand the
feelings of other stakeholders towards the existence of BTS. A non-user questionnaire
was designed for this purpose and the results from the survey are presented below.
Shop owners along the major highways can benefit from improvement in traffic through
better patronage because better traffic make it more attractive for people to come to their
shops. A total of 440 shopkeepers were sampled yielding an overall mean of 4.26. The
number of customers seems to have improved. Consequently, their mean satisfaction
improved from 3.53 before the system to 4.03 after the system (Table 5).
Minivan drivers normally carry passengers over long distances. They are particularly
affected by heavy traffic on the major highways. From 120 van drivers sampled, the
mean of “overall point of view on BTS” is 3.75. Moreover, their patronage improved
after the BTS system was introduced; resulting in improvement in satisfaction with
patronage from 2.93 to 3.90 (Table 5). This is because it is now easier for them to stop
only at BTS stations to pick up passengers.
A total of 120 bus drivers and conductors were sampled along the roads nearby BTS
routes. Overall, the respondents were satisfied with the introduction of the BTS system
(mean = 3.54). However, the mean satisfaction with “overall traffic on roads after having
BTS” is only 2.48. It does seem that traffic only improved marginally on the bus routes
after the BTS system was introduced. Bus drivers and conductors were also dissatisfied
with the post-BTS drop in the number of bus passengers (mean reduced from 3.9 to 3.25).
Motorcycle taxi drivers normally take passengers from the major roads into the minor
streets. The response from 100-motorcycle taxi drivers show that their income and
patronage improved after the BTS was introduced. Consequently, the mean satisfaction
improved from 3.35 before to 3.86 after the system came into being (Table 5).
Motor-tricycle taxi drivers on the roads around BTS routes were sampled. The result from
the 100 respondents shows that the number of passengers using their services was hardly
affected by the introduction of the BTS system. Their satisfaction on this item reduced
marginally (from 3.40 to 3.38) after the introduction of the BTS (Table 5).
150 taxi drivers were sampled along the roads nearby BTS. Their mean response on the
“overall traffic on roads after having BTS” is 3.30 suggesting that they were moderately
satisfied with the traffic situation. However, they reported slight reduction in income and
taxi rider ship after the system was introduced (Table 5).
Personal car users were surveyed on various items of which the condition of traffic is
particularly relevant to their needs. The 300 respondents were moderately satisfied (mean
= 3.60) on the condition of traffic after the BTS system was introduced (Table 5).
Police officers were surveyed on the condition of traffic after BTS system came into
being. The result in Table 5 shows that the majority of the 109 respondents was satisfied
with the system (mean = 3.77) and believed that it had contributed to the alleviation of
traffic problem in the city.
756 Tangkitsiri and Ogunlana
The primary promoters of the BTS system were also interviewed in form of two senior
BTS and two senior TTD officers. It is found that they are all satisfied with the services,
safety, and operations of the system. In addition, the four officials are convinced that the
system has improved the quality of life in the city and that it saves travel time.
Furthermore, one of the main purposes of the BTS project is making financial profit.
Figure 2 shows the numbers of BTS passengers each month during the fiscal years 2001 –
2002. The BTS passenger growth rate shows the success of the BTS in fulfilling this
purpose. However, newspaper reports show that the BTS Company is having problem
meeting financing obligations. In addition, the number of users dropped after the subway
project started operating. The Thai Government is also considering the idea of buying up
the system in order to merge it with the recently completed underground system.
Although the merger would create better service for the users of the system, investors are
likely to lose out as the reported purchase price of B3.0 per share being mooted is well
below the B10.0 par value for the shares [The Nation, (2004)].
CONCLUSIONS
The primary objective of this study is to evaluate stakeholder satisfaction with the
benefits on a BOT project in Thailand, i.e., BTS project. It is obvious that most of the
people studied in this research are satisfied with the following factors: services, safety,
and operations. Hence, it is safe to conclude that BTS is beneficial to the people within
the Bangkok metropolis. It has contributed to the uplifting of the quality of life (physical
and psychological health), reduction in travel time times but did not reduce cost for riders.
Moreover, the benefits are being enjoyed by local people as well as foreigners; thereby
making Bangkok a more attractive travel destination for tourists.
Real benefits of BTS study 757
The promoters of the system, namely the officials of the TTD and BTS are also satisfied
with the performance so far. The system seems to be making money, thereby meeting one
of the objectives of private participation in infrastructure provision. However, the route
is limited in coverage. The users of the system believe that it should be extended to better
serve the needs of the people living in or visiting the city.
REFERENCES
ABSTRACT
As the procurement of large infrastructure projects via higher risk concession contracts is
becoming more and more commonplace, it is imperative that construction industry deci-
sion makers have access to a Decision Support System (DSS) that facilitates a realistic
appraisal of Concession Project Investments (CPIs) at the feasibility stage. Such a DSS
must be capable of evaluating and ranking various CPI options by incorporating both fi-
nancial and non-financial aspects of an investment, as well as the uncertainties commonly
encountered at the feasibility stage of a project. Over recent years, a diverse range of
DSSs have been developed for the purpose of modeling high risk construction project in-
vestments such as CPIs. However, each of these systems is limited in its practical appli-
cation and fails to meet la key requirements of a DSS. This paper proposes a DSS that is
effective at capturing the real-life investment characteristics, in a resource and time effi-
cient manner. To achieve the dual objective of efficiency and effectiveness, the design of
the DSS is based upon the most suitable multi-criteria decision-making technique,
mathematical modeling technique, financial analysis model and CPI risk factor frame-
work. The paper also numerically demonstrates the DSS’s application to the modeling of
two real-life CPIs.
INTRODUCTION
The underperformance of many concession projects has been attributed to the inability of
project sponsors and promoters to predict the impact of financial and non-financial (risk
and opportunity) factors associated with CPIs, and negotiate contracts to allow for these
factors [Halligan (1997)]. Available DSSs are limited in their capacity to incorporate both
financial and non-financial aspects of an investment, as well as the uncertainties com-
monly encountered at the feasibility stage of a project in the most efficient and effective
manner. Thus, there is a need for a DSS that is capable of evaluating and comparing sev-
eral CPI options.
To develop such a DSS, it was first necessary to clearly define its requirements. Ten re-
quirements were identified [McCowan and Mohamed (2002)] including the identification
of non-financial factors (risks and opportunities) and the interdependencies that exist be-
tween them. The most appropriate techniques in the areas of mathematical modeling, fi-
nancial analysis modeling, decision-making, and risk factor frameworks (RFFs) were se-
lected for implementation in the DSS. Possibility (fuzzy) theory was selected as the most
760 McCowan and Mohammed
Based upon the selected techniques, a DSS was developed and fully implemented as a
stand-alone computer software program, ECCO (Evaluate and Compare Concession Op-
tions), using the Visual C++ development environment. ECCO is a dialog-based applica-
tion, not unlike a commonly used wizard program. ECCO’s design comprises three mod-
ules: Module One - model definition; Module Two - model evaluation and ranking; and
Module Three - sensitivity analysis.
MODULE ONE
Module One performs the task of input definition for analysis that takes place in Modules
Two and Three. The structure of this module is divided into two independent compo-
nents: financial and non-financial. The financial component of Module One is structured
according to Bakatjan et al.’s (2003) two-phase (construction and operations) financial
analysis model. Analysts must provide the below information on financial factors to the
DSS in the form of a single, interval, triangular or trapezoidal possibility distribution (ex-
cluding year values):
The CPI’s non-financial component is structured using the ANP method [Saaty (2001)].
Non-financial factors must be divided into two separate ANP frameworks of opportuni-
ties (positively impacting factors), and risks (negatively impacting). Since the risks and
opportunities faced by one project may not necessarily be the same as another project, the
DSS allows for analysts to be able to define a unique set of risk/opportunity factors for
each project, where required. The Analyst must provide factor name, importance, likeli-
Evaluation of construction projects 761
hood, and interdependencies for all risk and opportunity factors. Fig. 1 presents the 1-7
scale that is employed by the DSS for the definition of non-financial factor importance,
likelihood, and any interdependencies between non-financial factors (2, 4, and 6 can also
be used as intermediate values on the scale).
A generic CPI RFF is offered as an option when using the DSS. This RFF contains the
four (4) most critical risk factors identified by Wang et al. (2002) at the country, market
and project levels of the project, as well as the quantified interdependencies between
these factors, as identified by a pilot study questionnaire.
MODULE TWO
The purpose of Module Two is to evaluate and rank between one and five CPIs at a time.
Overall rankings of the projects are based upon their ANP project ratings. The ANP pro-
ject rating method is presented as Fig. 2.
Financial Non-Financial
This rating method extends the traditional financial benefit-cost (B/C) ratio to incorporate
non-financial factors via the inclusion of an opportunity-risk (O/R) ratio, hence providing
a holistic evaluation of the CPI options. The module also calculates the following per-
formance measures to ensure that all parties (equity holder, lender and government) to the
project are catered for:
In the above performance measures, the total project cost and equity holder’s perspective
includes financing considerations, whereas the overall project perspective does not. All
financial formulae used by the Module, incorporated uncertainty by representing all vari-
ables (except year values) with possibility distributions. Module Two applies the ANP
method to the non-financial data provided to develop the overall risk rating, opportunity
rating and O/R ratio of each CPI evaluated.
Overall rankings of the projects are based upon their ANP project ratings. The equity
holder’s B/C ratio and the O/R ratio are then used to derive each CPI’s ANP project rat-
ing. Where opportunities or risks are not included in a CPI model, the DSS simply ranks
the projects based on adaptations of the above method (i.e. B/CR ratio and BO/C ratio).
Alternatively, in the case of a purely financial or non-financial comparison of projects,
the equity holder B/C or O/R ratio is used for rankings, respectively. Finally, this Module
presents all results in both tabular and graphical form.
MODULE THREE
It is designed to assist the analyst in comparing the sensitivity of the selected projects to
changes in any single factor (financial or non-financial) common to all projects selected.
This module can only be accessed via Module Two, and therefore caters for the analysis
and comparison of between one to five projects at a time. It is not the purpose of the
module to perform Scenario Analysis, which can be performed simply by editing existing
models in Module One, but to create different project scenarios, and then evaluating and
comparing them using Module Two. To run an analysis, Module Three requires the fol-
lowing information:
• Project(s) to be analyzed;
• Factor to be analyzed (either financial or non-financial); and
• Range of analysis.
If a financial factor is selected, the analyst must define the range of analysis as a %age
change in the factor’s value (e.g. – 5% to + 5%), whilst if a non-financial factor is se-
lected, the DSS automatically analyzes for the entire range of likelihood values (1 to 7) of
that particular factor. Results are presented both in tabular and graphical form as %age
change in selected factor vs. % change in equity holder’s NPV, or change in factor likeli-
hood vs. % change in the project’s risk/opportunity rating, as appropriate.
NUMERICAL EXAMPLE
The following numerical example demonstrates the practical application of ECCO to the
modeling of two CPI opportunities, Projects A and B. Project A is a real-life, Build-
Evaluation of construction projects 763
It is evident from Table1 that the most likely risk factor to affect the project was “M4 -
Inflation and Interest Rates” (“strong likelihood”), which was also rated as “strongly im-
portant” to the project. Additionally, the financial data contained in the paper was deter-
ministic (single values). Hence, in order to demonstrate the full capabilities of ECCO in
modeling uncertainty surrounding financial factors, each financial factor was transformed
into triangular possibility distributions using information given in the source paper. Fi-
nancial input for Project A is presented as Table 2.
Project B input came from a case study by Abdel-Aziz (2000), the data of which closely
reflects actual data acquired from a 45km, 4-lane highway (Hwy) project in Eastern Can-
ada delivered by PPP. All necessary information pertaining to financial factors on the
project was provided in the paper. Project B has a construction period of 2 years, and a
subsequent operations period of 30yrs, with a loan grace period of 9 years. Possibility dis-
tributions were again developed using data given in the source dissertation pertaining to
uncertainty in inflation rates of toll growth and maintenance, in interest rates, in equity
fraction, in major maintenance costs and in certain construction costs. Table 3 presents all
financial input for Project B. Individual risk factors affecting the project were not identi-
fied in the source paper. Thus, the generic RFF was again adopted as the project’s risk
factor network, while opportunities were simply omitted from the model. The source au-
thor also provided all risk factor importance, likelihood and interdependencies for the
project upon request (Table 4).
764 McCowan and Mohammed
{0.04,0.05,0.06}
Government Contribution – Year 3 of project ($mil) 26
Table 4. Risk Factor Ratings – Project B
RISK FACTOR IMPORTANCE LIKELIHOOD
C1 - Approval and Permit 5 5
C2 - Change in Law / Justice Reinforcement 5 1
C3 – Corruption 5 0
C4 - Political Instability 5 0
M1 - Local Partner’s Creditworthiness 3 1
M2 - Corporate Fraud 3 1
M3 - Termination of Joint Venture 3 1
M4 - Inflation and Interest Rates 5 3
P1 - Cost Overrun 5 4
P2 - Improper Design 5 1
P3 - Improper Quality Control 3 3
P4 - Improper Project Management 5 3
N.B. Scale is from 1 (weak) to 7 (extreme), zero (0) represents no importance/likelihood.
ANALYSIS RESULTS
The results for the evaluation and comparison of the two projects are presented as Table
5, Fig. 3 and Fig. 4. ECCO ranked the projects in the following order according to their
B/CR rating due to the absence of Opportunity Ratings data: 1) Project B – Canadian
BOT Hwy (7.633); and 2) Project A - Turkey HEPP Project (4.630). It should be noted
that financial results for Projects A and B compared reasonably well to those stated in
their respective source papers, despite various differences between ECCO’s financial
analysis model and those described in the papers (e.g. inclusion of uncertainty via use of
possibility distributions).
Project A’s equity holder NPV calculated by ECCO represented a 6.9% difference from
that calculated by Bakatjan et al.’s (2003) financial model, while the average DSCR value
represented only a 0.5% difference. The variation in the NPV results could be attributed
to the difference in formulae used to model the particular performance measures (modifi-
cations made to Bakatjan et al.’s (2003) formulae in the DSS). Also, the IRR determined
by ECCO was within the range reported in the source paper (0.74-0.94). For Project B,
both the overall project and equity cumulative cash flow graphs presented in the paper
resembled those produced by ECCO. However, the overall investment cost NPV was re-
ported to be $116million, IRR as 13.9%, and aggregated B/C ratio of 1.543 compared to
$128million, 12.47%, and 1.527 (overall project) calculated by ECCO, respectively.
From the cumulative cash flow graph provided in the source paper, the payback period
was taken as approximately 10 years, compared to ECCO’s values of 12 years for equity
holders and 11 years for the overall project.
From the equity holder’s perspective, looking at the financial feasibility of the projects,
Project A has a lower NPV ($22million) than Project B ($25.82million), yet a greater B/C
ratio (1.714) and IRR (19.66%). In other words, a greater percentage return is likely for
the least capital outlay. Hence financially speaking, Project A would rank first as an in-
vestment option. However, looking at the two projects’ non-financial aspects, Project A
766 McCowan and Mohammed
has been evaluated as a more risky investment (project risk rating of 0.370 vs. 0.188).
This acts to reduce the B/CR rating, so much so that the ranking of the two projects is re-
versed, and Project B is now considered the better investment.
From the debtor’s perspective, the annual Debt Service Coverage Ratio (DSCR) should
be at least equal to one for the project to be considered feasible. In other words, the net
revenue must be able to meet the debt installment due on loans throughout the repayment
period. Looking at Fig. 4, it is evident that lenders would consider both Project A and B,
feasible. The three spikes in Project B’s DSCR graph are caused by the major mainte-
nance required every 10 years of operations. Apart from these spikes however, Project B
has a DSCR greater than one at all times, with an average value of 2.334. Project A
seems to be most able to service its debt consistently, having a minimum DSCR value of
1.293 and an average value of 1.675.
Thus, greater uncertainty in Project A’s B/C ratio has decreased its attractiveness as an
investment option.
SUMMARY
An effective yet efficient DSS capable of evaluating and ranking various CPI options by
incorporating both financial and non-financial aspects of an investment, as well as the un-
certainties commonly encountered at the feasibility stage, was developed and fully im-
plemented as a stand-alone computer software program, ECCO (Evaluate and Compare
Concession Options). ECCO’s design was based upon techniques in the area of mathe-
matical modeling, financial analysis, risk factor frameworks and decision-making consid-
ered to be most appropriate for the task.
This paper has briefly outlined the DSS design, and provided a numerical example of its
application to the modeling, evaluation and ranking of two real-life CPIs. It has success-
fully demonstrated ECCO’s ability to evaluate and rank two very different CPI opportuni-
ties, taking into account the combined effect of finance, risk, and uncertainty on the over-
all CPI attractiveness, and also provide a set of economic performance measures that
would satisfy the needs of various stakeholders involved (financiers, government or de-
velopers).
There are many benefits that the developed DSS could deliver including:
Although this paper did not include a demonstration of ECCO’s sensitivity analysis mod-
ule, ECCO is also able to compare the sensitivity of up to five projects to changes in any
single factor (financial or non-financial) common to all projects selected.
REFERENCES
Abdel-Aziz, A M (2000) Generalised economic model, risk analysis framework and deci-
sion support system for the analysis and evaluation of capital investment projects.
PhD Thesis, University of British Columbia, Canada.
Bakatjan, S, Arikan, M and Tiong, R L K (2003) Optimal capital structure for BOT
power projects in Turkey. Journal of Construction Engineering and Management,
Vol. 129, No. 1, pp. 89-97.
Halligan, I J (1997) Queensland- The state of infrastructure Public/Private Partnerships.
Master Thesis, Queensland University of Technology, Australia.
Evaluation of construction projects 769
ABSTRACT
With the background of volatile oil and gas prices, marginal oilfields, extreme locations
and new global business trends, the oil and gas industry is forced to seek better solution to
overcome these challenges, among others, to look at new procurement strategies.
Although some changes have taken place in the development of innovative procurement
strategies in other sectors, more needs to be done to the oil and gas industry. This is
perhaps because the oil and gas industry needs to be considered as an individual and
complex industry in its own right. The other probable reason why there appears to have
been little development away from the traditional approaches is because there are
relatively few major players, that is project initiators (clients/owners) and implementers
(drilling contractors etc.) in the oil and gas sector. Clients/owners have also been found to
have a wide variety of method for selecting contractors.
The direct transfer of other industries’ experiences on procurement may not be suitable,
as they are different in nature and many other aspects of the business which could have
given a different impact to the overall management of oil and gas field exploration and
production. Procurement lessons learnt from other industries have also been tested but
with mixed outcomes. This includes Partnering/Alliancing/Joint Ventures, Design and
Build/Engineering, Procurement and Construction, and Performance-Based approaches.
However, procurement issues and problems in the oil and gas industry is not so
pronounced as in other sectors due to the small number of players and the need to
maintain good image, reputation and goodwill amongst them. The overall aim of the
research is to improve procurement strategies in the oil and gas industry. This paper will
present a review of current literature on the subject within the industry.
INTRODUCTION
The oil and gas industry has always made a major impact to the world and UK’s national
and local economies. According to the UKOOA (2003) Report, the UK economy alone
has benefited from £190 billion (2002) in taxes since extraction began in the mid-1960’s.
Less productive and smaller oilfields are also being given a new breath of life through
innovative technological plant and equipment, and more economic management
approaches such as joint venture exploration with shared risks. However, there has been
772 Mohammed and Price
The oil and gas industry must also be looked upon as an individual and complex industry
in its own right. Direct application of lessons learnt in other industries, such as
construction, may not be appropriate, as the two industries differ in many aspects relating
to both the construction, operation and maintain phases. For example, under the operation
stage, the main goal for the oil and gas industry is production with high return whereas in
construction the use of the finished asset to produce goods or provide a service is the key
goal. According to Wright (1996), other characteristics associated with the oil and gas
sector include high capital investment, high level of uncertainty/risk due to its exploratory
nature, high technology/heavy engineering, large scale/magnitude, large number of
engineering disciplines and specialists from exploration to first oil and from production to
decommission and tight delivery/supply and installation schedule.
Challenges on procurement
Throughout the review of relevant articles and papers, it was obvious that a gap exists in
the literature whereby little was found, mentioned or deliberated on regarding
procurement aspects of the oil and gas industry. Out of approximately 200 articles found,
only about 40 articles were closely related to procurement. This does not necessarily
mean that there are no problems but may be a result of the commercial sensitivity
associated with disclosing and sharing problems among what constitutes only a few
players within a very specialized industry. Also, such disclosures could have a negative
impact on image, reputation and goodwill within a high-return industry.
Changes are beginning to take place within large corporations, for example Halliburton
have announced that it will no longer pursue the traditional Engineering, Procurement,
Installation and Commissioning (EPIC) contracts, as there was “the growing imbalance in
the risk and reward available on these offshore EPIC projects” (Halliburton 2003).
Partnering, alliancing and joint ventures have also had their fair share of problems.
Creating trust, unclear roles and responsibilities and alignment to common goals in this
high-risk industry are some of the problems faced by these types of procurement
arrangements (McHaffie et al. 1993; Donnelly, 2003). Short and long-term relationships
within partnering arrangements have to be dealt with accordingly to avoid pitfalls and any
untoward relationship that could be costly (Stevenson et al 2003).
The UKOOA (2003) Report stated that further research on the area is required more now
than ever before. This is because of considerable changes in the oil and gas scenario
throughout the world today with clients and contractors looking more for a win-win
situation in their procurement arrangements. With the high cost of exploration and
production today, the profit margins for clients are decreasing. Selecting the right
contractor with the right price can be a time consuming and risky business. The volatility
of the current oil and gas prices have added to the need to reconsider clients’ cost control
Challenges on oil & gas procurement 773
The aim of the main research is to improved procurement strategies for the oil and gas
industry. However, the objectives of the paper are to:
• identify challenges that the oil and gas industry may have to face with current
procurement strategies;
• study the magnitude and importance of the problems/issues to the industry and
prioritise it accordingly;
• conduct current literature search on procurement to identify previous research in
the area and the gaps that needs to be filled; and
• develop the most appropriate research methodology in order to address the
problems/issues highlighted;
This paper focuses on the first three objectives as stated above. This has been achieved
through a literature search and review which will form an important foundation to further
work. The main research programme started in April 2003 and is expected to be
completed in 2006.
Problems identification
Within the literature reviewed most common problems/issues within the oil and gas
industry currently were associated with EPIC contract failures and partnering/alliancing
ventures turning sour. The high cost associated with the sustainable development of
marginal oil and gas fields has becoming an increasingly important issue among operators
and contractors alike (Ehret, 1992). This is a direct result of the depleting oil and gas
production in the United Kingdom’s Continental Shelf (UKCS) and the rising operating
and maintenance costs of installations in matured and marginal field. The Cost Reduction
In the New Era (CRINE) (Westbrook 1994) and PILOT initiatives by the Department of
Trade and Industry (DTI) were introduced as a means of reducing if not overcoming
these challenges. Independent organisation such as Leading Oil and Gas Industry
Competitiveness (LOGIC) were set up only to address specific contractual and supply
chain issues and training.
774 Mohammed and Price
The main research will cover procurement problems/issues faced by clients/owners and
contractors in the oil and gas industry throughout the world as experienced within major
oil and gas exploration and production regions of UK, US and the South China Sea,
predominantly Malaysia. The research will take account of the different types of oil and
gas activities such as: offshore/deepwater in the UK; onshore/dry land in the US; and
offshore/shallow water in Malaysia. Malaysia has been chosen because it also represents
a country with potential growth in the South China Sea region. This will also create an
opportunity to explore cross-regional learning from different levels of cultural,
technological, geographical and political perspective. The scope of the main research will
also extent its coverage towards cross-sector learning, with the construction industry
chosen as the point of reference and source of information.
In order to achieve the objectives of the main research, the information will be gathered
through primary and secondary data. The source for primary data collection will comprise
the following groups, which include oil and gas operators – Shell, BP, ChevronTexaco,
Petronas(Malaysia) etc., statutory and regulating authorities/bodies and oil and gas
contractors.
Primary data will be collected from the above groups in order to prioritise the problems
and help to develop solutions through interviews, survey questionnaires and case studies.
Many regional issues have surfaced from articles read to date, these include: Iraq with no
central authority and trying to mend and picking up the broken pipes from the effects of
war MSNBC News (2003); the Russians are in hot pursuit claiming their promised oil
share during the pre-war era (Neftegaz RU 2003); Venezuela’s oil and gas industry
collapse with workers on strike and political pressure as reported by Coronel (2003);
China’s emergence as the new global player in the oil and gas industry with joint ventures
investment with major contractors (Clifford 2001); and the UKOOA (2003) Report on
UK oil and gas industry agreeing to improve on capital and operational efficiency. Other
key issues that have emerged include:
• increased cooperation rather than competition among oil and gas contractors (Stabell
and Sheehan, 2001; McHaffie et al. 1993);
• effective supply chain management offering great scope for increased efficiency and
improvements in client/supplier relationships (UKOOA 2003; Bento, 2003)
Challenges on oil & gas procurement 775
Procurement problems
Not many issues on procurement problems seem to appear in the papers or articles but
that does not mean everything is plain sailing. Already at least one major oil and gas
contractor, Halliburton, (Halliburton 2003) has decided that “it will no longer pursue
EPIC contracts for the oil and gas industry where it is required to make lump sum, fixed
price commitments” but “will continue its active participation and leadership in the
offshore engineering and construction market through cost reimbursable arrangements”.
This is due to “the growing imbalance in the risk and reward available on these offshore
EPIC projects”. Another issue that was discussed and deliberated at length was the
integration of supply chains and critical chain concepts in EPIC contracts in order to
enhance some of its flaws and weaknesses (Yeo and Ning 2002). According to Stevenson
et al (2003), in order for a supply chain management system to work, integration is
needed instead of fabrication. The usual conventional versus EPIC contracts is also
becoming a key issue. Among the problems encountered in EPIC contracts, apart from
the above, is that the contractor shoulders the risk when there is a variation order.
Variation orders are common in the oil and gas industry because there are many
uncertainties associated with the exploration and production of oil. Yeo and Ning (2002)
also added that among the challenges faced by EPIC projects are the interdependence of
activities, phase overlaps, work fragmentation, complex organisational structure and
uncertainty in accurate prediction of desired outcomes.
Partnering and alliancing have also had their fair share of problems. Creating trust,
unclear roles and responsibilities and alignment to common goals are some of the
problems faced by this type of procurement arrangement. Poor definition during
conceptual stage of the project between parties and whether the share of the rewards will
commensurate to the risk they are taking can also lead to volatility in the execution and
outcomes (Donnelly 2003). He also reiterated that some of the major companies have in
the past shared risk with mixed results due to naive appreciation of the risks being taken
and the gaps in understanding of the risk/reward model between parties.
The non-existence or rarely used Whole Life Costing (WLC) in procurement practices in
the industry is another aspect that causes concerned over the rising costs of material and
plants during the production period that covers operational and maintenance costs.
776 Mohammed and Price
Procurement strategies
In order to overcome some of the existing problems and offer potential solution, a few
innovative approaches to procurement have been put forward by players in the industry,
these include:
• cooperation rather than competition among contractors and suppliers (Wright, 1996;
Stabell and Sheehan, 2001; McHaffie, et al. 1993; and Adam, 1992);
• effective supply chain management to increase efficiency and improvements in
clients/supplier relationship (Yeo and Ning, 2002; Stabell and Sheehan, 2001;
Stevenson et al, 2003; Bento, 2003);
• partnering/alliancing/joint value enhancement to be looked at in accordance to
today’s market environment (Chan, et al. 2003; Brunsman, et al. 1998; Bruce and
Shermer, 1993; Donnelly, 2003);
• cost effectiveness with regards to operational management (Wright, 1996);
• effective incentive schemes for contractors and supplier (Richmond-Coggan, 2001);
• leasing (Wright, 1996);
• contract to produce (Wright, 1996);
• whole life costing (Mohammad, M.F. 1996; Best, R. and de Valence, G, 1999); and
• incorporating multi-cultural complexities factors (Stevenson et al, 2003)
There is also a need for innovative procurement strategies in the oil and gas industry, as
cited by Dittrick (1999) in a survey of integrated oil and gas companies in the US. It
stated that project procurement process in the oil and gas industry is a capital-intensive
industry. As 90-95 per cent of project costs are paid to contractors and suppliers, to
ensure project success, it is critical that procurement strategies should incorporate and
integrate with the capital project procurement process from start to finish. It must also
submit to total system of cost and evaluation throughout the procurement process such as
Whole Life Costing (WLC). Some form of standardization programme and specification
reviews must also be included. A strategic outsourcing, such as in supply chain
management, must be in place. Finally, a management and incentive programme for all
key contractors and suppliers must exist in order to secure the commitment of contractors
and suppliers to the overall success of the project.
Wright (1996) stated that the adoption of these new procurement strategies by the key
players in the UK North Sea has been instrumental in rejuvenating the industry by
allowing cost-effective development of smaller and more marginal oil and gas fields. The
industry’s initiatives such as PILOT and CRINE have also helped to create the
appropriate environment for a more standardised and cost reduction contractual
arrangements.
Challenges on oil & gas procurement 777
CONCLUSION
During the literature search, most of the papers found were either technological,
economics or strategic planning based but also included aspects of procurement and
contracts. Little appears to have been written on this ‘softer issues’ of procurement
systems/strategies in an industry that generates billions of dollars per day in revenue. This
could be due to the complexity and nature of the industry itself.
The challenges on procurement for the oil and gas industry appears to have been the little
development from the traditional to the latest approach in procurement where most of the
procurement systems used appear to be mere carbon copies taken from other industries.
Throughout the general reading of articles and papers, it was obvious that there was a gap
in the literature whereby little was found, mentioned or rather the few numbers of
research work that has been done on the procurement aspects of the industry. In order of
priority, it has been established that cost cutting, cost reduction and risk management
appeared quite frequently in recent articles, thus needs to be addressed first. Cooperation,
competitiveness and organizational strategy are the keywords in most of the articles
although no linked to procurement system/strategy are directly mentioned in the articles.
However, Wright (1996) has identified key trends and factors in procurement, particularly
in the UK North Sea oil and gas industry, that need to be addressed accordingly which
include the increased contractors’ risk, market polarisation, cultural changes, oil company
specialisation, project timescales, technology and product-oriented solutions.
During the Offshore Europe 2003 conference, Stevenson et al (2003) stresses that as far
as procurement strategy is concerned, contractors should not confuse risk transferences
with commercial integrity in their execution. They must be sensible in allocating risk
within their capabilities and must also be able to become flexible to revert to reimbursable
scopes where definition, local content or other variables dictate.
Finally, as de Valence, (1997) cited in Best and de Valence, (1999) argued: “…owners
and clients are increasingly using a variety of alternative procurement methods aimed at
reducing cost, achieving time schedules and milestones, shortening duration, reducing
claims and improving constructability and innovation. The overall trend is toward
versions of design-build and turnkey construction because of the advantages of a project
delivery system that combines designers, builders and sometimes suppliers into a single
entity, to solve the problems inherent with traditional low-bid procurement”.
Whether this will apply successfully in the oil and gas industry is remain to be seen.
778 Mohammed and Price
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FACTORS AFFECTING ARCHITECTURAL SPACE PROGRAMMING FOR
UAE PUBLIC HEALTHCARE PROJECTS
Space programming factors in healthcare projects
J. LEWIS
School of Architecture and Building Engineering, University of Liverpool, Leverhulme
Building, Abercromby Square, Liverpool, L69 3BX, UK.
ABSTRACT
In the United Arab Emirates (UAE), the effects of globalization are best seen in the
construction industry with professionals, from different countries and nationalities,
working in the design and construction of large engineering projects. Several factors
affecting the preliminary and design stages such as local culture, climate and
environmental factors and needs are likely to be neglected causing consequential changes
during these stages.
Space programming is the architect’s first task and often the most important one. Its main
objective is to determine the internal space required for the building in order for it to
function properly. For a healthcare project, developing Architectural Space Programming
is considered one of the most important tasks in its appraisal stage. Because of the high
degree of repetition that exists in healthcare projects, it is expected that the same types of
risk and uncertainty are likely to take place in similar future projects. By assessing and
documenting these factors and their impact on space programming and cost parameters,
more accurate conceptual cost estimate along with its space programming can be
achieved.
This paper presents an approach to establish space programming utilization factors for
UAE healthcare projects that respond to cultural, climate and environmental factors and
needs. The study is guided by a comprehensive literature review on healthcare space
programming related issues, a case study analysis, as well as interviews to senior
engineers, personnel from public sector and industrial experts involved in the UAE
healthcare project lifecycle.
INTRODUCTION
Architectural space programming is the architect first task and often the most important
one. It is defined as determining the space required for the building to function properly,
whereas space planning or design is developing an actual floor plan of the space. For
healthcare facility, the designing process is a hard and very complicated task. It involves
the coordination of many groups and agencies on many different levels, which is local,
government and nongovernmental entities that enforce healthcare requirements. A
successful operated facility depends heavily on the initial architectural space
programming stage preceding its design. During this stage, many options with a very
large amount of information must be generated and analyzed in a short period of time.
In the United Arab Emirates (UAE) and over the past few years, improvement in the level
of medical healthcare services associated with increase in the number of hospitals is
clearly noticed. With a population of about 3.1 million, the country has achieved a
remarkable progress in its healthcare services since its independence 33 years ago. It
became a member of the World Health Organization (WHO) in March 30, 1972.
According to UAE Ministry of Health (MOH) statistical book, [2000], there has been a
tremendous improvement in the number of hospitals and level of medical healthcare
services over the past few years. There is a clear government vision to improve the
healthcare services in all Emirates. This fact is supported by the establishment of the
General Authority for the Health Services (GAHS) for the Emirates of Abu Dhabi
(GAHS).
Different government agencies and private consultants are involved in the UAE public
healthcare project lifecycle. With reference to interview sessions with different UAE
government agencies' personnel involved in the conceptual and design stages of the
healthcare project, there is no proper or clear methodology for space programming
process during appraisal stage. In some cases simple “rules of thumb” or simple estimate
based on the number of in-patient beds are used. In others cases, it become the
responsibility of the consultant designing the facility. All too often designers undertake
their work in the absence of both a function program and a space program. Several factors
affecting the preliminary and design stages such as local culture, climate and
environmental factors and needs are likely to be neglected in the space programming
process. Such a situation will lead to consequential changes during these stages that will
normally cause cost and time overrun. There is a need to develop a space programming
guidelines for UAE healthcare projects. This will assist in developing more clear scope
of work during the appraisal stage, which will contribute in reducing consequential
changes during design stage.
This paper reports on the first phase of an ongoing research project aimed at developing
space programming guidelines for UAE healthcare projects. These guidelines will be
used to determine their space requirements based on the type of information that would
typically be available before detailed programming studies and design is performed. In
order to achieve this, the paper main objective is to present an approach to establish space
programming utilization factors for UAE healthcare projects that respond to local culture,
climate and environmental factors and needs. The study is guided by a comprehensive
literature review on healthcare space programming, a case study analysis, as well as
interview sessions with senior engineers, personnel from public sector and industrial
Space programming factors in healthcare projects 785
experts involved in the UAE healthcare project lifecycle. The paper is divided into two
main parts. Part one provides an introduction and background to the space programming
related issues. A case study is analyzed and a preliminary space programming utilization
factors is presented in the second part. Finally, conclusions and recommendations as well
as future work plan are presented.
The process of planning, design and construction of any healthcare environment goes
through different phases and in a sequential manner. It begins with master planning and
finishes with construction and occupancy. According to Abdou et al (2003), three major
phases can be identified as follows: (1) master planning, (2) pre-design and (3) design,
construction and occupancy. The master planning phase involves a series of problem-
solving activities such as research, generation of conceptual alternatives, refinement and
development of these alternatives, and resolution of concepts within constraints. Arneill
(1997 identified the major processes that occur respectively during the master planning
phase. These include: data gathering; evaluation and assessment; preliminary facility
programming; conceptual master plan alternatives; resolution of a master plan and finally
action planning. The pre-design phase concerns with developing and defining a general
idea for the project. It involves assessing existing resources, identifying proposed needs,
developing and refining a detailed building space program, and establishing a realistic
budget for the project. The last phase, which is design, construction and occupancy, is the
traditional phase of project delivery process starting from design through construction and
occupancy. An overview of the planning, design and construction process during
healthcare project lifecycle is shown in Figure 1.
The programming process continues during the pre-design stage. Using forecasted
workloads and other information, this process should focus on estimating key patient care
786 Al-zarooni, Abdoe and Lewis
spaces (for example, patient beds, exam rooms, operating rooms) and then developing
estimates of other space elements necessary to support these preliminary activity areas
[Tusler and Zilm, 1997].
The quantity of space necessary for a given hospital department can usually be
approximated if one of the following factors are known: (1) workload; (2) hospital size
(usually the number of licensed beds); and (3) inpatient utilization (patient days of
admissions). Although these factors could be quantified for a certain location, there are
Master Planning Pre-design Design, Construction, and Occupancy
Data Data
Collection and Collection and
Assessment Assessment
Schematic
Function Design - Design
Strategic Physical & Programming/ Block Development -
Workload Space
and Role Function Preliminary Drawing Construction Occupancy
projections Programming
Planning Evaluations Space Layout Documents -
Programming Bidding -
Construction
Master
Site
planning
Financial
Planning
Figure 1: An overview of the planning, design and construction process during healthcare project
lifecycle. Adapted from [Allison (1997), Hardy and Lammers (1977)]
other risk factors that affect the overall project cost and its final space program. Tusler
and Zilm [1997] discussed the importance of facility space programming. They indicated
that the ability to quickly generate or confirm preliminary estimates of space needed is
essential to early information of project scope and cost. However, they advised not to use
simple "rule of thumbs" guidelines to estimate space needs as these can easily overlook
unique characteristics of an institution and the enormous changes occurring in the
healthcare environment.
The approved projections of censuses, outpatient visits, and workloads are the basic start
point to develop master/function programming. Following that, detailed space
programming will take place in order to develop appropriate net and gross space program
for the healthcare facility, all before the beginning of the design stage.
Space programming serves several objectives and purposes. According to [Hardy and
Lammers, 1977], among its important purposes are the following: (1) guidance to
architect/designer; (2) assurance for users. The detailed list of all rooms with their
proposed areas provides all hospital department heads assurance that agreed-upon rooms
and spaces will appear in the design from the start; (3) control by client executives. The
space program represents a control mechanism over the designer from the standpoints of
scope management (room and departmental sizing and basic characters of entire hospital)
and project cost management; (4) provide early needed information for other members of
Space programming factors in healthcare projects 787
the professional planning team of the project, such as the financial consultant and the
project manger.
The hospital spaces and departments can be zoned and classified using different
approaches, James and Tatton-Brown (1986) group them into three main zones: (1) the
nursing zone for patients' services; (2) the clinical zone for diagnostic and treatments; (3)
the support zone for other spaces serving the previous two zones. Similarly, Zilm and
Spreckelmeyer (1995) had three classification zones as: (1) patient-care area; (2)
Diagnostic-treatment areas; (3) Support areas. Dickerman (1992) classified hospital
spaces into five zones: (1) inpatient nursing services; (2) Medical ancillary services; (3)
administrative services; (4) support services; and finally (5) other services areas. All
previous classifications are more or less the same and their sorting key issue is the
function use of space.
From space programming point of view, spaces in healthcare project can be classified into
two major groups: (1) workload driven spaces; and (2) support spaces. The workload
driven space is the activity space in the department that can be translated and calculated
from the projected workloads. To be able to perform the transformation, the applicable
workload units (patient days, visits, procedures, etc) as well as the space function
planning unit (such as patient beds in nursing units and operation theatres in surgical
department) should be identified and utilized. Table 1 list all hospital departments, their
main functions, workload units and function planning units.
Following that the support spaces can be determined based of the calculated areas of the
workload driven spaces for a particular department, usually by using percentage factors.
By summing all workload driven spaces and support spaces, the department net area
could be calculated. The gross department area, which is a conversion of net area to gross
area most commonly accomplished by applying empirical conversion/grossing factors,
can then be established. The department grossing factor stands for the architectural spaces
required to house all department net spaces and their activities, such as department
corridors, wall and partition thickness, public rest room facilities and stairways and
elevators. Building gross area can be calculated following the same methodology by
summing up all departments gross area and apply building conversion/grossing factor.
This factor stands for building main circulation/corridors, wall and partition thickness
between departments, public rest room facilities, stairways and elevators. An over view of
space programming process is shown in figure 2.
Table 1: Hospital departments, their functions, workload units and function planning units
1.3 Inpatient Nursing Units Patient Days Patient Bed – Patient Medical Surgical, Labor &Recovery, Obstetrics,
rooms (Single, Double & Pediatrics, Cardiology, Etc.
Multi bed)
1.4 Intensive Care Unit Patient Days Cubicles / Bed space Medical, Surgical, Pediatrics, Others.
1.5 VIP Department Patient Days Patient rooms/ Suites Nursing Units and Suites, small operations, Labor and
delivery facilities etc.
2.1 Cardiology Patient days/Procedures Systems (Cath Labs) Cardiac Catheterization, Cardiopulmonary. EKG, EEG,
etc
2.3 Diagnostic Imaging Procedures (examinations Procedure Room Standard Radiation, Fluoroscopic, Chest Unite, MRI
by imaging types) Unite, CAT Unit, IVP/Tomo.
2.4 Endoscopy Procedures Procedure Room Upper GI, Lower GI, Broncoscopy, others.
2.5 Labor and Delivery Deliveries/ Patient days (Traditional, / C-section/ Labor and Delivery, Baby Nursery (Intensive care
Labor/ Recovery) rooms Nursery, Intermediate Care Nursery, Normal Nursery)
+ Nursery Bed
2.7 Rehabilitation/Therapy Treatment/ Licensed NA Physical therapy, Occupational therapy, Speech and
Beds Audiology, Radiation therapy, Respiratory therapy.
2.8 Surgery & Recovery Procedures Operating Room (OR) Operation Rooms, Recovery, Service and Support area
4.1 Central Sterile Procedures Sterilizer System Terminal, sterilizers, Washer/Sterilizers, Clean Supply
storage, sterile Supply storage, staff, etc.
4.2 Dietary and Food Services Meals NA Dietary area, Dining area, Storage areas, Staff area,
4. Support Services
services.
4.3 Engineering and Licensed Beds NA Mechanical shop, Elect. Shop, storages, directors, and
Maintenance other services area (Elect, Mech. AC, Power rooms
etc).
4.4 Environmental & Laundry Licensed Beds NA Washer and driers, Equipment storage, Supply storage,
services etc.
4.5 Material Management Licensed Beds NA Storages areas, Receiving areas, Purchasing
workstation, etc.
One of the early objectives of this research project is to trace the practices used for
healthcare space programming in the UAE. Eleven structured and unstructured interview
sessions were organized and conducted, during the period October 2003 till June 2004,
Space programming factors in healthcare projects 789
with different government agencies' personnel involved in the conceptual and design
stages of UAE healthcare project.
It was observed from the interviews that there is no proper or clear methodology for space
programming process during appraisal stage. In some cases simple “rules of thumb” or
simple estimate based on the number of in-patient beds are used. In others cases, it
become the responsibility of the consultant designing the facility. All too often designers
undertake their work in the absence of both a function program and a space program.
Most of these consultants have no local experience and follow their own standards in their
origin countries. Several factors affecting the preliminary and design stages such as local
culture, climate and environmental factors are likely to be neglected causing
consequential changes during these stages which will normally lead to cost and time
overrun.
In previous studies, authors have conducted a survey on cost estimates variations. Thirty
UAE public projects were examined, statistics show that variations between the actual
and contract cost were at an acceptable level, while there were high variations (positive or
negative) between feasibility and contract cost with the average ranging between (–
28.5%- + 36%) with no clear pattern for those variations [Al Zarooni and Abdou, 2000].
The respondents were asked to identify the major reasons responsible for time and cost
overrun during the conceptual and design stage. The consequential changes arising from
insufficient scope definitions were identified as one of the major factors for time and cost
overrun during these stages. Another identified reason, from designer point of view, was
the lack of appropriate communication and coordination between government's bodies
involved during the healthcare project lifecycle. In addition, other factors were reported to
have implications on the project form and total areas during the design development
stage. Among these factors, local culture, climate and environmental factors were
reported. All too often the approved final project design has a variation in area, normally
in positive side, compared to its original master/function program if there is any. There is
a need to develop a space programming guidelines for UAE healthcare projects. This will
assist in developing more clear scope of work during the appraisal stage that will help in
reducing possible changes during design stage. As possible sources for cost overrun the
inflation rate, exchange rate fluctuations, and technical problems were also reported.
To trace the effect of design forces, local culture needs, climate and environmental factors
on the space programming of UAE healthcare project, architectural area analysis for
existing case studies is needed. This will help in determining different associated
utilization grossing factors. As a result, gross areas for different hospital departments as
well as building total gross area can be calculated more accurately. In sight of the space
programming process shown in Figure 2, a methodology was developed for the
Architectural area analysis. Detailed architectural floor plans of existing case studies are
needed for area calculations and analysis.
The major steps for this methodology are as follows:
• Calculate the net area for each function space from its actual interior dimensions.
790 Al-zarooni, Abdoe and Lewis
• Calculate total net area for all function spaces in a certain hospital department by
summing up their net areas from previous step and calculate the department total
gross area from its centerline dimensions.
• Calculate the department conversion/grossing factor by dividing department gross
area by the net area. The department grossing factor stands for the architectural spaces
required to house all department net spaces and their activities, such as department
corridors, wall and partition thickness, public rest room facilities and stairways and
elevators.
• Repeat previous steps for each department and calculate the total departments gross
area
• Calculate the Building conversion/grossing factor by dividing Building total gross
area by the departments' total gross area. The building conversion/grossing factor
which stand for building main circulation/corridors, wall and partition thickness
between departments, public rest room facilities and stairways and elevators.
The previous established methodology for architectural area analysis was used to
calculate departments' conversion/grossing factors, which are shown in table 2. Two
groups of grossing factors values are presented in the same table. The first one, by [Hardy
and Lammers, 1977] while the other, is a recent one by [Zilm and Spreckelmeyer, 1995].
Both are published industrial guidelines for healthcare space programming. When
compared with previous two groups, the calculated grossing factors values of the
examined case study have a variation mainly in the positive side. Most of these sorted
factors were from the patient-care departments and administrative services. This could be
understood as a result of different reasons. For example, in the UAE, the social values
preference is to have a separation in male and female gender especially in waiting areas,
some times with different entrances as well. Other possible reasons could be due to the
thickness of walls, climate condition, as well as the concept of open courts as climate
responsive solution, which is normally recommended for hot climate.
All projects involve uncertainty and risks of various scales and types. In construction
projects, risks and uncertainties are of several types. Some of these are: political,
financial, economical, environmental and technical. Many of these uncertainties will
involve a possible range of financial outcome that could be better or worse than predicted.
The construction industry in particular has been slow to realize the potential benefits of
risk management [Flanagan and Norman, 1993].
Space programming factors in healthcare projects 791
Outpatient Services
Services
Kenneth Dickerman [1992] discussed the importance of hospital space programming and
several factors that affect its development. He identified the rapid development of
medical technology and the social changes as important factors affecting the facility
planning and design. He gave an example, as the space allocated yesterday for a certain
diagnostic area may not be suitable today for new medical equipment. However, the
effect of medical technology development, which normally affecting the facility’s
function planning units, can be taken care of during the space programming process by
following up the latest guidelines references for healthcare design and their minimum
requirements for the facility’s function planning units.
792 Al-zarooni, Abdoe and Lewis
Table 3: Preliminary risk/ uncertainty factors that occur during early stages of UAE healthcare project
Financial and economical risks Operational and managerial risks Design risks
• Inflation • Lack of communications • Incomplete project scope
• Exchange rate • Lack of coordination • Design changes by client
fluctuations • Misguided by clients • Lack of expert consultants
• Interest/finance charges Political risks • Inadequate specifications
• Tender price changes • Changes in polices and lows • Defective designs
• Taxation on materials • Delays of government • Errors and emissions
• Market condition approvals • Labors shortage
This paper reports on the first stage of an ongoing research project aimed at developing
space programming guidelines for UAE healthcare projects. These guidelines will
contribute in reducing the timeline for consequential changes that occur during
preliminary and design stages, which arise from unclear scope definition of UAE
healthcare project.
One of the most important factors that were found to be responsible for UAE healthcare
project cost and time overruns is the consequential changes arising from insufficient and
poor scope definitions during the early stages of project development.
and more accurate space programming. Therefore this will lead to more accurate cost
estimating during master planning, pre-design and design stages.
FUTURE WORK
A formal questionnaire survey will be organized to filter and rate the sensitivity of risk
and uncertainty factors that were identified during master planning, pre-design and design
stages. It will also measure the impact of such factors on space programming and cost
parameter of healthcare projects. By taking these factors into account during these stages,
more accurate facility space program and its capital budget can be developed.
Several functioning healthcare facilities with their detailed floor plans are currently being
analyzed. This will lead to identify the actual UAE utilization factors needed to develop
the space programming guidelines.
REFERENCES
Abdou, A., Lewis, J. and Radaideh, M. (2003) Utilizing architectural space programming
for early cost estimating: A web-based solution for UAE Healthcare projects,
Proceedings of 2nd International Conference on Innovation in Architecture,
Engineering and Construction (AEC), Loughborough, UK, 25-27 June, pp. 387-
399
Al Zarooni, S. and Abdou, A. (2000) Risk management in pre-design stage and its
potential benefits for UAE public projects, Proceedings of 28th World Congress
on Housing Challenges for the 21st Century, Abu Dhabi, UAE, 15-19 April, pp.
109-118
Allison, D. J. (Ed.) (1997) Planning, Design, and Construction of Health Care
Environments, Joint Commission, Oakbrook terrace, IL, USA.
Arneill, B. P. (1997) Master planning- before you begin a project, In Planning, Design,
and Construction of Health Care Environments (Ed, Allison, D. J.) Joint
Commission, Oakbrook terrace, IL, USA, pp. 63-88.
Dickerman, K. (1992) Hospital Space Programming: Guidelines for Departmental Space
Requirements, Health Facility Publishers, Jacksonville, Florida, USA.
Flanagan, R. and Norman, G. (1993) Risk Management and Construction, Blackwell
Science Ltd, London, UK.
Hardy, O. B. and Lammers, L. P. (1977) Hospitals, The Planning and Design Process,
Aspen Systems Corporation, Maryland, USA.
James, W. P. and Tatton-Brown, W. (1986) Hospitals: Design and Development, The
Architectural Press Ltd., London, UK.
Ministry of Health (2000) Yearly Statistical Book, Ministry of Health, Abu Dhabi, UAE.
Tusler, W. H. and Zilm, F. S. (1997) Pre design: focusing the project, In Planning,
Design, and Construction of Health Care Environments (Ed, Allison, D. J.) Joint
Commission, Oakbrook terrace, IL, USA, pp. 89-118.
Zilm, F. and Spreckelmeyer, K. (1995) Space Planner Toolkit: Hospital Edition, The
American Society for Healthcare Engineering of the American Hospital
Association, Chicago, IL, USA.
APPLIED DYNAMIC STRATEGIC PLANNING FOR CONSTRUCTION
DECISIONS UNDER UNCERTAINTY
V. LIKHITRUANGSILP
Department of Civil Engineering, Chulalongkorn University, Bangkok 10330, Thailand.
fcevlk@eng.chula.ac.th
ABSTRACT
INTRODUCTION
contractor uses all available information as well as his professional experience and
judgment to establish a best possible (optimal) construction plan for a project.
Comprehensive and realistic construction plans must strive for optimal decisions that
minimize construction time and cost while addressing important factors, especially
project risks. Several major decisions must be made in construction planning, including
construction methods, construction equipment, site layout, sequence of construction
operations, and construction resource (labor, equipment, material, and space)
management. This decision process is influenced by a variety of uncertainties such as
imperfect knowledge of site conditions and uncertainty in construction productivity.
Thus, construction planning can be characterized as a sequence of decisions under
uncertainty.
Dynamic strategic planning is the application of several efficient planning tools to define
the best possible action for decision making under uncertainty. This approach
systematically characterizes uncertainty associated with the forecast of system
performance and develops strategic plans that are adjustable to the prevailing
circumstances. Dynamic strategic planning seeks long-term benefits, rather than myopic,
short-term benefits of the system.
Dynamic strategic planning is considered the third generation of systems analysis, the
evolution of which can be listed in chronological order as follows: (1) system
optimization, (2) decision analysis, and (3) dynamic strategic planning [de Neufville,
n.a.].
Constructing a complete decision analysis model for a realistic practical problem strives
for enormous effort. The analyst must identify all possible alternatives to evaluate,
recognize the value of each alternative’s flexibility, apply analytical tools to evaluate its
flexibility, and select the most effective plan. Due to these limitations of decision
analysis, dynamic strategic planning, the third generation of systems analysis, was
introduced.
Dynamic strategic planning is the latest stage in the evolution of systems analysis. It can
deal with the above issues addressed by system optimization and decision analysis. In
addition, it can also identify the most valuable flexibility as well as incorporate the
influence of decision makers (stakeholders) in systems analysis. Dynamic strategic
planning recognizes risks and incorporates strategic approaches into the plans by using
two main analytical methods: decision analysis and real options.
The flexibility inherent in system designs is known as “real options,” which can be
evaluated by using techniques recently developed to price financial options and other
derivative instruments (e.g., option pricing theory). In brief, an option is the right to take
an action some time in the future for a predetermined price and a given period. A
purchaser can take advantage of an opportunity either to enter a good situation, known as
“calls,” or to get out of a bad situation, known as “puts.” In order to value real options,
the techniques for financial options need to be adjusted to the reality of system design and
planning. In practice, real options can be analyzed by using decision analysis as a basis.
Applications of real options to management problems can be found elsewhere [e.g.,
Brealey and Myers (1996), Schwartz and Trigeorgis (2001), and Likhitruangsilp (1997,
2003)].
A c tio n k A c tio n l
C u rre n t S ta te T ra n s itio n N e x t S ta te
i fro m s ta te i to j j
E poch n E poch n+ 1
R e w a rd = f ( k , i, j )
and reward may depend on the decision epoch, the choice of action, and the current and
next system states (i.e., the transition). At the subsequent epoch n + 1 , the decision maker
encounters a similar problem, but now the system may be in a different state j, and they
may be a different set of actions to choose from. As this process evolves through time,
the decision maker receives a sequence of rewards [Puterman, 1994].
A probabilistic sequential decision problem can be structured and solved by several tools,
including decision trees and mathematical models.
DECISION TREE
D e c is io n C hance D e c is io n C hance
N ode N ode N ode N ode
z1; p (z1)
B1
x1
B z2; p (z2)
2
p (x 1)
A 1
C1
x2
C 2
p (x 2)
D 1
y1
D 2
p (y 1)
A 2
E1
y2
E2
p (y 1)
A typical decision rule used to choose among available alternatives is maximizing the
expected monetary value (EMV). That is, at any decision node the decision alternative
leading to the highest EMV is chosen. This decision rule however is appropriate if the
cost associated with an outcome is relatively small as compared to the decision maker’s
wealth. Otherwise, utility theory, which addresses the decision maker’s risk sensitivity,
needs to be applied, as will be discussed later.
A sequential decision problem can be solved on a decision tree by proceeding from the
outcomes at the right side and moving to the left. This solution procedure, called rollback
analysis, consists of two main steps: (1) determining the EMV of each chance node and
(2) selecting the alternative with the highest EMV at each decision node.
Consider a MDP with a finite set of decision epochs T = (1, 2,..., N ). Let S denote the
finite set of systems states and the finite set of actions is defined by A. The state and the
action at decision epoch n are represented by sn and an, respectively. For n < N , if the
system occupies state i at epoch n and action k is chosen, a transition to state j at epoch
n + 1 can be determined by the transition probability
Pijk (n) = P( sn +1 = j | an = k )
(1)
Resulting from the transition the decision maker earns the reward at epoch n, Rijk (n). A
policy π is a decision procedure that specifies a decision for each state at a given epoch.
Let π ( n, i ) denote any decision made according to policy π given that the system
occupies state i at epoch n. Assume that the decision maker has a linear utility function;
that is, he is risk neutral and wants to maximize the total expected reward (EMV). Thus,
the optimal decision policy can be obtained by determining a policy that maximizes the
total EMV among the finite set of all possible policies.
Given that k = π ( n, i ) and let f i (n) be the maximum EMV earned from epoch n through
the end given that the system occupies state i at epoch n. According to the principle of
optimality, f i (n) uniquely exists for all i and n, and can be computed by the optimality
equation [Denardo, 1982]:
800 Likhitruangsilp
(2)
Solving a MDP begins with the boundary condition, f i ( N ), for all states i. Eqn 2 is then
applied recursively to determine the maximum EMV from epoch N − 1 through the end,
from epoch N − 2 through the end, and so on. Finally, the maximum expected reward for
any beginning state, f i (1), can be determined. This computational procedure is called
backward recursive fixing or stochastic dynamic programming. Solving Eqn 2 also
provides the optimal policy π * for the system:
(3)
The risk sensitivity of a decision maker can be encoded by a unique utility function
[Howard, 1977]. A utility function u (v) assigns a real number u in an ordinal scale to
each of the possible outcomes v of an uncertain proposition (termed lottery). According
to the properties of the utility function, the decision maker’s preference in ranking
alternative lotteries with uncertain outcomes can be quantified by the expected utility
value (EUV) of each lottery [Luce and Raiffa, 1957]. If the larger value of v is preferred,
then u (v) is a monotonically increasing function of v. When the decision maker has to
choose between several lotteries, the one with the greatest EUV is the most desirable
option.
The certain equivalent (CE) or selling price of a lottery v% is defined as the value of the
outcome that has the same utility as the EUV of the lottery.
u (v% ) = E [u (v)]
(4)
The decision maker is indifferent between facing the uncertain outcomes of a lottery and
receiving the CE with certainty. The CE of a lottery must be interpreted algebraically.
For example, the CE of a lottery involving monetary loss (e.g., construction cost) is
negative, which represents the amount of money the decision maker is willing to pay
(e.g., subcontract) in order to sell the risk of that lottery to other parties (e.g.,
subcontractors) [Ioannou, 1989].
(5)
The term u * (v%i (n)) represents the maximum EUV of the reward earned from decision
epochs n through the end given that the system occupies state i at epoch n. The transition
from state i at epoch n to state j at epoch n + 1 and action k is chosen follows the
transition probability Pijk (n) , leading to the reward Rijk (n) and the remaining transitions
whose the certain equivalent is v% j (n + 1) . The computational procedure of Eqn 5 is very
similar to that of Eqn 2; that is, it can be solved by using stochastic dynamic
programming. Detailed discussions of this topic can be found in Likhitruangsilp (2003).
APPLICATIONS
A contractor is choosing between purchasing and renting construction equipment for new
construction projects. The initial cost of the equipment purchased is $90,000 with the
total maintenance cost of $10,000 per job. The salvage value of the equipment is $65,000
after the first job. The salvage value will additionally decrease $10,000 for each job
thereafter or $5,000 if the equipment is left unused for six months. The rental rate of the
equipment is $26,000 per job without any maintenance cost. The total profit earned from
each project without considering the equipment cost is $50,000. The probability the
contractor would be awarded for each project is assumed to be 0.6, which is independent
of its decision on purchasing or renting the equipment. If the contractor purchases the
equipment and does not win a job, it has two options: (1) keep the equipment for six
months and look forward to using it for the next project it wins, or (2) sell the equipment
and purchase or rent the equipment as the new project is awarded.
Figure 3 shows a decision tree for developing a dynamic strategic equipment management
plan for two new construction projects. The costs and profits associated with each
decision and event are shown on the corresponding branch in the tree. Figure 4 illustrates
rollback analysis of this decision problem. The results show that the contractor should
rent equipment for both projects because this alternative maximizes the maximum
expected profit (i.e., $52,800).
802 Likhitruangsilp
p= 0.6 WinWork
p= 0.4 None
Sell
New Job
E[V] = 0.6x39000 + 0.4x15000 =
52,800 29,400 0.4 None 15,000
(49,560 < 52,800)
p= 0.6 WinWork
Rent Equipment
p= 0.4 None
Parallel to Eqn 5, the optimality equation of this tunneling problem can be written as:
(6)
The term u * (v% (n, i, k )) represents the maximum EUV of tunneling costs incurred from the
current epoch n through the end of tunnel, given that the current state is defined as the
combination of currently being in ground class i and using excavation method k. PijGC (n)
is the ground class transition probability; that is, the probability that the ground class
makes a transition from state i at the current epoch n to state j at the subsequent epoch
n + 1. CM (k , k ′) is the total cost resulting from adapting the excavation method at epoch
n. C (k ′, j ) is tunneling costs incurred if excavation method k ′ is chosen and the actual
ground class after excavation is j. v% (n + 1, j , k ′) is the certain equivalent of tunneling
costs incurred from epochs n + 1 through the end of tunnel, given that the ground class at
the next epoch is j and the excavation method selected for the current stage n is k ′ . J is
the set of possible ground classes in the project. K is the set of the excavation methods
used. N is the set of tunneling stages (locations).
CONCLUSIONS
This paper presents general principles and applications of dynamic strategic planning to
construction management problems. A decision tree and a risk-sensitive Markov decision
process are used as tools for analyzing two sequential probabilistic decision problems.
Both tools develop the optimal strategic plans providing the maximum expected value
(EMV and EUV) for the systems considered. Dynamic strategic planning can also be
applied to other construction engineering and management problems involving sequential
probabilistic decision makings such as multiple-phase construction projects.
Dynamic strategic planning for construction 805
$(28,000,000)
$(30,000,000)
$(32,000,000)
$(34,000,000)
Risk-Adjusted
$(36,000,000)
Tunneling Costs ($)
Fig. 5 Risk-Adjusted Tunneling Costs for Different Risk Aversion Coefficients (γ)
2470 2200 2000 1800 1600 1400 1200 1000 800 600 400 200 0
Location
(ft)
Ground Class 1
EM 1
Curre nt EM :
EM 2
EM 3
2470 2200 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Location
(ft)
Ground Class 2
EM 1
Curre nt EM :
EM 2
EM 3
2470 2200 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Location
(ft)
EM 1
Ground Class 3
Curre nt EM :
EM 2
EM 3
Ground C lass 1 Ground C lass 2 G round C lass 3 Excavation M ethod 1 Excavation M ethod 2 Excavation M ethod 3 Infeasible C ases
REFERENCES
MELISSA M. M. TEO
University of New South Wales, Australia. mmmteo@hotmail.com
MARTIN LOOSEMORE
University of New South Wales, Australia. m.loosemore@unsw.edu.au
ABSTRACT
The construction industry is one of the largest consumers of natural resources and its
activities have a major impact upon the natural environment. With growing public interest
in environmental issues, the industry is being held increasingly accountable for the
environmental impact of its activities. Recently, because of increased public and political
interest in the social impact of globalization, increasing attention has been paid to the
industry’s environmental record on very large international construction projects in
developing countries. The process of globalization has led to the industrial emergence of
developing countries, which with limited construction capacity, are increasingly reliant on
overseas construction expertise to help in upgrading their support infrastructure at a pace
which does not restrict economic development. This paper explores this vulnerability and
describes a research project (funded by the RICS Research Foundation) which
investigates the environmental risk management practices of major international
contractors on such projects. The rationale and methods underpinning the research are
explained. It is hoped that the proposed research will produce a set of recommendations
that will improve the construction industry’s performance in this area, enabling it to
improve its environmental image and thereby, to make a positive contribution to the
process of globalization.
INTRODUCTION
issues, the industry is being held increasingly accountable for the environmental impact
of its activities [Owens et al. (1991), Post (1991)]. This is exacerbated on large
international construction projects because of increased public and political interest in the
social impact of globalization. For example, Greenpeace is currently targeting the
construction industry and particularly firms involved in large international infrastructure
projects. Indeed, as a result of their activities, both Balfour Beaty and Skanska have
recently pulled out of the Llisu Dam project in Turkey in fear of bad publicity and share
price implications [Richards, 2002].
While there has been research into risk management practices on international
construction projects [Yeo (1990), Lowe (1996), Lam (1999)], none has focused on
environmental risks. In the context of increased environmental consciousness and
globalization, this is a deficiency which needs to be addressed. For this reason, the
research reported in this paper aims to investigate environmental risk management
practices on large international construction projects.
It has taken a considerable amount of time for the construction industry to take greater
responsibility for managing the environmental risks that arise from its activities. Indeed,
while the concept of sustainable construction is not new to the industry, it is only recently
that construction companies are realizing that the adoption of environmentally sound
work practices will provide competitive advantages and significant improvements to
corporate image [Owens et al. (1991), Ishino et al. (1992)]. This is prompting
construction firms to rethink the corporate environmental decision-making process and to
manage their environmental risks more effectively.
While there has been some research into environmental risk identification, assessment,
impact and management strategies on domestic construction projects, there has been no
research into how these strategies are applied on international construction projects.
Currently, the key instrument for understanding the environmental effects of proposed
projects is the environmental impact assessment (EIA). Yet the EIA has been widely
Management of environmental risks 809
criticised as often being too technical and narrow in scope and failing to take into account
the cumulative and indirect environmental effects and their time horizons, as well as the
wider and far-reaching social and cultural effects of these developments [Flyvberg et al.,
2003]. Indeed, a significant problem within the construction industry relates to its
unhealthy reliance on technical solutions to solving environmental risk problems while
neglecting the broader social and cultural implications of environmental risks. In
particular, little is understood about the environmental risk perceptions and assessment
processes on international construction projects, how this differs on a country-to-country
basis and how these risks are prioritized, managed or mitigated. While an understanding
of the principles of sustainability and risk management may aid environmental risk
management processes on domestic projects, this approach may be insufficient for
construction firms seeking to work on international projects. These projects pose special
problems, related to their size and complexity, particularly in terms of the stakeholders
involved, procurement approaches, legal arrangements, diverse cultural considerations
and political and social sensitivities.
The globalization of the world’s economy, made possible by WTO and other trade
associations like ASEAN and APEC, is internationalizing the way business is being
conducted around the world. The construction industry and most other goods and services
procurement sectors have benefited tremendously from the international trade
liberalization process, including access to open market economies that was not possible
before [Bryon (2001), Neumayer (2001)]. According to ENR (2000), the world
construction market was worth an estimated $3.4 trillion dollars in the year 2000. Out of
that, $1.113 trillion dollars, or approximately a third of the world construction spending
came from Asia, which is also the world’s largest regional market.
For construction firms within developed countries like Australia, Japan, USA and
Germany for example, the prospect of working on international construction projects has
become a necessary part of their business strategy, motivated mainly by shrinking
domestic market share and economic slowdown in their home countries [Neumayer,
2001]. Indeed, with increasing frequency, foreign firms are venturing overseas to
establish market presence in foreign economies. For example, Singapore has an open
market economy which does not restrict foreign competition. Foreign contractors, e.g.
Australian contractors, have long established a strong local market presence, securing an
average of 42% of the overall construction volume in Singapore between the years 1996
to 2001 [SSTI, 2002]. In this sense, trade liberalization and globalization has created
many potential commercial opportunities, but has also created a potential minefield for
foreign companies that do not effectively manage the environmental risks that can occur
on international projects. One of the major problems to be overcome is the different
priorities given to the management of environmental risks in developing and developed
countries.
The approach and priorities for managing environmental risks differ between countries
with developed market economies, transition economies and developing countries [CIB
809
810 Teo and Loosemore
(1999), Neumayer (2001)]. For example, mature economies are in a position to devote
greater attention to creating a more sustainable building stock by the invention and use of
new technologies while there is a greater urgency in developing countries to focus on
social equality, economic growth, sustainability and infrastructure construction e.g. roads,
housing [CIB, 1999]. In this sense, the emphasis on environmental protection in
developing economies would seem to be less urgent and in some cases deemed a “luxury
good”, compared to developed countries, especially when there are more pressing
concerns at hand, like basic survival of its people [Neumayer, 2001]. Developed
economies also have in place, a more advanced political, legal and administrative
infrastructure that is necessary for the design and enforcement of strong environmental
protection. This distinction in economic and social developmental priority between
developed and developing economies would suggest that construction firms would have
to realign their environmental risk strategies according to the country in which the project
is commissioned.
For the above reasons, this research focuses on the understanding of environmental risk
assessment processes of projects within developing countries by firms operating from
developed countries. This area could make an important contribution to strengthening
construction firm’s environmental risk management capabilities and thereby, to increase
the contribution that the developed world can make to the environment and sustainability
of the developing world.
The construction industry, through its production of physical assets such as buildings and
infrastructure which form the basis of virtually every aspect of development, contributes
significantly to different areas of environmental stress [WCED (1987), UNCHS (1993)].
This is because its activities have an irreversible impact upon the natural environment by
virtue of the very large quantities of resources it utilizes, directly or indirectly, in the
construction of buildings, structures, roads and other infrastructure [CIRIA, 1993]. For
example, the construction of the Three Gorges dam project in China, arguable the world’s
largest water conservancy project, necessitated that 632 sq. km of land, spread out over
twenty counties to be flooded, inundating 24,5000 hectares of farmland and some 35
million sq m. of housing accommodation, and the resettlement of more than 1.1 million
people to new towns located on higher ground [CIOB INS, 2002]. It is also estimated that
the volume of water shifted by the dam is so large that it might even slightly alter the tilt
of the world’s rotation on its axis. The environmental impact of a project of this scale
needs to be studied and better understood so that the stakeholders involved can make
more informed decisions that may minimize the negative environmental impact that the
project has on the natural environment.
Figure 1 depicts the relationship between the source of an environmental change and its
interconnectedness with the surrounding environment in terms of the sphere of influence
of its environmental impact locally, provincially, nationally, regionally and globally. In
this sense, as long as public fear of the environmental impact of a project is high, political
pressure can be effectively exerted on business and government to reduce such perceived
risks and its impact on the natural environment [Post, 1991]. In the absence of an
effective or concise governmental framework to govern the effects of economical
Management of environmental risks 811
developments on the natural environment, the onus is on the business community to take
on the role of environmental crusader. Consequently, there is a moral obligation on
construction companies operating in developing countries to develop more efficient
methods for managing the environmental risks that may occur on their projects. As Post
(1991) highlighted, all industrialised corporations, including those in construction, have a
corporate responsibility to integrate environmental risk concerns into the corporate
decision-making process.
Source/consumption
Consequences/extraction
Figure 1 ~ Relationships in global environmental change [Kasperson, Kasperson & Dow, 2000]
METHOD
It is important to point out, that until specific propositions have been developed, it is
difficult to propose a definitive research method. Never-the-less, in undertaking research,
researchers are faced with an array of qualitative and quantitative methods that have
contrasting implications for the manner in which data is collected and analysed. Bryman
(1992) suggests that qualitative research is exploratory in nature and places strong
emphasis on the subject’s interpretation rather than the researcher. In contrast, qualitative
research typically focuses upon static relationships among variables, takes place within a
highly structured framework and in relative terms, isolates the researcher from the
phenomenon being studied. However, according to Ruesch and Bateson (1968), Denzin
(1970), Jick (1979) and Bryman (1992), the best social research combines qualitative and
quantitative research, treating them as complementary rather than competitive. By
combining different methods, a researcher can focus on different dimensions of the same
phenomena, producing a mutually corrective effect, which provides the richest, least
biased description of a particular phenomenon. It is our intention to combine different
methods of data collection and analysis. However, given the behavioural nature of the
research, it is likely to have a strong qualitative element.
811
812 Teo and Loosemore
At this stage, it is anticipated that data collection will be undertaken retrospectively and
that it will employ two phases of data collection and analysis. Retrospective data
collection will be necessary because of the timescale of such projects, which can last
many years. This makes reliable longitudinal or cross-sectional data collection difficult, if
not impossible within the time constraints of a PhD project. The aim of the first stage of
data collection and analysis will be to identify issues and themes which can be followed
up in a second, more detailed and focused phase of data collection and analysis.
The first phase of data collection will involve a preliminary survey of key stakeholders
typically involved in large-scale international construction projects. This will be an
exploratory survey designed to tease out issues for further, more in-depth investigation in
phase two of the method. Blumer (1979) suggests that exploration is a process that
develops an accurate picture of the research project and is a central element of qualitative
research, offering assistance in the formulation, modification and testing of hypotheses
and theories. In this sense, the survey will be designed to provide insights into the
following issues:
The survey will target both internal and external stakeholders on international projects,
ranging from the design and project team that encompasses architects, contractors,
engineers, consultants, to external parties like local residents, environmentalists, the mass
media, pressure groups and local authorities etc. This will enable a holistic perspective on
the range of perceptions of environmental risks and their management processes on each
case study project. An important issue of consideration will be the geographical barriers
that international projects present, and the high likelihood that the stakeholders of interest
in this research would be located overseas. To overcome this, the survey technique was
Management of environmental risks 813
Behavioral issues are central to the study of environmental risk management processes
because their implementation is dependent on stakeholders' perception of their
compatibility with, and contribution to the attainment of project goals. Indeed, it is likely
that everyone involved in the environmental decision-making process can influence its
outcome in a whole range of ways that can be both helpful and destructive to the
environmental risk management process on projects. In this sense, it is only through in-
depth insights into the formal and informal group structures, communication patterns,
attitudes and behaviors of the stakeholders that the effectiveness of the environmental risk
management process can be assessed.
To investigate the risk-related communications that arise on each case study, social
network analysis is proposed. This has been applied successfully on other projects
relating to risk management practices, although not specifically in an environmental
context [Loosemore (1996), Swan et al. (2001)]. Social network analysis provides a
useful mechanism to analyze communication patterns in groups of people or
organizations. It focuses upon relationships rather than individuals and brings dynamic
and structural issues to the fore. It is particularly concerned with the structuring and
patterning of those relationships over time and seeks to identify both their cause and
consequences. For example, by using social network analysis, it is possible to identify
central and peripheral actors within the construction organization, to identify factions and
coalitions, to identify gatekeepers of information and thereby to identify those who hold
power. In this sense, the social network perspective provides a powerful tool to
unscramble the complexities of how stakeholders’ communication patterns, perceptions
and attitudes influence the environmental risk management process on projects. Bernard
et al.’s (1982) analysis of the reliability of various data collection techniques indicate that
a combination of semi-structured interviews, focus group sessions and diaries would be
meaningful ways of collecting this relational data.
In addition, the social network analysis will be complemented with a content analysis of
risk management interactions and of documents utilized in the construction firm’s
environmental risk management practices. Indeed, data about the risk management
framework are contained in various locations, including manuals, corporate mission
statement, articles of association, statutes, annual reports and so forth. An analysis of
information contained herein will allow a more comprehensive assessment of the
construction organization’s commitment to environmental risk management efficiency.
The framework for the content analysis will be adapted from Berelson’s (1971)
categorization system that utilizes well-defined categories to distil the communication
content into meaningful information relating to environmental risk management practices.
813
814 Teo and Loosemore
The techniques of content analysis have been developed to help researchers examine
artifacts of social communication such as written documents or transcripts of verbal
discussions in order to derive some meaning from them [Berg, 1989], and has been used
with some degree of success in past construction management research to examine design
team communication patterns [Wallace, 1987]. Berelson (1971: 18) defines content
analysis as “a research technique for the objective, systematic and quantitative description
of the manifest content of communication”. According to Berelson (1971), all
communication content has subject matter, direction, values, methods, traits, actors,
authority, an origin, a target, the communication content and thus can be easily analyzed.
The technique is most useful when applied to unstructured data such as that collected in
the second phase of this research and essentially involves categorizing communication
into its component parts and quantifying it [Smith, 1975]. In this sense, the application of
Berelson’s framework will help to reduce analytical bias and result in codified data which
could be meaningfully analyzed to provide insights into environmental risk management
processes on the case study projects. It also compliments the social network perspective
which recognizes that the “transactional content” of network data can complement the
“structural content” in providing explanations of social and behavioral phenomena [Tichy
et al., 1979].
CONCLUSION
The construction industries of developed countries are coming under increasing pressure
to better manage the significant environmental risk factors that may arise on its
international projects in developing countries and have a morale obligation to respond
effectively. Currently, very little is known about effective practices in this increasingly
important and high-profile area of construction activity. The proposed research project is
important in meeting this challenge since it will facilitate a better understanding of
environmental risks, perceptions and current risk management practices. Utilising a two-
phase research method, phase one of this research will use an exploratory attitudinal
survey to identify stakeholders’ expectations, perceptions and experiences. Using social
network analysis and content analysis, phase two of this research proposed the case study
approach to better understand the risk communications between stakeholders on projects
and their contribution to environmental risk management efficiency. The result will be a
set of recommendations that will improve the construction industry’s performance in this
area, enabling it to improve its environmental image and to make a positive contribution
to the process of globalisation.
ACKNOWLEDGEMENTS:
This research project is funded by the RICS Research Foundation and the authors would
like to thank them for their support.
REFERENCES
815
816 Teo and Loosemore
G. I. IDORO
Department of Building, University of Lagos, Akoko, Yaba Lagos, Nigeria
ABSTRACT
The growing awareness and relevance of globalization suggest that the world will soon
become a global village. The Construction Industry in Nigeria and the applicable safety
regulations have been integrated already. This paper therefore focuses on the impact of
globalization on safety practice and performance. To examine this, a model was
developed to show that there is relationship between globalization of business ownership
and business coverage, safety awareness, practice and performance. The paper examines
these relationships by conducting a survey involving forty Expatriate and Indigenous
firms. The survey reveals that Globalization of Business Ownership promoted
multinational business. It also witnessed reduced accident rate. However, Globalization
has not increased the awareness of safety regulation and it has not promoted better safety
practice. It is therefore concluded, that although Globalization of Construction Business
Ownership has not improved safety practice, however, it has put the construction industry
in a better position to participate in globalization. The paper suggests greater
collaboration between local and foreign investors in construction business ownership and
the setting up of effective safety control structures as ways of ensuring that the
construction industry in Nigeria reaps maximum benefit from globalization.
INTRODUCTION
The awareness that no economy can develop in isolation seems to be growing daily
among nations all over the world. Every economy whether developed or developing relies
on others to grow therefore all economies now embrace international integration.
Kwanashie (1999) noted that virtually all countries in the world today are faced with the
realities of increased integration of world trade and capital flows indicated by the rapid
growth of information technology and the opening up of hitherto closed societies and
economies. The world has realized the need for economic integration and the slogan at
present is not whether to get integrated or not but how best to be integrated. Today, the
focus is mainly on the challenges of globalization, how to meet them and reap the
rewards.
The concept of globalization rests virtually on the various sectors or components of every
economy getting integrated to outside economies. One important driver of economic
818 Idoro
growth is the construction industry. The industry plays a major role in the growth and
development of every economy providing the environment for the growth of other
sectors. Based on its importance, the industry is expected to take the lead in economic
integration. An important area of concern in construction is health and safety. Since
construction is a risk-prone industry, the issue of safety goes beyond national concern.
The construction industry no doubt has a major role in harnessing the benefits of
globalization however; one of the issues that suggest that the industry in developing
nations may not be well prepared for the challenges of the future is safety [Ogunlana and
Chareonngam 2003]. The place of safety in construction and the importance of
construction in every economy call for their globalization. This paper therefore examines
the effects of globalization on safety in the construction industry.
Construction involves series of operations that require the use of complex materials, tools
and machines. These resources coupled with the work environment often create an
accident-prone work situation. Accident generally is inimical to construction causing
damages to materials and machines, injuries and at times loss of lives to people. Ogunlana
and Chareonngam (2003) observed that next to mining, construction kills more people
than any other industry and its per capital death rate is more than that of any other
industry. There has always been an international approach on the issue with international
bodies leading the vanguard in the formulation of policies, regulations, standards and
codes on safety. One noticeable area of this international integration is safety regulations.
In Nigeria, the existing regulations on safety can best be regarded as foreign products.
Since regulations have significant impact on behavior or habit, foreign safety practice and
improved safety performance are expected.
The construction industry is no doubt one of the most important sectors of every
economy. It accounts for between 5% and 10% of the Gross Domestic Product (GDP),
over 50% of the Gross Capital Formation (GCF) and about 10% of the workforce of most
countries (Ogunlana 2002).
In Nigeria, the industry plays a greater role than it plays globally. Adeniyi (1984)
described the industry as the largest contributor to GCF, the largest employer of labour
and the major agent of social development. The Federal Ministry of Economic
Development (1975 & 1980) put the share of construction to GCF of Nigeria from
1967/68 to 1972/73 and 1974/75 to 1979/80 at 56% to 66% and 71% to 79% respectively.
Globalization effect on construction safety 819
The Federal Government of Nigeria (1984, 1985, 1986) put the same share of
construction to GCF at 60% to 68%. The construction industry is indeed the leading
sector and a big player in economic growth in Nigeria. This industry is expected to play
the same leading role in international economic integration.
The phenomenon of globalization has been an integral part of Nigeria history and the
construction industry is no exemption [Idoro, 2003]. Construction practice and
technology in Nigeria have witnessed significant foreign participation from colonial era
to date. Edmonds (1974) maintained that the few large construction companies who are
all expatriate firms carry out 90% of the total construction works in Nigeria. Ogunpola
(1984) added that though the numerical strength of big contractors who are expatriates is
about 7% of the number of contractors, they accounted for a substantial proportion of
construction works. Samuel (1999) identified thirty construction companies from ten
countries in Europe and Middle East as some of the multinationals operating in Nigeria.
Olateju (1991) in a study of contracts awarded by the Federal and Oyo State Governments
between 1974 and 1984 discovered that the value of contracts got by indigenous
companies translated to 7% of the total contract value. The Federal Ministry of Works
and Housing (1979) reported that foreign construction companies accounted for between
97% and 100% of the value of Federal Government construction contracts between 1974
and 1978. Although recent report is not available however, the Federal Ministry of Works
and Housing (2003) report shows that the entire N350.6 billion road projects embarked
upon by the Federal Government between 1999 and 2003 was executed by contract.
Relying on the foreign companies’ share in the past, it is expected that the substantial
value of these contracts would have gone to expatriate firms. These reports confirm that
the construction industry in Nigeria is indeed dominated by foreign companies. In fact,
the problem in Nigeria is not that of attracting foreign participation but rather that of
promoting indigenous participation. This is what the Indigenization Decree is set to
achieve.
Safety is an issue that has drawn considerable global attention. In Nigeria, almost all
existing regulations on safety originated from foreign countries. The 1987 Factory Act,
which is the most popular safety regulation, was adapted from the 1961 Factory Act of
Great Britain. The 1970 Occupational Safety and Health Act which is another safety
document of reference in Nigeria has its origin and even application in the United States
of America (US) and it is administered by the Occupational Safety and Health
Administration (OSHA) of US Department of Labour. The 1988 Control of Substances
Hazardous to Health Regulations, the 1992 Personal Protective Equipment at Work
Regulations and the 1999 Management of Health and Safety at Work Regulations are
British laws that are applicable to European Countries (EC). The Manual Handling
Operations Regulations of 1992, the New Construction Design and Management
Regulations of 1994 and similar others of reference in Nigeria are products of foreign
countries. The origins of these regulations are clear manifestation that globalization has
been and still remains an integral part of construction safety in Nigeria.
820 Idoro
The discussion above has shown that the Construction Industry and Safety regulations in
Nigeria have global integration. If this is so, an appraisal of globalization in the industry
should focus more on the impact of the global integration on performance. Considering
safety which is the thrust of this paper, one may then ask the question ‘does global
integration of the Construction Industry and Construction regulations have any positive
impact on construction safety practice and performance? Do the expatriate firms from
whose home countries the existing safety regulations in Nigeria originated maintain better
safety practice and performance than the indigenous firms?
This paper attempts to answer these questions by evaluating the effects of foreign
dominance of the construction industry in Nigeria on safety practice and performance. To
carry out this investigation, the author selected two characteristics of globalization
namely Company ownership (Type) and Business Coverage, two characteristics of safety
practice namely Safety Regulation Awareness and Safety Practice and one characteristic
of Safety Performance namely Accident Rate. A model shown in figure 1 is thereafter
developed to show the relationship between globalization, safety practice and safety
performance.
Company
Type Safety
Performance
Safety
1. Indigenous Practice
2. Expatriate Safety Accident Rate
Awareness 1. Inspection
2. Management
Safety 3. Meeting
Regulations 4. Equipment
Business 5. Incentive
Coverage 6.Training
1. National
2. Multinational
Fig. 1: A model showing the relationship between Globalization and Construction Safety
The model assumes that Company Type will influence Business Coverage, Safety
Awareness, Safety Practice and Safety Performance. The paper thereafter proceeded to
examine these assumptions.
To evaluate the safety practice and performance of expatriate and indigenous firms, forty
construction firms were selected for a study. The study involved a survey, which was
conducted using structured questionnaires that were administered on the respondents. The
study area is Lagos metropolis, which is the social, economic and industrial nerve center
of Nigeria and the base of majority of the notable construction firms operating in Nigeria.
From this study area, twenty expatriate and twenty indigenous construction firms were
randomly selected.
The data collected from the survey conducted are basically the measurement of the
variables in the model of the study. The data are presented according to the relationship to
be established.
Relationship between Type of Company and Business Coverage
The data collected on Company Type and Business Coverage are presented in table 1.
The data in table 1 are used to test relationship between the type of company and business
coverage using the χ 2 test at 5% significant level. Since χ 2 calculated (12.9) > χ 2
822 Idoro
(3.8), it means that there is a relationship between the type of company and business
coverage. Expatriate firms encourage multinational business coverage.
The data collected on the safety awareness rating of the respondents are presented in table
2
Table 2: The Safety Awareness rating of selected Construction Firms in Lagos, Nigeria.
Company Safety Awareness Rating
Type FACT OSHA MHER PPER CDMR MHSR CHPR CLER CGPR CWPR CHPR
TOTAL
Indigenous 5 20 15 20 5 5 5 20 15 10 5 125
Expatriate 4 20 20 18 13 13 16 18 17 16 14 169
Total 9 40 35 38 18 18 21 38 32 26 19 294
Source: Field Survey, March 2004.
The data in table 2 are used to test relationship between the type of company and safety
awareness using the χ 2 test at 5% significant level. Since χ 2 calculated (13.964) < χ 2
(18.307), it means there is no relationship between the type of company and the level of
awareness of safety regulations.
From table 3, the Safety Practice Rating of the respondents is very low in Safety
Inspective, Meeting and Incentive. The data on the safety practice rating of the
respondents are presented in table 3
Table 3: The Safety Practice Rating of Selected Construction Firms in Lagos, Nigeria.
Company Safety Practice Rating
Type Safety Safety Safety Safety Safety Safety Total
Inspection Management Meeting Equipment Incentive Training
Indigenous 20 33 20 47 27 20 167
From the table 3, the Safety Practice Rating of respondents is very low in Safety
Inspection, Meeting and Incentive. The data in table 3 are used to test relationship
between the type of company and safety awareness level of construction firms using the
χ 2 test at 5% significant level. Since χ 2 calculated (8.32) < χ 2 (11.07), it means there
is no relationship between the type of company and the level of safety practice.
Globalization effect on construction safety 823
The data collected on the number of accidents recorded by the respondents in 2003 are
presented in table 4
Expatriate 3 3 1 5 12 6 21 18 14 8 4 2 22 12 17 14 3 4 8 8 185
Total 14 15 17 19 25 16 33 43 35 26 19 30 55 38 28 22 26 21 26 24 532
Source: Field Survey, March 2004
From the data in Table 4, the mean number of accidents recorded in 2003 for both
Indigenous and Expatriate Construction Firms in Nigeria are 17 and 9 respectively. The
data in table 4 are further used to test relationship between the Type of Company and
Accident Rate of construction firms using χ 2 test at 5% significant level. Since χ 2
calculated (61.4) > χ 2 table (30.1), it means that there is a relationship between Type of
Company and Accident Rate.
The study carried out in this paper reveals that the involvement of expatriate firms in the
construction industry in Nigeria has encouraged multinational business and reduced
accident rate. However, the expatriate firms have not shown evidence of better awareness
of safety regulations and better safety practice than their indigenous counterparts. This
may not be unconnected with the prevailing low level of inspection of construction sites
by safety regulatory bodies as revealed in table 3.
CONCLUSION
This paper has examined globalization from the perspective of foreign involvement in
company ownership and business coverage. From the relationship between the variables
in the model examined, it is concluded that foreign involvement in the ownership of
construction business will put the industry in a better position to participate and reap the
benefits of globalization. It is also concluded that although the expatriate firms have low
accident records however, their levels of awareness of safety regulations and safety
practice are not better than their indigenous counterparts.
824 Idoro
RECOMMENDATIONS
The author believes that globalization involves a symbiotic relationship where the two
countries involved in economic cooperation and integration benefit from one another. In
this drive, economies will need to be re-structured and re-positioned to be able to
maximize the benefits of the relationship. Against this background, two strategies are
suggested. The construction industry should encourage greater involvement of foreign
ownership in construction business through collaboration between local and foreign
investors. Such partnership should strive to acquire adequate financial and technical
capacity to make them participate in global construction.
In addition, the industry should strive to put in place an effective safety control structure
for the purpose of enforcing safety regulations and promoting good safety practice that
will compare favorably with existing standards in developed economies. Such a structure
should be jointly formulated and implemented by government and the organized private
sector in Nigeria. This will put the industry in Nigeria in a good position for global
economic integration.
REFERENCES
SUMMARY OF CORRECTION
1. Pp.3
‘and’ is inserted into title 4.0 to read Globalization and the Construction Industry
in Nigeria.
2. Pp.4. Line 7 second word.
7% replaces 70%
3. Pp.6
Fig.1. The number and title moved from top to bottom of the figure.
In the first rectangle in the figure, ‘Company Type’ replaces ‘Computer
Ownership’ and ‘Expatriate’ replaces ‘Expenditure’.
4. Pp.9
The sentence “from table 3, the Safety Practice Rating of the respondents is very
low in Safety Inspection, Meeting and Incentive” is inserted after table 3.
Table 4: Top column, the word ‘Respondents’ is placed top, followed by the
number 1-20 while ‘Number of accidents recorded in 2003’ is placed below the
numbering.
The sentence ‘From the data in Table 4, the mean number of accidents recorded in
2003 for both Indigenous and Expatriate Construction Firms in Nigeria are 17 and
9 respectively’ is inserted after table 3.
Line 1 after table 4, fourth word ‘the’ is deleted and ‘further’ is inserted after
seventh word.
Last line ‘Accident Rate’ replaces ‘Safety Performance’.
5. Pp.10
Line 1 in 9.0. The last word ‘table 2’ is changed to ‘table 3’.
Line 2 in 11.0. ‘Existing standards in developed’ replaces ‘what obtains in other’.
826 Idoro
CRITICAL SUCCESS FACTORS OF PROJECT MANAGEMENT
GARY WALKER
Mace Limited, Atelier House, 64 Pratt Street, London, UK, NW1 0LF.
ABSTRACT
INTRODUCTION
The Chartered Institute of Building (1996) has defined project management as the overall
planning, co-ordination and control of a project from inception to completion aimed at
meeting a clients requirements in order to produce a functional and financially viable
project that will be completed on time within authorised cost and to the required quality
standard.
828 Naoum, Fong and Walker
Although project management has proved its success in many construction projects, there
are however some problems associated with the manner in which the system has been
selected and/or implemented. A number of projects have been completed late or over
budget with low client satisfaction, particularly in the publicly funded projects. Some
projects overrun on time by 40% - 200% and others have been cancelled before they have
even started, resulting in poor expenditure of public spending money.
With this background in mind, the authors pursued the development of project
management and aimed to measure its success in large construction engineering projects,
with a view to providing some indication of how the PM system performed under
different circumstances.
RESEARCH METHODOLOGY
In order to achieve the aim of the research, the following methodology was adopted:
Stage one – literature review: Literature on procurement methods was reviewed and
analysed, which resulted in the establishment of four categories of variables that may
influence the project management outcome, these are: organisational, managerial, system
and control.
Stage two – exploratory research: An exploratory research was conducted which took the
form of face-to-face interview with three personnel of a large construction client, four
project managers, three partners of design consultants and four directors of contractors
who were experienced in construction engineering projects. The purpose of the
exploratory interviews was to elicit their views regarding the success or failure factors of
project management.
Stage three – the pilot study: After the exploratory interview, a pilot survey questionnaire
was composed which contained 46 critical success factors grouped under the four
Critical success factors of Project management 829
categories which were established in stage one. The questionnaires were sent to over 300
personnel working for the same or different construction engineering companies and
which have been involved in project management arrangement for a considerable number
of years. The response rate was 51%. The sample returned included 44 client’s
organisations, 46 contractors, 54 design consultants and 45 project managers.
In the postal questionnaire, the respondents were asked to rate each of the factors
presented using a range from “No influence on project management success” (rating of
1), to “Major influence” (rating of 5). The date gathered from the 159 questionnaires was
then analysed statistically using SPSS and the result was published in the Association of
Researchers in Construction Management (ARCOM) conference [Walker and Naoum,
1999]. The 46 variables, which were identified to having an effect on project success,
were reduced into the 25 influencing variables (V1 to V25) listed in Table 1.
Stage four – the main study. The exploratory interview and analysis of the pilot study
questionnaires have led to the developing of a theoretical framework. The proposed
framework consists of the 25 influencing factors (established from the pilot study), which
were seen as the independent factors affecting time, cost, and the quality of the project.
The validity of the research framework was tested by gathering information and data from
completed construction engineering projects. This took the form of face-to-face
interviews with key personnel who were involved in each project, supplemented by
documentation. The sample contained 16 outstanding projects and another 16 projects
that experienced some form of difficulties during design and construction.
The influencing factors (i.e. the cause) and the success factors (i.e. the effect) were
examined in each of the 32 case studies. The influencing factors were measured using a
rating system of 1-5. For example, if the project demonstrated evidences that project
goals and client criteria were clearly established at the outset of the project, then that
particular case was given a high score of 5 for this factor. On the other hand, if the
project went ahead without a firm understanding to the project goal and client criteria,
then the case was given a low score of 1.
evidence that the project was completed under the budget, and the following rating
system was applied:
The quality standard was measured subjectively based on the functionality of building
and whether the building team has delivered the project in accordance to the client
requirements. An outstanding rating was assigned to the project if there were evidences
that the building team adopted an effective quality management system for auditing and
controlling the project. Quality of projects were rated from poor – 1, to outstanding - 5.
Stage five – analysis of the results. An overall success factor (ranging from 1-5) of a
project was computed by averaging its time, cost, and quality performance ratings.
Testing of association between each of the 25 variables and the overall project success
factor was conducted statistically in order to determine the significant influencing
variables that contribute towards the success or failure of a project.
The prime objective of the main study was to examine the causes of success and failure in
project management system. Naturally, it is difficult to determine causality with appellate
certainty. However, this research was designed to include a number of controlled
variables. In particular, all 32 case studies were constructed on “pure” project
management concept, and were commissioned by the same client who had similar goals
and organisational structure for each project but with various business strategies.
Furthermore, the characteristics of the projects were to a large extent the same, i.e. nature
of the work, complexity and technology. The cases were also selected with their
contractual arrangements more or less standard and tailored for the client. Hence, one of
the fundamental differences among the 32 cases was the manner in which the projects
were managed by the project management team.
RESULTS
Data from the 32 case studies was inputted into Excel and the relationship between each
of the 25 influencing variable and the overall success factor was tested. The objective of
the test was to establish the strength of relationship between each influencing variable and
the overall project success factor, in order for the significant and dominate variables to be
identified. Due to the uncertainty of small sample size for adequate normality testing in
the measurement of coefficient strength with parametric methods, nonparametric Chi-
square χ2 was evaluated in addition to Pearson’s correlation coefficient r to reaffirm the
measure of relationship. Interval data was demoted into ordinal when Chi-square method
was used as the parametric assumptions may be invalid.
The 10 highest significant factors which determined the success or failure of the 32
project management case studies were found and the research findings were then
Critical success factors of Project management 831
interpreted by referring to the 32 case studies and examining the causes which led the
project to perform outstandingly or poorly. The main findings are presented below.
Analysis of the 32 case studies strongly suggests that there is a relationship between
project success and the degree of clarity of project goals and client criteria, at a significant
level of P<0.001. This factor appeared to be mostly association with project management
success. Client criteria were also linked with two other variables, namely, ‘clarity of
scope of work’ and ‘project planning’. Both of these variables are examined below.
This finding confirms the proverb “if you do not know where you are going, you will
probably end up somewhere else”. One of the most common reasons that projects fail, is
a lack of clarity regarding the expected outcomes. It is crucial that all key players in a
project have a clear understanding of what the project is aimed to produce.
In examining the four most poorly performed projects, there were evidences of a
complete lack of client definition and understanding of real project goals that resulted in
overrun on time and cost. Further analysis of the case studies also suggests that, clear
statement of business requirements is not enough on its own to aid towards achieving a
832 Naoum, Fong and Walker
high level of success. These requirements must be reflected in the clients’ brief and in the
project plan.
The analysis of this variable into establishing project goals and client criteria raises some
concerns. Firstly, it appears that the essential characteristics of project management
philosophy are not always adhered to in the projects. Secondly, the professionals in
particular, and the construction industry in general, still need to give more attention to
previous findings and research work into the area of establishing project goals. It has
been repeatedly concluded that the construction industry must introduce long-term
relations with clients by understanding their businesses and establishing their project
goals very clearly.
It has to be reported however, that the standard of services given by the construction
industry can also be related to the amount of effort expended by the client in establishing
the brief. Clients and project team leaders should appropriately be integrated into one
project organisational structure [Walker, 1994].
V9. Level of participation in decision making process by the project team (χ2 =
7.08)
Analysis of the results suggests that there is a strong relationship between team decision-
making and project performance at a significant level of P< 0.001. A large proportion of
projects that performed poorly with respect to time and/or cost also had poor project team
decision-making process. For example, from the project documentation of four case
studies, it was evident that there was a general lack of commitment within the project
team in decisions that had an impact on projects outcome. Likewise in other cases, there
was no combined effort to formally involve members of the client organisation as well as
designers and contractors in the decision making process.
It has to be stressed that, within the project team, the decision making process also
depends on the nature of the project and the leadership style of the project manager.
Naturally, construction projects vary in their type, size, nature of the task, level of
constructional complexity and technology. Large capital projects coupled with high
complexity require a wide range of services and expertise. These features can impress a
greater managerial pressure upon the design and construction teams and require different
styles of leadership and decision making process in order to optimise success in the
building of the project. Moreover, large and complex projects are expected to take longer
to build than small and simple projects, and a participative decision making style of
leadership with bureaucratic organisation is expected to be more appropriate than a
directive style [Bresnen et al., 1986].
Analysis of the results showed that the fifteen most successful case studies (on time and
within budget and with high level of quality standard) had a well-defined scope of work
that were highly integrated with the clients’ brief. Ten other projects broke down and got
off track resulting in time overrun because of some key tasks were not included in the
work breakdown structure at the planning stage (see V7 below). This relationship was
significant at P < 0.01.
Critical success factors of Project management 833
Nine of the fifteen case studies rated outstanding were managed by highly experienced
and skilled project managers. Another 14 case studies that either overran on time or on
cost were associated with inexperienced or moderately experienced project managers.
Unsuccessful projects were also associated with poor interpersonal skills and a lack of
leadership qualities. This relationship was significant at P < 0.01. Several other studies
such as Munns et al. (1996) have identified this variable as being part of the “soft” skills
required by the project manager for delivering outstanding projects.
In four of the case studies, the clients’ representatives have adopted a complicated and
lengthy decision making procedure that resulted in disruptions and delays throughout the
construction process. In another four cases, there were evidences that clients’
representative lacked training and staff development for understanding the role of the
client in making decisions resulting in overrun on time. The type of client organisational
structure proved to be a crucial factor in similar types of investigations. Naoum and
Langford (1987) conducted research into management contracting and found that the
failure to capitalise on advantages that management contracting can offer (e.g. speed of
the overall building process) sometimes lie within the client’s organisational structure. If
clients’ own decision making process is not matched to the speed of management
contracting or construction management system, the client may lose the advantages of
such a fast track methods. Some clients’ organisation had to modify its procedure and
structure in order to suit the procurement system adopted for its project. This is
particularly applicable in publicly funded projects. Public clients have public
accountability and, therefore, are cautious in making decisions concerning public
accounts.
A large proportion of the case studies that failed to achieve an outstanding level of
performance had some degree of fragmentation among their members. This relationship
was significant at P< 0.02. This is not surprising as the issue of co-ordination and co-
operation between client, consultants and contractors have been a subject of debate for
many years. The project manager is seen as the fey individual within the project to create
a good team spirit within the project environment. Teamwork culture is crucial to project
success.
This result underpins a previous research by Munns (1995) into project management
success who stated that quality for the clients is greater enhanced with a supportive,
mutually trusting relationship with the project team with a maintained full and open
exchange of information. Munns concluded that any obstacles to this open relationship
must be removed to ensure project success. The development of trust is an important tool
for the project manager and the ability to create the correct initial atmosphere for the
project. The way in which individuals and groups enter a project is important in
determining the final outcome. It is therefore imperative for the project manger to be
834 Naoum, Fong and Walker
aware of the intentions and expectations of team members and how they will shape their
behaviour in the project.
Findings of this research into establishing clear project objectives and the importance of
project teamwork, correspond very closely with the “partnering“ philosophy. Building a
partnership is seen as means of achieving successful project management. Partnering
appears to be a device that encourages greater integration of the project team and create
competitive advantages to all that participate in the project, and its concept provides team
building, co-operation and equality, rather than the single sided relationship of
adversaries to a project.
Analysis of the 32 case studies into the relationship between planning techniques and
project success, proved to be significant at P < 0.02.
Needless to say, planning is one of the key tools towards achieving success. It identifies
the major work items, tasks and sub-tasks as well as the resources to accomplish the
project goals in the best efficient and productive way. Indeed, every professional and
construction manager should be competent and experienced enough to plan construction
operations.
Previous studies into the relationship between planning and site productivity resulted in
similar conclusions. Sanvido and Paulson (1992) tested empirically the possible
utilisation of practical tools, from productivity-improvement field, that can support
various theoretical decision-making phases. Their study has demonstrated that jobs,
where the planning and control functions were performed at the right level in the site
hierarchy, were more profitable, finished sooner and were better constructed than those
where the functions were performed at the wrong level. Stukhard (1987) on the other
hand suggested that the ability to achieve good performance hinges, primarily, on the
attainment of forecasting productivity and manpower levels. Equally essential to project
success is the minimisation of construction interference and having an effective field co-
ordination and proper planning of the activities.
This assertion was subsequently supported by Naoum (1996) who researched the views of
19 head office personnel and 17 site managers on factors that influence site productivity.
29 factors were discussed with the 36 interviewees under three general headings: (1)
managerial factors, (2) motivational and (3) technical. Analysis of Naoum’s research
showed that both head office personnel and site managers agreed that “ineffective project
planning” can be the most crucial factor which is likely to impair site productivity.
Borcherding and Garner (1981) also arrived to a similar conclusion.
Analysis of the 32 case studies suggests that there is a relationship between project
success and the process of selecting the designer/contractors at a significant level of
P<0.02. Most of the case studies that overran on time and/or cost did not follow a formal
pre-qualification process for selecting the professionals. In four cases, inappropriate
designers were appointed which were largely based on previous knowledge of the project
Critical success factors of Project management 835
team, or as a result of the clients’ influence of their preferences. Moreover, in four other
cases, the contractors were selected on the basis of an approved procurement list that was
not project specific and was not updated on a project performance feedback basis.
The tendering and contractual issue has been the subject of debate over the past decade or
so and a number of suggestions were proposed for selecting the main contractors. Among
the prominent work in this area is the report entitled “Constructing the team” by Latham
[1994], which recommended that a pre-qualification questionnaire devised by a public
authority should be used for publicly funded projects.
Analysis of the 32 case studies strongly suggests that there is a relationship between
project success and the level of authority and influence that the project manager had over
the project, at a significant level of P<0.02. This finding can be related to the mechanism
of the project management structure. Walker (1996) identified four types of project
management structure: conventional, package deal, joint responsibility structure, and
pure project management. The level of authority and influence of the project management
can also be linked with the overall structure of the project management organisation. The
goal of the project can be achieved by a “mandate”. The executive managers of the
organisation usually give the mandate to the project manager. Hence, the project
manager needs to make sure that he/she has an adequate mandate and resources to
complete the project and ensure that the project has a reasonable level of priority within
the overall mission of the organisation.
Analysis of the 32 case studies into the relationship between cost estimate and project
success, proved to be significant at P < 0.02. Those projects who implemented the project
management system properly by (phasing and costing the construction work packaged
accurately), have achieved an outstanding results. The project management team needs to
be highly accurate with cost estimate since there is no single tender stage at which the
client can make a decision to go ahead or not, since the system would most likely be let in
parallel the client would be committed to the early packages. Because of this feature, the
system is unsuitable for clients who know their commitment in advance.
It has to be said, however, that the issue of cost estimate can in some cases be rather
puzzling. In every project, it can be questioned whether the estimated cost was correct at
the outset of the project. Under this argument, Sidwell (1984) contends that “the client is
interested in the early predication of the total amount he will have to pay and the variance
between this figure and the final sum”, although the predicted cost is not a guarantee of
the final actual cost.
CONCLUSION
The aim of this paper has been to identify the factors that determine the success and
failure of the construction project management method of procurement. 32 case studies
were examined and analysis of the results seems to suggest that a project can be viewed
836 Naoum, Fong and Walker
1. The strategic sub-system which contains the factors: (i) establishing project goal and
client criteria; (ii) clarity of scope and work definition. This subsystem takes place at the
initial stages of the project, when the client and project based organisation have a
strategic plan to meet the requirements of the project. A development plan must be very
clear and well thought of at the outset of the project.
2. The structural sub-system which contains the factors: (i) client’s organisational
structure; (ii) project manager authority and influence and (iii) project team work. In this
sub-system, the project will be handled by a rather complex mix of organisations with
individuals and groups working together to achieve the client and project goals. There is
a need of a clear mechanism for linking and co-ordinating these people and groups
together within the framework of their roles, authority and power. Structure can be
regarded as the backbone of the organisation and its effectiveness depends on how strong
or weak the skeleton of the structure is.
3. The technical sub-system which contains the factors: (i) planning and programming
techniques and (ii) project cost estimate and control. Project management can be
differentiated from general management by its reliance on specific tools and techniques,
also in the way in which it views resources such as time, money and human effort. In this
sub-system, the scope of the project will be defined and documented, the work will be
allocated to participants, budgets, costs, programmes will be established and procedures
will be set in place in order to facilitate effective control.
4. The managerial sub-system which contains the factors: (i) project manager
characteristics and (ii) level of participation in decision making process by the project
team (i.e. leadership style). The managerial sub-system provides the glue that binds the
other sub-systems together into a cohesive whole. It is concerned with managing the
roles of the contractors, with managing the client, managing the resources, the project
scope and the achievement of the project objectives. It embraces the influence of the sub-
systems, using tools to monitor the project status but also to objectively monitor
development in terms of value, quality, constructability and risk. These issues often need
careful diplomacy when they directly impinge on professional perception.
REFERENCES
T. WATANABE
Frontier Engineering Course, Kochi University of Technology, Tosayamada-cho, Kochi,
782-8502, Japan. watanabe.tsunemi@kochi-tech.ac.jp
J. PIPATTANAPIWONG
11/400, Ladpraow Road Soi 41, Ladpraow, Bangkok, 10230, Thailand.
jirapongp@hotmail.com
ABSTRACT
Major reasons of severe project delays in many infrastructure projects are common
external and internal risks and uncertainties inherent in all stages of a project. To cope
with these risks, several risk management processes (RMPs) have been introduced. As far
as the development and application of conventional RMPs are concerned, however, there
are still a number of limitations. Aiming to overcome these limitations, a new type of risk
and uncertainty management process called “Multi-party Risk and Uncertainty
Management Process (MRUMP)” was developed. Its main components are a prototype of
common risk/uncertainty map, hierarchical structure of risk and uncertainty (HSRU)
framework, duration valuation process (DVP), and integration of multiple parties’ views.
The MRUMP then was applied to a real infrastructure project located in a Southeast
Asian country as a case study for discussing its applicability in construction stage. This
paper provides an overview of development of the MRUMP and its application. From the
application, the benefit of integrating multiple parties’ views was pointed out. The authors
claim that the MRUMP would be useful to identify and solve problems before all parties
consider taking legal measures. Moreover, the MRUMP can be used as a post-evaluation
study to draw lessons for similar projects in future.
INTRODUCTION
Many infrastructure projects in Southeast Asian countries still have been suffering from
severe project delay. Its major reasons are common external and internal risks and
uncertainties that are inherent in all stages of the project i.e., from planning, bidding,
contracting to construction stages. In infrastructure projects, political and economic
uncertainties are classified in the external category. Unreasonable project objectives, e.g.,
time and cost, delay in awarding and contracting, unfair contract conditions,
inexperienced executing agency, late land acquisition, delay in contractor’s mobilization,
incapable and inexperienced contractor, financial problem of contractor, adversarial
attitude, inefficient communication, cooperation and coordination among parties, poor
840 Watanabe and Pipattanapiwong
project management, claim, conflict and dispute are common source and consequential
risks and uncertainties classified in the internal category.
To cope with these risks, several risk management processes (RMPs) have been
introduced by many researchers [Al-Bahar and Crandall (1990), Wideman (1992),
Flanagan and Norman (1993), Chapman and Ward (1997), ICE (1998), PMI (2000) and
Pipattanapiwong and Watanabe (2000)]. As far as the development and application of
conventional RMP are concerned, however, there are still a number of limitations. Aiming
to overcome these limitations, a new type of risk and uncertainty management process
called the “Multi-party Risk and Uncertainty Management Process (MRUMP)” was
developed. For the purpose of introduction of MRUMP, this paper provides an overview
of MRUMP development and its application to a real infrastructure project located in a
Southeast Asian country as a case study.
In this paper, the risk management is examined in the context of project management.
Risk and uncertainty are characterized into three components i.e., 1) risk/uncertainty
event, 2) probability of occurrence, and 3) outcome: potential loss/gain. Importantly, the
definition of risk and uncertainty are basically different based on “position” of parties in a
project. Since one of the purposes of MRUMP development is integration of multiple
parties’ views in the scope, clear definition of risk and uncertainty is important.
Within the project management context, the authors define the terms “risk” and
“uncertainty” as follows. “Risk” means the event/condition such that a) its occurrence is
identifiable, b) it brings negative effect to project objective, c) the probability distribution
of outcome of the event is quantifiable, and d) it is controllable by one party.
“Uncertainty” means the event/condition such that a) its occurrence is unidentifiable, b) it
may bring positive or negative effect to project objective, c) the probability distribution of
outcome of the event is unquantifiable, or d) it is uncontrollable by one party. This
definition of risk and uncertainty is referred throughout the paper.
Generally, the conventional risk management processes (RMPs) consist of three main
processes i.e., risk identification and structuring, risk analysis, and risk response
processes. As far as the development and application of the conventional RMPs are
concerned, however, at least four limitations are necessary to be addressed: insufficient
attention on a “catastrophic” event, little established procedure for risk structuring and
analysis, interpretation difficulty of dimensionless outputs, and insufficient incorporation
of multiple parties’ views.
In many cases, practitioners may have limited ability to properly deal with
risk/uncertainty because of insufficient historical data or bounded rationality of human
subjective assessment. Particularly, the event with low frequency of occurrence but
extremely high impact, which is often called a “catastrophic event,” is easy to neglect. It
should also be noted that a typical rule to prioritize events in the conventional RMPs is
the expected value of impact of each event. This implies that even if a certain
“catastrophic” event is correctly identified, it may not be categorized as a major event
with high priority if its expected value, the product of frequency of occurrence of the
Risk and uncertainty management process 841
event and its impact, is low. In other words, the conventional RMPs have been designed
for mainly dealing with the event with high probability and high impact. Insufficient
attention on the catastrophic event is identified as the first limitation.
The next limitation is a difficulty in interpreting outputs of the conventional RMPs. Their
main outputs are tradeoffs between the expected value and the variance of impact
associated with each measure for major risks and uncertainties. Since these expected
values and variances are generally represented with dimensionless values, however,
practitioners cannot easily understand how many days the project would be delayed in
average or in the worst case when each measure is taken. If each party has the
interpretation difficulty, smooth communication and discussions among parties would be
hard to realize.
Finally, the conventional RMPs are hard to incorporate views of multiple parties involved
in the project. A major cause of conflicts or problems among multiple parties is their
different views towards risks and uncertainties. It is desirable to develop a method of,
thus, facilitating mutual understanding among parties, identifying parties’ differences and
problems, and solving the problem.
DEVELOPMENT OF MRUMP
Aiming to overcome these limitations, a new type of risk and uncertainty management
process called the “Multi-party Risk and Uncertainty Management Process (MRUMP)”
was developed. As a logical, systematic and concise tool, the MRUMP attempts to assist
and facilitate practitioners managing risks and uncertainties under a multi-party project
environment systematically and efficiently. The MRUMP consists of a prototype of
risk/uncertainty map, the hierarchical structure of risk and uncertainty (HSRU)
framework, and the duration valuation process (DVP), and integration of multiple views.
To overcome technical limitation regarding little established risk structuring and analysis
procedures, a “standard” and “organized” risk structuring diagram called the
842 Watanabe and Pipattanapiwong
understanding through communicating each other where the difference is, and problem
solving by integrating views of parties. Thus, the MRUMP has new functions of
identifying problems and integrating multiple parties’ views.
After development of main components described previously, they are assembled and
packaged. The MRUMP consists of five main systematic processes ranging from risk and
uncertainty management planning, identification and structuring, assessment and analysis,
response, and control processes. Figure 1 shows processes of the MRUMP and their aims.
The MRUMP is also prepared in a manual for its application purpose.
APPLICATION OF MRUMP
The MRUMP was applied to a real infrastructure project located in a Southeast Asian
country as a case study. A main objective of conducting a case study is to discuss the
applicability of the MRUMP and find areas for its further refinement.
The case study project was a bridge and road construction project partly financed by an
international lender. This project provided a new road and bridge network linking a major
port with the existing roads and industrial areas. The main components of works consist
of main cable stayed bridge, approach bridge, and at-grade road. Total length was
approximately three kilometers. The contract value was approximately 70 million U.S.
dollars. The project duration was approximately 34 months.
In this study, the three parties of owner, consultant, and contractor were focused. All top
managements in the project level of the three parties were selected as experts or assessors.
They were a chief project engineer from the executing agency, a project manager from the
consultant, and a project manager from the contractor, who were knowledgeable in
project context and able to perform assessor’s role. In this application, an author
performed the role of evaluation analyst.
At the time of doing the case study, the project was in the middle of construction stage,
which is the 25th month of project duration. In order to discuss applicability of the
MRUMP, it was assumed that the MRUMP had been applied at the very beginning of the
construction stage. First, the assessors were asked to “go back” to the beginning stage of
construction. Then, they were asked to identify the project risks and uncertainties
occurring from the early stage. For probability and impact assessment of project risks and
uncertainties, the assessors were asked to do so with “fresh” mind by freeing their minds
from the current project status as much as possible. Assessment of occurrence probability
and impact of risks/uncertainties by each party was obtained. By conducing simulation
using these assessments, the cumulative distributions of the project duration perceived by
the all parties were obtained.
RUSULTS OF APPLICATION
Figure 2 shows that the distribution based on executing agency’s assessment is totally
located on the left side to the distributions based on contractor’s and consultant’s
assessments. That is, the executing agency was more optimistic than the both contractor
and consultant. It is worthwhile investigating reasons for this difference in duration
estimations by the three parties.
Cumulative Distribution
1,224 1,684 1,822
1.00
Executing Consultant
agency
.75 Contractor
Probability
.50
.25
1,020
.00
1,079 1,312
1,000 1,225 1,450 1,675 1,900
Project Duration (day)
: Executing agency : Contractor : Consultant
A first reason for this estimation difference can be difference in a risk and uncertainty
structuring diagram perceived by each party. The Hierarchical Structure of Risk and
Uncertainties (HSRUs) represents all parties’ views towards source of risk/uncertainty,
consequential risk/uncertainty, and influential risk/uncertainty associated with activities
and project and type of delay. The HSRU of all parties were superimposed, and the
integrated HSRU was obtained. A part of the integrated HSRU from this application is
presented in Figure 3. The integrated HSRU qualitatively shows the difference in the all
parties’ views. In this case study, “occurring risk/uncertainty” was “land acquisition”
risk/uncertainty. “Subsequent risks/uncertainties” were “mobilization of equipment and
subcontractor risks/uncertainties.”
The executing agency only identified the land acquisition uncertainty that caused the site
accessibility of the project. The contractor and consultant not only identified this
occurring risk/uncertainty of land acquisition but also subsequent risks/uncertainties of
contractor’s mobilization of equipment and subcontractor.
Awareness of these subsequent risks/uncertainties, which arise from the land acquisition
uncertainty, characterizes contractor’s perception from that of the executing agency.
Generally, a significant criterion for the contractor to make a decision on whether
subcontractors and equipment should be mobilized or not is not only availability of
Risk and uncertainty management process 845
sufficient land but also appropriate sequence of land handed over. The executing agency
did not seem to understand this mobilization decision criterion for the contractor.
A second reason for the difference in the duration estimation can be difference in
assessment of occurrence probability and impact of each risk and uncertainty by each
party. The risk/uncertainty impact chart (RUIC) represents all parties’ views towards the
impact of risks/uncertainties to activities, that is, the all parties’ perceptions about how
long the project would be delayed and why. This is presented in Figure 4.
Cooperation Source of
fro m residents Co mmencement
risk/uncertainty &
of project
Consequenti al
risk/uncertainty
Land
acquisition
Contractor’s
local experience
Contractor’s Contractor’s
mobilization mobilization of
of equipment subcontractor
assessment was the closest to the actual impact of late land acquisition. Experience of
similar projects in the past, knowledge, and bias with each party seems a reason for this
assessment difference.
0 1 2 3 4 5 Yr
0 12 24 36 48 60 Mo
Base (1,020) =1,020d
-line
Owner (1,020) (194) =1,214d
Land Acquisition Æ Project
Cont
-ractor (1,020) (97)(49) (528) =1,694d
Land Acquisition Æ Project
Equipment Æ Clearing
Equipment, Subcontractor, Coordination ÆPiling
Consul
-tant (1,020) (388) (44)(101) =1,553d
Land Acquisition Æ Project
Equipment Æ Clearing
Subcontractor, Staff, Coordination Æ Piling & Pile cap
Comparison among the all parties’ views and actual status of project demonstrates that
consultant’s view was considered to be most “realistic.” The executing agency did not
seem aware of contractor’s difficulty, and the contractor seemed to know little
governmental and political constraints, which delayed commencement of the project. To
the contrary, the consultant could identify most of major risks/uncertainties actually
occurred and assess their impacts most closely to the actual impact.
These results imply that in this case study project setting up meetings at early stage of
construction could have been beneficiary for the three parties to be aware of and to
identify problems. Such meetings could have promoted mutual understanding especially
between the executing agency and the contractor and generated a constructive solution. In
these meetings a party who is considered to have a best understanding of the other
parties’ views, the consultant in this case, would play a significant role in making the
meetings efficient and effective. It should also be noted that one more party would play
key roles: the party who listens to all parties’ discussions and can represent each party’s
Risk and uncertainty management process 847
view at the real time using the MRUMP also would play the roles of not only analyst but
also facilitator.
CONCLUSIONS
REFERENCES
S. WONGWITDECHA
Department of Civil Engineering, Kasetsart University, 50 Phaholyothin Rd. Ladyaw,
Chatujak, Bangkok 10900, Thailand. fengsnw@ku.ac.th
R. I. CARR
Department of Civil and Environmental Engineering, University of Michigan, 2340 G G
Brown Building, Ann Arbor, MI 48109-2125, USA. ricarr@umich.edu
ABSTRACT
In project control, cost variance of a work item is the difference between the budgeted
cost of work performed (BCWP) and actual cost of work performed (ACWP). BCWP can
be calculated as the percent complete multiplied by the total budgeted cost of a work
item, and the actual cost is the cost incurred to date. The percent complete of a work item
is generally the finished output units divided by the total units to be performed. Where an
activity consists of multiple tasks or processes that must be performed sequentially, the
overall percent complete of an activity based on the finished units tends to be
underestimated.
This paper presents the calculation of cost variances at a task level through an example of
a concrete pavement, which is an activity of an airport taxiway project. In this example,
the concrete pavement work item is composed of two tasks: installing reinforcement and
placing concrete. Two approaches of cost variance calculations are illustrated: an
inaccurate method in which BCWP is based on the quantity of concrete placed and a more
accurate method where concrete pavement BCWP is the sum of steel reinforcement
BCWP and concrete placement BCWP. The results demonstrate the differences in
accuracy of the two methods.
INTRODUCTION
In project control, the progress of a work item, which can be an entire project, an activity
of a project, or a task of an activity, is measured by its actual percent complete = Pa,
Ua
Pa =
Up
(1)
where,
850 Wongwitdecha and Carr
The budgeted cost of work performed to date = BCWP, and the actual cost of work
performed to date = ACWP = Ca, with
BCWP = Pa Cb
(2)
where,
Cb = total budgeted cost of a work item.
The cost variance of a work item measures the deviation of construction cost from its
budget. At any time during construction, cost variance of a work item is the difference
between the total budgeted value of work actually performed and the actual cost incurred
or
Vc = BCWP − ACWP = Pa Cb − Ca
(3)
The budgeted cost of a work item = Cb is determined at the outset of the project, in the
process of estimating its cost. Percent complete, on the other hand, indicates the progress
of a work item at any point in time during construction. There are alternative methods of
estimating percent complete, based on measuring progress by either the quantity of output
units produced or the quantity of input resource units expended. In using output units as a
progress measurement, the percent complete of a single task activity is simply the
quantity of finished output units divided by the total projected final output quantity. For
example, the percent complete of concrete pavement may be based on the length of
finished concrete pavement or the square yards of concrete placed. A variety of resource
input units can be used to measure progress, which includes cost incurred, labor cost or
labor hours incurred, or equipment cost or hours incurred. For example, percent complete
of concrete pavement can be based on labor hours incurred versus total estimated labor
hours required.
In many cases, work items such as activities are composed of multiple tasks or processes.
Percent complete of such a work item should be determined with caution, because the
work items with different tasks may require different resources, budgets, and working
durations that have different start and finish dates. In addition, the quantities of these
tasks are measured in different units and cannot be combined. For example, a concrete
pavement work item may be split into two tasks: steel and concrete. Each task requires
different resources and has a separate construction process. The progress of the steel task
may be measured by the square yards or the tons of steel put in place, and the progress of
the concrete task may be measured by the cubic yards of concrete placed.
During construction of an activity having multiple tasks, some tasks may have been
finished, some may be in-progress, and some may not have started. Thus, each task
generally has a percent complete that differs from the percent complete of any other task.
One way engineers may measure the overall construction progress of such an activity by
Construction activities cost variance 851
quantity of the finished product. That is, the overall progress may be represented by the
percent complete of the last task. For instance, one may calculate percent complete of
concrete pavement as the square yards of finished pavement divided by the total
estimated square yards of concrete pavement at completion.
Fig. 1 shows work progress of A, B, and C, which are tasks of activity X. The vertical
dashed line indicates the day on which progress of the three tasks is measured. On that
day, task A has been completed, and Pa of task A = percent complete of task A = 100%.
Pa of task B = 85%, and Pa of task C = 17%. As can be seen in
Fig. 1, C has the smallest percent complete of the tasks, because it is the final task. If Pa
of the last task C is used to represent the overall progress of activity X, then Pa of X = Pa
of task C = 17%. This significantly underestimates the percent complete and the BCWP
of activity X. Note: The significance to percent complete of the overall project of this
underestimation of activity X depends on the cost of X relative to the cost of the project.
If the cost of X is small compared to the project, the error of underestimation is not
significant in calculating the percent complete of the project; however, if the cost of X is
a significant part of the project, the error of underestimation may also be significant.
BCWP and ACWP of an activity are the sums of the BCWP and ACWP of its tasks,
where,
(BCWP)i = budgeted cost of work performed on task i
Pai = percent complete of task i
Cbi = budgeted cost of task i
(ACWP)i = Cai = actual cost of work performed on task i
PROJECT EXAMPLE
A recap sheet of an airport taxiway project with nine work items is shown in Table 1. As
an example, the detailed calculations of cost variance of Work Item 4, Concrete Pavement
are illustrated. In this example, construction cost of Concrete Pavement is the sum of
costs of its two tasks, Steel and Concrete. Table 2 shows cost estimates for Steel and
Concrete.
After 4 days of Concrete Pavement construction, 16,500 SY of Concrete has been placed.
The site engineer now estimates that the total required quantity of Concrete Pavement has
changed from budgeted quantity = Cb = 160,000 SY to projected quantity = Cp = 165,000
SY, and this causes the projected output quantities of its tasks Steel and Concrete to
change. Table 3 shows the information of construction costs, new projected output
quantities, quantities performed, and the costs incurred by the end of day 4.
Table 3 Work quantity and construction cost of Concrete Pavement and its sub-tasks on day 4
If the activity percent complete is incorrectly based on the last task = percent complete of
Concrete, then
4,362 16,500
Pa = Pa = = 10%=
pavement concrete 43,620 165,000
This error would be continued through Eq. (3) to calculate an incorrect Concrete
Pavement cost variance to date of
The correct approach is to recognize that activity progress and cost are the sum of the
progress and cost of its tasks, Steel and Concrete in this instance. One can start by
applying Eq. (3) to Steel and Concrete,
46,975
Pa = = 25.75%
steel 182,400
Vc = (25.75%)($381, 920) − $78,885 = $19, 459 (favorable)
steel
Therefore, the actual cost variance of Concrete Pavement follows Eq. (6),
Eq. (2), (3), and (4) provide the basis for calculating the actual percent complete for the
combination,
∑ ( PaCb )i − Ca + Ca
V + Ca all i
Pa = c =
Cb Cb
∑ ( PaCb )i ∑ ( BCWP )i
BCWP
= all i = all i =
Cb Cb Cb
(7)
Therefore, the BCWP for Concrete Pavement is
⎛ V + Ca BCWP ⎞ $415,352
Pa =⎜ c = ⎟ = = 11.693 % ≠ 10 %
pavement
⎝ Cb Cb ⎠ pavement $3,552,000
This correct value of Papavement will calculate the correct value for Concrete Pavement
variance when used in Eq. (3), which just reverses the calculations immediately above.
Activity cost is the product of U = quantity of units and C/U = cost per unit,
C
C= U
U
(8)
and the cost variance is the sum of Vc U = cost quantity variance = variance due to Up =
projected number of units ≠ Ub = budgeted number of units and Vc C/U = cost quantity
variance = variance due to (C/U)a = actual cost per unit ≠ (C/U)b = budgeted cost per
unit, where
Construction activities cost variance 855
⎡⎛ C ⎞ ⎛ C ⎞ ⎤ ⎛C C ⎞ Ua
Vc C / U = U a ⎢⎜ ⎟ − ⎜ ⎟ ⎥ = U a ⎜ b − a ⎟ = Cb − Ca (9)
⎢⎣⎝ U ⎠b ⎝ U ⎠a ⎥⎦ ⎝ Ub U a ⎠ Ub
C ⎛ U ⎞
Vc U = b [ PaU b − U a ] = Cb ⎜ Pa − a ⎟ (10)
Ub ⎝ Ub ⎠
and
⎛ U ⎞ ⎛ U ⎞
Vc = Vc C / U + Vc U = ⎜ Cb a − Ca ⎟ + Cb ⎜ Pa − a ⎟ = Pa Cb − Ca (11)
⎝ Ub ⎠ ⎝ Ub ⎠
If the activity percent complete is incorrectly based on the last task = percent complete of
Concrete, then Pa = Pa = 10% as was shown above. Variance components
pavement concrete
based on this incorrect value of Papavement are
⎛ Ua ⎞
(Vc C / U )pavement = ⎜ Cb − Ca ⎟
⎝ Ub ⎠pavement
⎛ 16,500 SY ⎞
= $3,552, 000 ⎜ ⎟ − $381, 705
⎝ 160, 000 SY ⎠
= $3,552, 000 ( 0.103125 ) − $381, 705
⎡ ⎛ U a ⎞⎤
(Vc U )pavement = ⎢Cb ⎜ Pa − ⎟⎥
⎣⎢ ⎝ U b ⎠ ⎦⎥
pavement
⎛ 16,500 SY ⎞
= $3,552, 000 ⎜10% −
⎝ 160, 000 SY ⎟⎠
= −$11,100 (unfavorable)
and by Eq. (11),
Vc = Vc C / U + Vc U = −$15, 405 − $11,100 = −$26,505 (unfavorable)
which agrees with the incorrect value calculated earlier. These results indicate that the
difference between actual and budgeted cost per unit has increased the project cost to date
by $15,405, and the difference between actual and budgeted total number of units has
increased the project cost to date by $11,100, a total increase of $26,505.
856 Wongwitdecha and Carr
The correct approach to calculating cost variance component values parallels earlier
calculations that recognize that activity progress and cost are the sum of the progress and
cost of its tasks, Steel and Concrete in the example.
⎛ Ua ⎞
(Vc C / U )steel = ⎜ Cb − Ca ⎟
⎝ Ub ⎠steel
⎛ 46,975 SY ⎞
= $381,920 ⎜ ⎟ − $78,885
⎝ 176, 000 SY ⎠
= $381,920 ( 0.2669 ) − $78,885
⎡ ⎛ Ua ⎞⎤
(Vc U )steel = ⎢Cb ⎜ Pa − ⎟⎥
⎣⎢ ⎝ Ub ⎠ ⎦⎥steel
⎛ 46,975 SY ⎞
= $381,920 ⎜ 25.75% −
⎝ 176, 000 SY ⎟⎠
= $381,920 ( −0.0094 )
= −$3,590 (unfavorable)
⎛ Ua ⎞
(Vc C / U )concrete = ⎜ Cb − Ca ⎟
⎝ Ub ⎠concrete
⎛ 4,362 CY ⎞
= $3,170, 080 ⎜ ⎟ − $302,820
⎝ 40, 000 CY ⎠
= $3,170, 080 ( 0.10905 ) − $302,820 = $42,877 (favorable)
Construction activities cost variance 857
⎡ ⎛ Ua ⎞⎤
(Vc U )concrete = ⎢Cb ⎜ Pa − ⎟⎥
⎣⎢ ⎝ Ub ⎠ ⎦⎥ concrete
⎛ 4,362 CY ⎞
= $3,170, 080 ⎜10.00% −
⎝ 40, 000 CY ⎟⎠
Then, in parallel with Eq. (6), activity variance is the sum of task variances,
Vc C / U = Vc C / U + Vc C / U
pavement steel concrete
CONCLUSION
The accuracy of cost variance calculations is dependent on the accuracy of the estimated
percent complete. Estimating the percent complete of an activity with multiple tasks is
somewhat complicated, because input and output of different tasks are measured in
different units; hence, they cannot be combined. Therefore, the best approach is to report
progress and variance in a common unit, their budgeted cost equivalents. Using percent
complete of the final task to represent the overall progress of an activity leads to
underestimated BCWP and unfavorably overestimated cost variances.
To avoid mistakes and troubles in finding the percent complete of multi-task activities,
the activity BCWP can be calculated as the sum of the BCWPs of its tasks. Additionally,
the cost variance of a multi-task activity is the sum of the cost variances of its tasks.
Activity and task cost variances can also be decomposed into cost quantity variance and
unit cost variance.
REFERENCES
858 Wongwitdecha and Carr
NOMENCLATURE
ACKNOWLEDGEMENT
This publication is a product of the Research Grant funded by the Thailand Research
Fund (TRF).
ISSUES RELATED TO COORDINATION CAUSED BY CUSTOM IN
INTERNATIONAL JOINT VENTURE CONTRACTING
MASAMITSU ONISHI
Graduate School of Engineering, Department of Urban Management, Kyoto University,
Yoshida-Hon’machi, Sakyo, Kyoto, 606-8501, Japan. masa@psa2.kuciv.kyoto-u.ac.jp
KIYOSHI KOBAYASHI
Graduate School of Engineering, Department of Urban Management, Kyoto University,
Yoshida-Hon’machi, Sakyo, Kyoto, 606-8501, Japan. masa@psa2.kuciv.kyoto-u.ac.jp
ABSTRACT
One of the aspects that may have impact upon the success of international joint venture
contracting is custom. When a constructor executes works in collaboration with a foreign
partner or partners, it may be difficult to anticipate the behavior of people that come from
countries other than one’s own country. Failure in understanding such behavioral axiom
could lead to failures of coordination in international joint venture contracting and
subsequently failure in achieving project success.
The paper reports on a study focusing on issues related to coordination caused by custom in
international joint venture contracting between Malaysian and Japanese contractors in
Malaysia. The principal methodology adopted for the study is semi-structured interviews
with senior staff of Malaysian and Japanese firms that are currently working or have
experience working in joint venture contracting in Malaysia. The paper highlights 1)
coordination issues that hinder the smooth progress of international joint venture
contracting, and 2) the factors and problems related to custom that impinge upon the
success of international joint venture contracting between Malaysian and Japanese firms in
Malaysia. The results of the study indicate there are potential coordination issues related to
custom; that these issues are difficult to accommodate; but they did not cause serious losses
to the parties involved with the joint venture contracting.
INTRODUCTION
Construction firms have extensively used international joint ventures as a vehicle to enter
new construction markets around the world. Subsequently, the number of international
construction joint ventures is growing worldwide at an increasing pace, especially in
developing countries [Lim et al., 2001].
860 Onishi, Rashid and Kobayashi
A joint venture may be termed ‘International’ where at least one of the parties is based
outside the country where the venture is taking place [Geringer, 1991]. An international
joint venture may have peculiar difficulties; the difficulties arise from the multinational
participants that come from different political, legal, economic, and cultural background
[Chan et al., 2003]. To a construction firm that operates in various foreign countries, the
problem of integration may occur; and integration can be a daunting task as it involves
maintaining a balance between global efficiency and being responsive to local cultural
difference in the host countries. Consequently, to be successful in the international
marketplace, construction firms must deal effectively and efficiently with the diverse
cultures encountered [Low et al., 2000, Chua et al., 2003]. Therefore, investigating issues
related to custom is considered beneficial in promoting successful international joint
venture contracting.
The paper reports on a preliminary study focusing on issues related to coordination caused
by custom in international joint venture contracting between Malaysian and Japanese
contractors in Malaysia. The methodology applied for the study is a combination of
literature review and semi-structured interviews with senior staff of Malaysian and
Japanese firms that are currently working or have experience working in joint venture
contracting in Malaysia. The outcome of the study to be presented herein includes
identification of five (5) key issues related to coordination caused by custom in joint
venture contracting between Malaysian and Japanese contractors in Malaysia that may
have impact on the performance joint venture contracting.
The implementation of the Look East Policy in 1981 by the Government of Malaysia [see
Khairuddin, 1998] has brought about active participation of Asian countries into the
Malaysian economy. In relation to construction, the Look East Policy facilitates the entry
of firms from Asian countries, notably the Japanese and South Koreans into the Malaysian
construction industry [Khairuddin, 2002]. Japan was the second largest investor in
Malaysia in 2000 [Malaysia Economic Report, 2000/2001] followed by USA, Korea,
Taiwan, and Singapore.
In relation to the participation of foreign contracting firms in infrastructure development in
the Malaysian public sector, the Government requires that these foreign contractors must
work with local contractors in the form of joint ventures. In addition, the Government
requires that the joint venture entity must have at least 30% bumiputera (indigenous
people) participation [Adnan et al. 2003]. Further policies on joint venture contracting in
the Malaysian public sector are as indicated in Table 1.
Coordination issues caused by custom 861
While a generally accepted definition of coordination does not exist in the literature, the
notion of coordination defined by Malone et al. (1990) is suitable for this study. Malone et
al. defined coordination as “the act of managing interdependencies between activities
performed to achieve a goal”. The need for coordination comes from specialization, in
which various tasks are divided among a group of people, each of whom relies on the others
for part of the job [Milgrom et al., 1992]. A construction work is one of the typical
activities that require complex coordination of sub-activities. A construction project
generally involves a number of people working in teams. Works often requires specialized
skills due to its scale and complexity.
Adnan et al. (2003) investigate critical success factors in Malaysian construction joint
venture projects. The top five critical success factors ranked in order of importance are
‘agreement of contract’, ‘commitment’, ‘cooperation’, ‘management control’ and
‘inter-partner trust’.
In terms of the definition of coordination, the five factors mentioned above can be also
regarded as coordination issues. Thus, coordination has great impact on the performance of
construction works.
Joint Venture
Tactical level Malaysia Japan
Client
Operational level
Superintending
Performance of Project Officer
(The Engineer)
Time Cost Quality
Figure 1. An example of an organization structure of a joint venture
DEFINING CUSTOM
Many authors use different interpretations of the term ‘custom’. To add to the confusion,
the terms ‘custom’ and ‘culture’ are used interchangeably.
However, there is a distinction between ‘custom’ and ‘culture’. For instance, Matsui (2002)
contends that ‘custom’ generally emphasizes practices while cultures focus on humans’
ideas or minds. Further, Swierczek (1994) states that culture have a surface quality; its
manifestation could be seen.
Custom may be expressed either in an explicit or implicit ways. Some custom can be easily
accommodated for external social environments, but others are hard to accommodate (e.g.
language, norms, implicit saying etc.).
Taking cognizant of the arguments presented above, in this paper, custom is defined as ‘a
common practice among those who belong to a certain group’.
The present study represents the first albeit modest attempt to study empirically the issues
related to coordination caused by custom in international joint venture contracting between
Coordination issues caused by custom 863
Malaysian and Japanese contractors in Malaysia. Specifically, the study has the following
key objectives to achieve:
2. To seek explanation on why and how such issues (if they exist) arise and on the
ways in which they can be reduced or alleviated.
The present study is preliminary in nature. It forms a preamble to a study on the impacts of
custom in multi-national joint venture contracting.
The subjects to be interviewed are individuals with the minimum rank of Senior Manager
employed by Malaysian and Japanese contracting firms currently operating within the city
of Kuala Lumpur in Malaysia. The principal criterion of the Malaysian and Japanese firms
to be interviewed is that they must posses experience in joint venture contracting in
Malaysia.
The Japanese contractors were identified through a list of names provided by the embassy
of Japan in Kuala Lumpur. The Malaysian contractors were identified through the
Malaysian Construction Industry Development Board’s Directory for 2003-2004 [CIDB,
2003].
All together thirteen (13) respondents participated in the study. They represent six
Malaysians and seven Japanese contracting firms that met the criterion set for the study.
The interviews were held in Kuala Lumpur from 17 May to 28 May 2004 by the first author.
Being Japanese himself, the first author is able to conduct the interviews with the Japanese
respondents mostly in Japanese. This aspect of the study is considered useful in terms of
soliciting critical data required for the study as language and cultural barriers are less
prominent. The Malaysian respondents were interviewed in English.
864 Onishi, Rashid and Kobayashi
This scope of the study is limited by constraints in particular in terms of time, finance and
human resource and the research methodology. For the record, the first author is a doctoral
student at Kyoto University. He is on a one month attachment in Kuala Lumpur as an
understudy to the second author. The fact that the study is preliminary in nature, the
methodology adopted for and the carrying out of the study is therefore considered sufficient
in terms of addressing the objectives set out for the study.
The attributes of the contracting firms, of the respondents and the joint venture projects are
shown in Tables 2 and 3.
All the Malaysian contractors interviewed are registered under the Malaysian CIDB ‘Grade
7’ contracting firms. Contractors with grade ‘G7’ are considered to belong to the group of
the largest contractors in Malaysia with no maximum financial limit to bid for a project. All
the Japanese contractors interviewed are registered as best rank ‘A’ in the ranking system
of contractors in Japan.
Coordination issues caused by custom 865
The interviewed Japanese contractors have experiences of participation in joint venture(s) with
Malaysian contractors, and the Malaysian contractors have also experiences of participation in
joint venture(s) with the Japanese contractors in Malaysia.
Key issues related to coordination caused by custom in joint venture contracting between
Malaysian and Japanese contractors in Malaysia identified in the study are:
For the purpose of the present study, the above five issues are grouped into three main
categories namely; 1) communication matters, 2) organizational matters, and 3) benefit matters.
Coordination issues caused by custom 867
Communication matters
Successful coordination systems require aspects of both information exchange and information
sharing to be integrated [Mentzas, 1993]. One Malaysian contractor pointed out that in the
project that he is involved; a British project manager was employed to facilitate communication
among the JV partners. Such an arrangement mitigates problems that could lead to serious
problems to the performance of the works.
Organizational matters
Allocation of authority (e.g. who make decisions on what) is a significant issue related to
coordination. One Japanese interviewee points out that the Japanese contractor usually takes
longer time to make decisions because more decisions are subject to upper authorities’
agreement. In such a process, they need to exchange more information within their internal
organization. On the other hand, Malaysian contractors leave more discretion for lower
hierarchy levels. We cannot assert which is a better system easily, but the Japanese system is
considered to be time-consuming.
Benefit matters
Two Malaysian contractors perceive differences of working ethic, that is, Japanese people work
harder than the Malaysians. This issue is inherent in people and is difficult to be accommodated.
If conflicts arise from this issue, they may have to reach an agreement through negotiations.
DISCUSSION
It is interesting to note that on the one hand the study revealed five key issues that may hinder
smooth coordination of a joint venture contracting between Malaysian and Japanese contractors
in Malaysia (as presented herein before). But on the other hand, the study finds no evidence to
suggest that issues related to coordination caused by custom in international joint venture could
lead to failure to achieve project performance (this aspect of the findings was based on the fact
that there were no negative comments made by the interviewees on the performance of the
projects that they were involved in terms of the scheduled time, budget and quality). Two key
reasons may be conjectured, i.e.
1. It has been some twenty years since Japanese contractors became active in Malaysia. It
means that the Japanese and Malaysian contractors have gained sufficient experience
and knowledge in managing construction works in Malaysia. In addition, the lengthy
exposure to each others company within the context of the Malaysian contracting
868 Onishi, Rashid and Kobayashi
environment made the joint venture partners much more aware of the potential problems
related to coordination hence they were able to put in place efforts to arrest or mitigate
potential problems before they arise; and
2. That extent of necessity for coordination between partners in a joint venture depends on
the extent of integration. The more integrated the joint venture project organization
structure is, the higher the degree of coordination required. Necessity of coordination is
a potential cause of losses. We observed that in the case of joint ventures contracting
between Malaysian and Japanese contractors in Malaysia segregated project
organization structure is preferred in efforts to reduce the needs for higher degree of
coordination. In other words, parties tend to reduce complementary interactions with
each other. This is quite a rational strategy for both parties’ mutual benefit in the
short-run.
CONCLUSION
This paper reports on a study focusing on issues related to coordination caused by custom in
international joint venture contracting between Malaysian and Japanese contractors in Malaysia.
The key findings are: 1) there are issues related to coordination caused by custom in
construction joint ventures between Malaysia and Japanese contractors operating in Malaysia;
however 2) there is no evident to suggest that those issues may have negative impact on the
performance of the joint venture projects in Malaysia. Consequently, no attempts we made to
identify or develop strategies to remove or alleviate problems caused by the issues identified;
and 3) conjectures of reasons for the phenomenon were proposed. This study was constrained in
terms of time, finance and human resource. Those conjectures must be confirmed in future
researches.
ACKNOWLEDGEMENT
The Japanese component of this study is funded by the Research Fellowship of the JSPS for
Young Scientists of Japan. The Malaysian component for the study is facilitated by the
International Islamic University Malaysia. The authors express grateful for the cooperation
provided by all in particular by the Malaysian and Japanese contractors that contributed data for
the study.
REFERENCES
Adnan, H. and R. Morledge (2003) Critical success factors in Malaysian construction joint
venture projects, COBRA 2003, Proceedings of RICS Foundation Construction and
Building Research conference, University of Wolverhampton, September 1-2, pp.79-86.
Beamish, P. W. (1988) Multinational joint ventures in developing countries, Routledge.
Coordination issues caused by custom 869
ABSTRACT
Airports play a strategic and important role in an increasingly interconnected global world
facilitating the flow of goods and people, and are crucial in elevating the status of the city
at the international level. This new building typology has to be a culturally-embedded
artifact to counteract the homogenizing forces of globalizations. KLIA is the prime
project to be examined as it is part of the vital infrastructure for Malaysia attempting to
achieve the advanced nation status by year 2020. The project management of the entire
project was undertaken by the Malaysian company KLIAB. The KLIA terminal
buildings were designed by Japanese architect Kisho Kurokawa in collaboration with
AJM of Malaysia. The project design commenced in 1992 and concluded with the
construction of the airport in 1998. The construction was undertaken by Malaysian-led
international contracting consortium. This paper will analyze the KLIA with reference to
critical current debate on the construction of identity. The study will also review the
concept of technology transfer. In conclusion this paper posits that when managed
effectively the international collaborative process can be technologically and culturally
enriching.
INTRODUCTION
In increasingly globalized world the modern airport in Asia has developed beyond its
original functionality. The commercial demand to gain an increasingly greater share of
the market has generated a new breed of Airport. Airports in the west were initially
passenger terminal sheds which later developed a symbolism associated with 20th century
European railway stations, epitomizing the engineering prowess of the region and the
cutting edge use of new materials. For developing countries an airport can be a strategic
element of the envisioned plan to structure and engineer growth. The airport is a crucial
site in facilitating the flow of goods and people in the new order of multinational world
trade. It contributes to and is the site of connection in the spatial hierarchy of
international cities, initiating the exchange of information and knowledge so crucial in a
competitive global world. Thus an airport and more specifically the terminal building can
be used to project an image of modernity and cultural identity in developing countries. As
872 Mand and Mand
stated by Paul Andreu (1999; p7) that although airports are “founded on an ideology of
ubiquity and displacement, they have paradoxically recovered a sense of place and roots.
Terminals have become more important these days ……nations with emerging
economies, have understood that air terminals are gateways that open their country to the
world, that they serve as relays linking them to the modern community of travel and
exchange and that they are symbols and measures of economic success and
development.”
For major projects to have a positive impact on the future growth of the construction
industry in general and architecture in particular of a country a number of criteria are
essential. The first criterion is whether there is active collaboration between the local and
foreign firms for design services, construction companies and suppliers. This facilitates
the exchange of expertise and the importation of technology to advance skills and to
further the growth of material and construction techniques. For developing countries like
Malaysia, importing technology is fundamental to accelerate and manage development
and can play a major role in managing and developing a sustainable environment.
This paper will examine KLIA in relation to Kurokawa’s philosophy of symbiosis with
reference to the following themes:
• Symbiosis with nature and metabolic growth
• Symbiosis of culture and modern Malaysian identity
• Symbiosis by technology transfer of multicultural and international construction
and local industries
The KLIA is located 50 kilometers south of Kuala Lumpur. It is part of the multi-media
super corridor (MSC) development that aims to transform Malaysia into information
based economy with the intention of structuring the growth of Kuala Lumpur and to ease
Technology transfer in construction 873
the pressure of development from the city centre. The first phase of the passenger
terminal buildings consist of the main terminal building, the contact pier and a satellite
building. The main terminal building is connected to the city centre by express rail link
and by road to other parts of Malaysia. It houses in principle the check-in counters,
baggage handling areas, and immigration facilities. The linear contact pier is designed to
accommodate domestic and regional flight operations and in particular provides facilities
for the national carrier Malaysian Airlines. It is separated from the main terminal building
by landscaped courtyards. The international arrivals and departures are from the satellite
building designed to function as regional hub. It is cross shaped with a central circular
landscaped courtyard and is connected to the main terminal by an automated passenger
mover shuttle service.
In the airport the forest between the main terminal building and contact pier, and the
circular courtyard of the satellite building showcases the natural, historic heritage and
diversity of Malaysian forest, it contains 86 species of trees indigenous to Malaysian
peninsula. Special care was taken in the selection of tree species, avoiding fruit bearing
trees thus discourage the birds flying in the area to minimize incidents of birds being
sucked into jet engines. The airport concept of “airport in a forest and forest in an
airport” is illustrative of our symbiotic relationship with nature and can be instrumental in
raising awareness and promoting the preservation of the natural heritage.
Kurokawa’s concept for the airport is also illustrative of his philosophy of metabolism.
Kurokawa as a founding member of Metabolist group as stated by Thomas Daniel (1997;
p62) “promoted a flexible, evolving architecture, directly responsive to environmental
pressure. The proposals were both innovative and provocative, particularly in his
experiments with modular buildings. It is with his current work in Malaysia that
874 Mand and Mand
Kurokawa is revisiting, and perhaps realizing, some of those early concepts. The new
Kuala Lumpur international airport is a combination of flexible modular systems, with
growth as a central requirement of the program. The main terminal building is an
arrangement of six, five module bays with a total of 30 modules. Each square module is
38.4 meters, which is based on the critical dimensions of check-in facilities and passenger
circulation. The modular design enables the building to expand incrementally module by
module or bay by bay. Furthermore, the airport master plan through a series of building
extensions and a complete mirror development of the terminal buildings is designed to
allow for expansion well into the 21st century.
Within the overall concept and national aspirations, the challenge to achieve a symbiosis
between the culture and modern Malaysian identity has been achieved by references to
the past. The perceptions of what constitutes Malaysian identity and the appreciation of
modernist architecture are of course debatable. Definitive points of reference for
Malaysian architectural heritage are not so obvious, drawing in part from imported
Islamic influences, and locally from the indigenous traditional Malay tropical
architecture. The other sources of reference are the courtyard shop-houses of Chinese
immigrants or the hybrid colonial residential and administrative buildings. Malaysia is
constitutionally an Islamic state with a multicultural society. Kurokawa by articulating
the concept of “forest in the airport and airport in the forest”, oldest natural rain forest in
the world rooted the building in the specificity of the place which is the common link
uniting the various cultures that inhabit Malaysia.
building. The airport is a liminal space where the global and the local meet. It is a
building which in spite of the universal language of modern materials of concrete and
steel is able to create a distinctive sense of place depicting the tropical rain forest
characteristic of Malaysia.
The roof of the main terminal building is an array of hyperbolic parabolic shell structures
that spans between 3-dimension arrangements of raking skylights. The internal geometry
of the 3-dimensional curved roof and skylight enables the skylight to appear, from within,
as an independent structure with the internal ceiling constructed as a floating membrane
between the trusses. The roof seems to float above the columns which can be interpreted
as forest canopy with light filtering through the sky lights which achieves the Malaysian
symbolism through the attention given to various parts. This attention to detail is further
exemplified in the design of the column. It is not just designed to be metaphoric of palm
tree but the design of the top of the column integrates the complex structural connection,
of the main terminal shell roof elements and drainage of the roof system. The column
also incorporates in addition to the rainwater drainage, a plenum for chilled air supply,
discharged through jet nozzle diffusers located half-way up the column.
Technology Transfer was initially a term used for the appropriation of technology
advancements made in the space industry by NASA that could be transferred to other
unrelated industries. However, of the late the term has come to refer to the granting of
skills to developing countries by the industrial nations.
Traditionally the transfer of ideas and skills has taken place through the movement of
craftsman facilitated due to: empire building, trading, and migration. The process
resulted in the introduction of new methods of construction, new materials and associated
skills. In addition new and modified uses of local materials developed with hybrid designs
and details. The impact of these processes are not limited to construction and technology
but affected the broader culture. This was perhaps the start of globalization as we know it
now.
Large scale infra-structure projects today still demand the support and importation of
technology and labor. At KLIA the interaction of the multicultural force took place at all
levels: project management, design professionals, contractors, skilled and unskilled labor.
At the peak over 20,000 people from over 40 countries were working on site in various
capacities. The integration of the multicultural work force was crucial to the transfer of
technology and building skills. For example Australians were passing on block work
rendering skills to unskilled laborers from Indonesia, while Japanese sheet metal workers
876 Mand and Mand
were passing on welding skills to Nepali workers. The skilled and unskilled labor force
was sourced mostly from Malaysia and Indonesia with other workers originating from
countries as far as Ghana, Pakistan, Nepal, England and Australia.
Thus KLIA has embraced the many dimensions of technology transfer ranging from
construction project management through airport technical support systems and building
design to construction. For the management of the project, KLIAB modified existing
international contracting models to develop innovative procurement that initiated the fast
tracking of critical contracts while providing adequate design time for the more complex
elements of the project. The single biggest transfer of technology at KLIA was the Total
Airport Management System (TAMS). The information technology infrastructure
integrates more than 40 systems including: air traffic control, baggage handling and check
in systems, flight information and security systems.
The transfer of technology had a significant impact on the local construction and design
industry. For example the assembly of all double glazed units for curtain walling other
than the structural glazed system was done locally, with the single outer panes imported
from abroad and the inner laminates manufactured in Malaysia. The manufacture of the
aluminum components of the curtain wall system was also undertaken locally, though the
technical expertise and raw materials were imported. Another example was the casting of
steel components for the main terminal roof structure and of steel brackets for the
structural glazing: both were undertaken by a fabricator that had previously only
manufactured dredging equipment for mining industry. These were facilitated by
collaborative joint ventures between overseas parent companies and local enterprises.
For a project of this scale to be completed within the programme and budget it was
crucial that appropriate construction technology was exploited. Although lack of skilled
labor was critical to the progress and the quality of construction the contractors were
obliged to maximize procurement of materials and products locally. This achieved two
goals: to reduce the cost of imported goods and ensured that the local industries benefited
most from the demand for building products. To this end international subcontractors
were proactive in importing building technology skills and adapting their existing
manufacturing base to comply with the contractual and design obligations. The
introduction of strict QA procedures ensured that from the supply of raw materials to the
training of skilled workers the required quality of final product was maintained.
Technology transfer in construction 877
CONCLUSIONS
KLIA together with the other mega projects such as Petronas twin tower bring Malaysia
closer to achieving the developed nation status by the year 2020. As a modern Asian
airport KLIA challenges the preconceived notion of a Third World airport. However, as
Malaysia attempts to negotiate its identity internationally it also has to address the issue
of expressing its multicultural identity internally. KLIA therefore offers a window into
the future, as a talisman of a multicultural Malaysian identity.
Although architecture is created by destroying nature, Kurokawa informs the users of our
dependence on nature and the need to structure sustainable growth to enhance our
wellbeing by allowing nature to coexist in and around airport. KLIA has demonstrated
the expression of identity in abstract terms utilizing modern materials rather than copying
past forms. The concept of the “Forest” uses nature as a potent symbol of Malaysia’s
heritage. The “Forest” is expressed in the design of the airport in its literal and natural
forms as landscaping, and in its abstract and technological forms as architectural and
structural expression. The concept by a Japanese architect of international fame facilitated
an intense design process that has resulted in a building that reflects its Malaysian context
but offers a Japanese sensitivity in attention to detail. As evidenced at KLIA identity is
neither homogenous nor fixed but rather it is articulated through translation.
Nationally, it has set new standards to which the local construction industry and design
profession can aspire to. It has provided local firms and personnel with much needed
expertise and experience in undertaking complex projects. Although KLIA has played a
part in showcasing Malaysia to attract tourism and investment, only time will tell how
successful it has been in terms of fostering strong local industries. It is too early to judge
whether technology transfer from the airport has translated into the long term sustainable
technological advancement of the construction industry in Malaysia.
REFERENCES
R. J. ORR
Collaboratory for Research on Global Projects, Stanford University, 298 Terman
Engineering Center, Stanford, CA, USA. rjorr@stanford.edu
ABSTRACT
Global managers report that high unforeseen costs impact project outcomes and that many
unforeseen costs arise from national institutional differences – differences in participants’
core beliefs, values, norms and legal, political and economic regulative systems. How do
institutional differences impact firm success rates? Can these costs be quantified,
measured, modeled and predicted? Are these costs lessened through trial-and-error
accumulation of global experience? This article posits a mathematical model of
institutional learning, to show that unforeseen institutional transaction costs arise as a
function of institutional asymmetry and that firms adaptively mitigate these costs by
developing two knowledge competencies: global process knowledge, a general capability
to successfully enter into any foreign environment; and local institutional knowledge, a
specific capability to maneuver effectively and efficiently within the framework of
cognitive-cultural, normative, and regulative institutions in a specific local environment.
These two types of knowledge are a core competitive advantage for global AEC firms.
This article is divided into four sections. First, it provides key definitions to integrate
vocabulary and concepts from sociology, cultural theory, economics and management
science. Second, it summarizes insights from a series of open-ended interviews with
global project managers. Third, it integrates four theories from extant literature. Last, it
combines the empirical insights and theories to propose a math model to show how a firm
learns to surmount institutional asymmetry in a foreign human environment.
Global projects: Are broadly defined to include industrial, commercial, residential and
infrastructure projects that assemble component parts and organizational participants
including financiers, vendors and contractors from around the world [Chua, Wang & Tan
(2003), Chan & Tse (2003), Levitt et. al. (2004)].
Transaction Costs: The economic value of resources used in locating trading partners and
executing transactions [Wang, 2003].
Institutions: Human constructed cognitive-cultural, normative, and regulative elements
that guide, constrain, and support social behavior [Scott, 2001; see Table 1 for examples].
880 Orr
Regulative elements: Include the formal “rules of the game” and their enforcement
including legal, political & economic arrangements [North, 1990].
Normative elements: Include both values and norms. Values are conceptions of the
preferred or the desirable (e.g., winning the game, making a profit) and norms specify
how things should be done (e.g., informal expectations for how the game is to be played,
conceptions of fair business practices) [Scott, 2001].
Cognitive-cultural elements: Include common beliefs, mutually developed mental models
and shared actions of logic and “the hyphenated label ‘cognitive-cultural’ recognizes that
internal interpretive processes are shaped by external cultural frameworks” [Scott, 2001].
Institutional Arrangements: The combination of institutional elements in any specific
human environment.
Institutional Asymmetry: The degree of incongruence between an actor’s institutional
stock of knowledge and the institutional arrangements in a foreign environment,
conceptually measured as a vector distance [inspired by Hofstede (1991), Hall & Soskice
(2001)].
Institutional Uncertainty: A state of being unsure -- about current and future states,
preferences and appropriate actions – that stems from institutional asymmetry and
impedes an actor’s ability to perform a task or execute a decision in a foreign
environment [adapted from Galbraith (1973), March & Simon (1958)]
Unforeseen Institutional Transaction Costs (UITC): A sub-set of transaction costs arising
from institutional uncertainty, characterized as unexpected, surprising, or inestimable.
Local Knowledge: A capability to cope with the four sources of uncertainty in any given
foreign environment. These sources are:(1) the natural environment, (2) the technologies
applied to contend with the natural environment, [both from Stinchcombe, 1985] (3) the
set of actors, and (4) the institutional arrangements that govern the human environment.
Global Process Knowledge: A capability to enter any given foreign environment and
acquire local knowledge through two distinct types of organizational learning: learning of
the firm’s existing members, and bringing in local agents and partners [Simon, 1991].
Local Institutional Knowledge: A capability to maneuver efficiently and effectively
within the local institutional arrangements of a specific foreign environment.
Analysis revealed that managers face heightened uncertainty when they enter a foreign
location because both the physical world and the human world are unfamiliar. In this
section, I define and give examples of this heightened uncertainty and then discuss five
insights from the interviews concerning institutional uncertainty. The physical world
includes the natural environment and the set of technologies to contend with the natural
environment [Stinchcombe, 1985]. The human world includes the set of local actors and
A learning perspective 881
the socially constructed institutions that enable, restrict and direct regularities of behavior
among this set of actors. Table 1 provides examples:
* Reputation - W ho is honest, who is a newcomer, who is a free rider, who is in financial trouble
Unfamiliar
* Network - W ho knows who, who knows who knows who, who holds various knowledge & resources
2. The Local Set of Human Devised Institutions that Enable, Guide & Govern the Actors
* Regulative - Formal constitution, law, rule, property right, sanction
* Norm ative - Informal norm, value, protocol, taboo, custom, tradition, code of conduct
* Cognitive-Cultural - Tacit human-devised belief system, script, identiy, schema, role
* Project Site Environment - Slope stability, groundwater flow, soil strength, poisonous vegetation
Unfamiliar
4. The Local Set of Human Devised Technologies to Contend with the Natural Environment
* Basic Infrastructure - Roads, buildings, warehouse capacity, other built infrastructure
* Tools - Sextants, GPS systems, scaffolding, pumps, trucks, heavy equipment, software, hardware
* Building System s - Retaining walls, foundation systems, building m aterials
The central and exclusive theme of the remainder of this article is on understanding how
firms learn to cope with institutional uncertainty. This article does not provide further
discussion about uncertainties arising from the unfamiliar physical world or the set of
actors. To illustrate how institutional uncertainty can impact firms on global projects,
consider the following sub-set of case study summaries taken from the exploratory
interviews. In Cameroon, a community development project was sabotaged and delayed
by several weeks until the Canadian engineers learned how to follow the proper protocol
of scheduling an audience with the village chieftain to pay respects, offer gifts and gain
approval. On an international airport project in Asia, a joint venture between a major
Japanese contractor and a major US contractor became embarrassingly dysfunctional
because the firms had conflicting culturally embedded philosophies about the ethics of
pursuing profits through change orders. In Malaysia, Canadian managers faced ostracism
and ridicule when they promoted Indian laborers to managerial positions, which was in
violation of a long precedent-setting history of acceptable local practice. In Spain, a US
real estate developer unexpectedly faced a several hundred thousand dollar cost overrun
after it learned from Spanish legal counsel that an “unforeseen site conditions” clause in
their contract with a Spanish sub-contractor, while perfectly enforceable at home in the
US, was deemed one-sided and unenforceable in Spain. After analyzing these and many
other cases from the interviews and after scrutinizing extant literature, I note seven
insights about the nature and impact of institutional uncertainty on global projects:
1. Ambiguous Nature. Uncertainty in a foreign institutional environment is more properly
termed ambiguity because it is next to impossible to perform a diagnostic assessment of
the complex, multi-faceted and interdependent set of cognitive-cultural, normative, and
regulative institutions that are present in any foreign human environment. Further,
normative and regulative elements are taken for granted by local actors and cognitive-
cultural elements are stored in human minds at a tacit-below-conscious level of awareness,
which makes it very difficult for a foreign actor to identify and assess these elements.
This is compared to uncertainty in the physical environment which can be observed and
quantified as risk [Knight, 1921].
882 Orr
involves a capability to identify, hire, train, empower, trust and manage actors from the
local population such as personnel, managers, partners or acquired firms. As a firm learns
to succeed internationally, it may make parts of this process explicit by formalizing rules,
procedures, training programs, strategies and policies to guide efforts abroad.
7. Local institutional knowledge (LIK). LIK is stored in the heads of managers of the
foreign entity, is primarily tacit and includes the know-how and skills for effective and
efficient operation within the set of local institutional arrangements that envelop the
project. This knowledge marks an ability to successfully maneuver within the local
institutional arrangements. Global process knowledge and local institutional knowledge
are linked in the sense that a firm’s global process knowledge determines its absorptive
capacity [Cohen & Levinthal, 1990], or the rate at which it can acquire additional local
institutional knowledge.
THEORETICAL BACKGROUND
The theoretical framework for the research is at the intersection of four foundational
theories (Figure 1). This builds on models of learning [Lave & March, 1975],
organization learning theory [Levitt & March, 1988] and institutional theory [Scott, 1995;
North 1990] to show how firms gradually learn, usually by trial-and-error, to maneuver
effectively and efficiently within the constraints of foreign institutional arrangements.
Efficiency is considered from a transaction cost economics perspective [Williamson,
1979]. I extend the knowledge based view of the firm [Kogut & Zander (1993), Grant
(1996)] to show how accumulated learning about foreign institutions becomes a key stock
of tacit knowledge, core to competitiveness, for large global firms.
In this section, I knit together insights from the exploratory study and the four theories to
deduce a model that shows how a firm learns to cope with institutional asymmetry. First,
I define a variation of the Lave & March (L&M) mathematical learning model and
describe how the three input variables have been adapted. Second, I give an example to
clarify the application of this model. Third, I use the model to draw hypotheses.
884 Orr
The L&M learning model is represented mathematically as: Pn+1 = Pn + α ∗ (1- Pn). My
variation customizes the naming of each variable and is re-written as: LIKn = LIKn-1 +
GPK * (1 – LIKn-1). The variables are defined below and summarized in Table 3.
1. Initial Local Institutional Knowledge, LIKo. This is the extreme low-value of LIK that
occurs when a foreign firm first enters an unfamiliar environment, before accumulating
any organizational learning. Conceptually, it represents the intersection between the
collective stock of institutional knowledge within the boundary of the firm and the new
institutional arrangements encountered in a foreign environment. In the model, LIKo
marks the point of origin of the learning curve. Empirically, I plan to approximate this
from existing data that quantifies cognitive-cultural, normative and regulative institutional
difference across nations [Hofstede (1991), House et. al. (2004), Hall & Soskice (2001)].
2. Global Process Knowledge, GPK. A capability to enter any given foreign environment
and acquire local knowledge through two distinct types of organizational learning:
learning of the firm’s existing members, and bringing in local agents and partners [Simon,
1991]. In the model, GPK sets the slope of the learning curve, or rate of organizational
learning. This is to be estimated empirically as diversity and duration of a firm’s prior
global experience, both as countries and regions entered and duration of global activity.
3. Number of Local “Trials”, n. In the original L&M model formulation, ‘n’ is defined as
the number of trials of a mouse in a T-maze, and, distance along the x-axis. Analogously,
‘n’ is defined here as the number of learning episodes in a local environment; empirically
measured as both number of projects and duration of local activity.
4. Effective Local Institutional Knowledge , LIKn. This is the output of the model, a
function of GPK, LIKo, and n. Conceptually, this represents the initial stock of
institutional knowledge plus the stock of institutional knowledge accumulated through the
process of organizational learning. When LIKn is calculated for several values of n (with
GPK and LIKo constant), the series of data points can be joined to form a learning curve.
Table 3. Descriptions of model variables
Variable Type Name Description Function of:
Sets the starting point for the organizational learning
Initial Local Institutional LIKo = F (Hofstede, House et.
LIKo Input curve, hence, it determines the amount of learning
Knowledge al., Hall & Soskice)
that is necessary.
Sets the rate of learning (i.e. absorptive capacity), hence, it
Global Process GPK = F (diversity & duration
GPK Input determines the slope of the curve that a firm follows in the
Knowledge of prior global experience)
process of ogranizational learning.
Number of Local Expresses the number of learning episodes that the firm has n = F(accumulation of local
n Input
"Trials" accumulated in the local environment. experience)
The model is shown graphically (Figure 2) below. Notice that a foreign firm closes the
institutional asymmetry (ID) gap through the process of organizational learning. Note
that the effective institutional asymmetry (IDn) at the end of any learning episode depends
both on the starting LIKo when the firm first entered the foreign environment, plus the
learning that has been accumulated. Also notice that the value of ID and the value of LIK
will always sum to unity.
A learning perspective 885
0.9
Learning
0.8 USA - 0.2 0.5 0.8
0.7
ID0
0.6 Canada 0.2 - 0.4 0.7
0.5
LIKn=4 Finland 0.5 0.4 - 0.7
0.4
0.3
0.2 Japan 0.8 0.7 0.7 -
LIK0
0.1
0
0 1 2 3 4 5 6 7 8
n (# of local learning episodes)
Example
The sample initial institutional asymmetry (IDo) table (Table 4) has been constructed
from the cultural value dimensions listed by project GLOBE (House et. al., 2004) and
arbitrarily assumes that high, med and low asymmetry corresponds to ID0 scores of 0.8,
0.6 and 0.4. Below, the local institutional learning model (Figure 3) shows two things.
First, the initial level of local institutional knowledge, LIK0 (circled), is approximated
from the institutional asymmetry table (1 – IDo). The long-dash family of curves, which
represent a Canadian firm going to Japan, show a greater institutional asymmetry (IDo =
0.8, LIKo = 0.2) than the short-dash family of curves, which represent a Canadian firm
going to the USA (IDo = 0.4, LIKo = 0.6). Second, the rate of organization learning is a
function of GPK. The flat, middle, and steep rates of learning depicted in each curve
family (e.g. the short-dash family) corresponds to low, med, and high values of GPK.
Figure 3. Three families of learning curves
1 Key:
%-Local Institutional
0.8
Short-Dash Family:
Knowledge
Hypotheses
I use the model to draw two hypotheses to guide field data collection and testing:
1] ∂ LIKn…………. >0 The greater the GPK, n, and LIKo, the greater the LIKn,
∂ GPK,n,LIKo for firms on global projects.
2] ∂ UITC < 0 The greater the LIKn, the less the UITC for firms on
∂ LIKn global projects.
886 Orr
The first hypothesis is an ecological argument and implies that surviving firms in the
global arena have developed a head office capability to maximize local institutional
knowledge in their field management team. The second hypothesis acknowledges that
the penalty to a firm that fails to maximize local institutional knowledge is an increase in
UITC. Note that in the first hypothesis, LIKn is the dependent variable and in the second
hypothesis, the independent variable. Thus, when the two hypotheses are linked, they
form a two-step causal chain, implying that UITC depends on LIKn, and in turn LIKn
depends on GPK, n and LIKo. In brief, UITC result when managers running the site
office lack local institutional knowledge, and the capability to assemble this local team
can be traced back to the global process knowledge shared by the home office managers.
CONCLUSION
My research agenda over the next year aims to prove and calibrate, or refute and modify,
this learning model through the collection of empirical data gathered via structured
interviews on 10 active global projects in 5 countries. Part of my purpose in attending
this conference is to locate suitable data collection sites. Data collection will measure
unforeseen transaction costs, foreseen transaction costs and global and local experience
for the firm and for key field managers. I plan to collect this data from project managers
and engineers in the site office via 15 minute structured interviews. This research makes
novel contributions both to science and practice: to science, by providing an empirical
contribution of interest to scholars of organizational learning, institutional theory,
transaction cost economics, and the knowledge based view of the firm; and to practice, by
recognizing the importance of organizational learning to overcome institutional
asymmetry in the reduction of unforeseen transaction costs on global projects.
REFERENCES
Chan, EHW and Tse, RYC (2003) Cultural Considerations in International Construction
Contracts. Journal of Construction, Eng & Mgmt, Vol.129, No. 2, 375-381.
Chua, D, Wang, Y and Tan, T (2003) Impacts and Obstacles in East Asian Cross-Border
Construction. Journal of Construction, Eng & Mgmt Vol. 129, No. 4, 131-141.
Cohen, W and Levinthal, D (1990) Absorptive Capacity: A new perspective on learning
and innovation. Administrative Science Quarterly Vol. 35, 128-152.
Eisenhardt, KM (1989) Building theories from case study research. Academy of
Management Review, 532-50.
Galbraith, J R (1977) Organizational Design, Addison-Wesley.
Glaser, BM and Strauss, AL (1999) The Discovery of Grounded Theory: strategies for
qualitative research, Hawthorne, NY: Aldine de Gruyter.
Grant, RM (1996) Toward a Knowledge-Based Theory of the Firm. Strategic
Management Journal Vol.17, 109-122.
Hall, P and Soskice, D (2001) Varieties of Capitalism, New York: Oxford Univ. Press.
Hofstede, G (1991) Culture and Organizations, New York: McGraw-Hill .
House, R, Hanges, P, Javidan, M, Dorfman, P and Gupta, V (2004) Culture, Leadership
and Organization: The GLOBE Study, Thousand Oaks, CA: Sage.
Knight, F (1921) Risk, Uncertainty, and Profit, Boston: Houghton and Mifflin.
Kogut, B and Zander, U (1993) Knowledge of the Firm and the Evolutionary Theory of
A learning perspective 887
APPENDIX A
This material is based upon work supported by the National Science Foundation under
Grant No. IIS-9907403. Any opinions, findings, and conclusions or recommendations
expressed in this material are those of the author(s) and do not necessarily reflect the
views of the National Science Foundation.
THE IMPACT OF CULTURE ON PROJECT COMMUNICATIONS: TWO CASE
STUDIES FROM SOUTH EAST ASIA
ABSTRACT
This paper describes two recent independent studies of inter-cultural project communica-
tion – one in Singapore and one in Samoa. Although neither researcher was aware of the
other’s work, both conducted a literature review of related topics and carried out ques-
tionnaire surveys on the impact of national culture and organizational culture on project
communications.
Both studies concluded that the managers’ attitude and behaviours toward communication
are guided to large extent by their level of competence, suggesting that the individuals’
understanding of the communication process and its barriers, the way they behave with
other individuals and expect to be treated, varies according to national cultures. Of par-
ticular note were the managers’ realizations about cultural influences on their own behav-
iours including value conflicts with others, and the importance of developing at least a
tolerance for cultural differences. A further feature was the link between personal transi-
tion and cultural adjustment. Managers, who were able to set aside personal discomforts
and take on new ways of learning and relating to others, reported an impact on their value
shifts and appreciation for the strengths of the host culture.
INTRODUCTION
Right across industry, the attitude of senior management to their corporate affairs is
evolving in response to the globalisation of business, the spread of information technolo-
gies, the growth of shareholder activism and increased intrusiveness of international and
national governments in key areas of business management. A misfit of cultures has been
identified as a frequent cause of failure [Cartwright and Cooper (1996), Cartwright and
Cooper (1993), Olie (1994)]. In particular, managers’ strong preference for culturally
similar environments has been identified as a major problem [Oudenhoven and De Boer
(1995)]. A major challenge of doing business internationally is clearly to adapt effec-
tively to different cultures. Such adaptation requires an understanding of cultural diver-
sity, perception and values [Granell, 2000].
In Australia, historically high levels of protection, particularly in the form of tariffs, have
been the mainstay of Australian industry policy [Buxey, 2000]. The consequence of this
protectionism has been an inward-looking industry with a low level of competitiveness in
890 Skitmore, Tone and Tran
international markets. The tendency to date has been to take those management concepts
and techniques that worked at home into other countries and cultures. It is now apparent,
however, both from practice and cross-cultural research, that a single, universal, style
management, at least across-culture, is not tenable [Adler, 1997].
One of the most important skills for project managers in the international marketplace is
that of effective communication [Harris and Kumra, 2000]. Communication takes on spe-
cial importance in cross-culture management because of the difficulties in conveying
meanings between parties from different cultures. The problems of misinterpretation and
error are compounded in the international context. To overcome this, it is suggested that
cross-cultural managers adapt and be flexible in the new environment in addition to hav-
ing the required functional and survival skills. Thus, cross-cultural managers need to
have an understanding of the meanings and dimensions of culture, organizational culture
and diversity, and intercultural communication.
With intensified internationalisation of business, there has been a notable increase of re-
search interest in the relationship between national culture, values and managerial orienta-
tions and behaviour. The more recent work by Hall and Hall (1994a), Trompenaars and
Hampden-Turner (1998b), Hofstede (1991) and Laurent (1983) explicitly links broad cul-
tural value dimensions to management issues. Apart from Loosemore and Muslmani’s
(1999) work in the Persian Gulf region, however, little has been done to date to document
the inter-cultural communication issues in construction project management.
This paper describes two recent independent studies of inter-cultural project communica-
tion – one in Singapore and one in Samoa. Although neither researcher was aware of the
other’s work, both conducted a literature review of related topics and carried out ques-
tionnaire surveys to compare the views of local and expatriate practitioners. The Singa-
pore study aimed to explore the impact of national culture, organizational culture and in-
ter-cultural communication on the management of a company by means of a small em-
pirical study of the correlation between the culture diversity and intercultural communica-
tion and its barriers. The Samoa study was more practical and concentrated on the sensi-
tivity of expatriate nationals to the host culture and the effects on communication between
project participants in terms of their personal beliefs, the extent of implementation in their
work experience, the impact of barriers to communication, and the extent to which com-
munication strategies were employed.
The major finding of both research projects was identical – that the managers’ attitude
and behaviours toward communication is guided to large extent by their level of cultural
competence.
For many Australian corporations in the 1990s, the highest priority has been to develop
an Asian focus – the so-called Asian Challenge. However, international knowledge in
Australia is biased in favour of Europe and there has been slow progress in developing
significant and meaningful changes in attitudes, knowledge and awareness of Asian ways
[Edwards et al., 1997]. Thus motivated, the study involved an exploratory questionnaire
survey of 31 construction industry managers in Singapore derived from synthesis of cul-
Culture and project communication 891
ture dimensions from Trompenaars and Hampden-Turner (1998b), Hofstede (1980, 1991)
and Schein (1992). These dimensions enabled the description and comparison of critical
manifestations of organizational and national culture.
The respondents were from geographically and culturally diverse backgrounds, with a
diversity of management experience, and with an average of 9 years of cross-cultural ex-
perience per respondent. There were a variety of nationalities involved, with two major
response groups being Australian (23%) and Singaporean (22%). The majority were pro-
ject managers, with 85% having five or more years of experience in the construction in-
dustry.
For analysis, the respondents were allocated into Far Eastern (46%) and Anglo (54%)
groups [after Ronen and Shenkar, 1985]. Sample correlation coefficients were then com-
puted between the cultural variables (National, Organisational and Personal Characteris-
tics) and communication variables (Communication in General, Project Based Communi-
cations and Barriers) for Pooled Data, Anglo Cluster and Far Eastern Cluster.
• For organisational cultures, the more externally oriented organisations of the respon-
dents were found to require higher levels of inter/intra-personal skills. In addition,
these organisations were more likely to establish a communication strategy for cross-
cultural interactions. The more task-focused organisations, on the other hand, tend to
place the demands of the job before the individual. Organisations may therefore have
to reduce their resistance to change if they wish to strike a balance between their ac-
tivity and social orientation. Those belonging to a Risk-averse culture were found to
have a higher level of ambiguity tolerance than those of a Safety-conscious culture, so
that language is not viewed as a communication barrier. They may, however, per-
ceive personal skills to be a barrier to communication. Finally, those from a Planning
culture emphasised the need for structure and a non-ambiguous communication proc-
ess, while those from an Adhockery culture require an informal communication struc-
ture. Planning culture members also had a greater recognition that cultural dimen-
sions are important factors in the communication process.
892 Skitmore, Tone and Tran
Data was collected by postal questionnaire. The questionnaire questions, which concern
the skills that are required to manage everyday situations in a new cultural context, were
loosely based on Furnham and Bochner (1982). Respondents were asked to rate on 5-
point scales developed for various sojourner groups, and which have consistently proved
to be reliable and valid [Ward and Kennedy, 1996]:
a) Their personal beliefs (endpoints: strongly disagree/strongly agree.)
b) the extent of implementation in their work experience (endpoints: never/always)
c) the impact of barriers to communication (endpoints: insignificant/catastrophic)
d) the extent to which communication strategies were employed (endpoints:
never/mandatory)
A 3-point rating scale [after Zung, 1965] was also used for responses to part of the ques-
tionnaire to rate the extent to which communication barriers were overcome (endpoints:
not at all/totally).
Consistent with previous perspectives on transition [eg., Zaharna, 1989], the question-
naire also elicited perceptions of the ways in which respondents’ self-identity, personal
beliefs, and worldview regarding international project management had changed as a re-
sult of their cross-cultural experiences. Several behaviour questions were also included,
such as: “To what extent did you employ communication strategies?” and “How did you
overcome barriers to communication?” In addition, the critical incidents methodology
was used to encourage individual reflection regarding unique experiences, with open-
ended prompts such as “Are there any other issues concerning cross-cultural communica-
Culture and project communication 893
tion not covered in the questionnaire?” and “Has the questionnaire missed any important
related issues?
37% and 39% of respondents were Samoan and Australian nationalities respectively, with
Other Expatriates making up the remainder. 47%, 13%, 11% and 29% had less than 6, 6-
10, 11-15 and over 15 years cross-cultural experience respectively, indicating a diversity
of cross-cultural experience and thus of project management knowledge and skills
[McCaffer, 2000]. The types of projects managed by the respondents in Samoa are typi-
cal and correlate with the Government of Samoa’s ‘Statement of Economic Strategy’ as
well as ‘aid’ policies in the Pacific [World Bank, 2000], with projects in the areas of Con-
struction (42%), Institutional Strengthening (37%), Industry Development (13%), and
Energy Supply and Distribution (8%).
The responses to each question were grouped according to the nationality of the respon-
dent and their sample means and variances calculated. The means were tested pairwise
for differences between nationality groups by the formula:
t= (1)
{(1 n1 ) + (1 n2 )}2 {(n1 − 1)s12 + (n2 − 1)s22 }2
1 1
where x1 and x 2 are the sample means of the first and second samples, s12 and s 22 are the
sample variance for the first and second samples and n1 and n 2 are the number of values
in each sample. The distribution of t can be approximated by the Student’s t-distribution
with n1 + n 2 − 2 degrees of freedom, with the test for inequality conventionally made at
the upper 5 per cent point [Pollard, 1979:159]. The test is robust for moderate departures
from normality and homogeneity of variance. The procedure used was to (1) rank order
the mean ratings for each nationality group for question 1, (2) test the difference between
the means of the first and second ranked means, (3a) if the means are significantly differ-
ent, test the difference between the second and third ranked means or (3b) if the means
are not significantly different, pool the two nationality groups and test the difference be-
tween the mean of this pooled group and the third ranked mean. This was repeated for
each question. The next step was (4) to rank order all the means for all the questions and
nationality groups found to be significant in this way, (5) test the difference between the
means of the first and second ranked means (6a) if the means are significantly different,
test the difference between the second and third ranked means or (6b) if the means are not
significantly different, pool them and test the difference between the mean of this pooled
group and the third ranked mean. Repeating this for all the ranked means results in sev-
eral sets of poolings each with significantly different means, the interpretation of which is
provided in the next section.
894 Skitmore, Tone and Tran
For personal beliefs overall, all the items had a MR of over three, indicating a general
agreement on the need for effective communication in a cross-cultural environment – the
higher rated items suggesting support for emphasising [eg., Dinsmore, 1984] the ‘soft’
side of project management.
The overall figures for What happened in the projects that you worked on? suggest that
relatively effective communication processes are in place, as none fall below 2.9 MR, but
that they are not regularly achieved or fully met, as none come above 3.8 MR. Cross-
cultural theorists [eg., Jaafari 2001] may attribute this to the tendency of managers to ap-
ply key success factors intuitively, based on the manager’s reference framework (knowl-
edge and personal experience) and his or her ability to apply reflective thinking. The
largest differences between the three nationality groups show the Samoans recording rela-
tively lower ratings against the other two for ‘Understanding and appreciation of cultural
difference involved’, ‘Effective communication reflecting openness and tolerance of cul-
tural differences’, ‘Flexibility of form and style of communication’ and ‘Clear communi-
cation giving stakeholders opportunity to comment/cast a vote’. Australians, on the other
hand, are high against the other two for ‘Ongoing communication between project propo-
nents and stakeholders’. This suggests that the Samoans found the management style to
be relatively unresponsive. Another interesting aspect is the marked differences between
these and the personal beliefs results, offering some support for Dieckmann (1996) and
Pardu’s (1996) view that the quality of the intentions is often greater than the quality of
what is actually practiced.
Table 1: Communication barriers: impact
Question
Grp Mean Var No. Statement Nationality
1 Political/community interference SO
3 Varying perception/interpretation ASO
4 Conflicting cultural values S
5 Lack of support and commitment S
6 Varying capacity and capability ASO
7 Unclear channels of communication S
8 Ineffective reporting system SO
9 Language difficulties SO
10 Interpersonal conflict S
12 Conflicting interest S
13 Resisting change AS
15 Lack necessary skills ASO
A 2.89 0.90 16 Varying concept of time ASO
18 Limited resources SO
19 Poor planning ASO
20 Limited time ASO
21 Lack of motivation ASO
22 Information filtering SO
24 Poor listeners SO
26 Lack of confidence SO
27 Poor leadership S
29 Personal preferences SO
30 Poor negotiation skills SO
33 Unclear objectives S
35 Lack of trust S
1 Political/community interference A
2 Lack of/inappropriate technology ASO
4 Conflicting cultural values AO
5 Lack of support and commitment AO
7 Unclear channels of communication AO
8 Ineffective reporting system A
10 Interpersonal conflict AO
13 Resisting change O
17 Organisational mishaps ASO
18 Limited resources A
22 Information filtering A
B 2.30 0.88 23 Religious issues ASO
24 Poor listeners A
25 Family commitments ASO
26 Lack of confidence A
27 Poor leadership AO
28 Concept of space ASO
29 Personal preferences A
30 Poor negotiation skills A
31 Conflicting business/industry ethics ASO
32 Stereotyping SO
33 Unclear objectives AO
34 Lack of concern ASO
9 Language difficulties A
11 Age difference ASO
12 Conflicting interest AO
C 1.86 0.65
14 Gender issues ASO
32 Stereotyping A
35 Lack of trust AO
The respondents’ perceptions on the impact of barriers to communication (Table 1) have
an overall range of 1.7 to 3.15 MR, reflecting a minor to moderate impact, with the results
generally supporting what some theorists posit as cultural values, tasks as well as situ-
ational variables that help determine the norms for communication. Terpstra (1991) as-
serts that the multiplicity of language use and the diversity of cultures may have a con-
straining influence on communication in cross-cultural situations.
The majority of the results of the overall responses pertaining to the communication
strategies employed (Table 1) range from 3 to 4 MR. This is consistent with the literature
[Saphiere, 1996], which asserts that it is necessary for overseas assignments to have posi-
tive interactions between project staff, team-building, problem solving exercises, and
strategies for conflict resolution and cultural adaptation, which may be integral ingredients
for project success. According to the literature [Black, 1988] conflicting signals about
what is expected of individuals in a new setting i.e., role conflict would be expected to in-
crease uncertainty and inhibit adjustment. In a new cultural setting, conflicting signals
may generate a high degree of uncertainty since individuals need to first understand the
messages about what to do and then decide which messages to either follow or ignore.
That none of the items returned ratings at either end of the score analysis continuum sug-
gests that variables within cultural contexts need to be addressed through appropriate pre-
departure training, as well as through support during sojourner period in cross-cultural en-
vironments [Black and Mendenhall, 1990].
CONCLUSION
The results of the Singapore study suggest that the managers’ attitude and behaviours to-
ward communication may be guided to large extent by their level of competence. The
study also provides evidence to suggest that the individuals’ understanding of the commu-
nication process and its barriers, the way they behave with other individuals and expect to
be treated, varies according to national cultures. This suggests that organisations should
have a balanced dual strategy, as advocated by Abell (1993) and supported by the research
of Appelbaum et al. (1998), which is to encourage managers to think globally and act lo-
cally. To accomplish this change management process, organisations would need to for-
mally develop key behavioural skills and individual competencies to deal with conflict,
culture and change.
Similarly, the most useful finding in the Samoa survey was the need for non-indigenous
managers to achieve an adequate level of cultural competence. Of particular note were the
managers’ realizations about cultural influences on their own behaviours including value
conflicts with others, and the importance of developing at least a tolerance for cultural dif-
ferences. A further feature was the link between personal transition and cultural adjust-
ment. Managers, who were able to set aside personal discomforts and take on new ways of
learning and relating to others, reported an impact on their value shifts and appreciation for
the strengths of the host culture. This is consistent with the literature [Child and Rodri-
gues, 1994] on international project managers as agents of learning. Stress-management
training has been identified as a necessary feature of programs designed to prepare manag-
ers for effective communication overseas [Harvey, 1997]. This is likely to be especially
useful at the initial entry into the new environment when differences between home and
host cultures are most noticeable and overwhelming.
REFERENCES
Abell, D F (1993) Managing with Dual Strategies - Mastering the Present, Pre-empting
the Future, Free Press, New York.
Adler, N J (ed.) (1997) International Dimensions of Organisational Behavior, Southwest-
ern, OH., Cincinnati.
Appelbaum, S H, Shapiro, B and Elbaz, D (1998) The management of multicultural group
conflict. Team Performance Management, Vol. 4. No. 5, pp. 221-234.
Buxey, G (2000) Strategies in an era of global competition. International Journal of Op-
erations and Production Management, Val. 20, No. 9. pp. 997-1016.
Cartwright, S and Cooper, C L (1993) The role of culture compatibility in successful or-
ganisational marriage. Academy of Management Executive, Vol. 7. pp. 57-70.
Cartwright, S and Cooper, C L (1996) Managing mergers, acquisitions and strategic alli-
ances: integrating people and cultures, Butterworth-Heinemann, Oxford.
Child, J and Rodrigues, S (1994) The role of social identity in the international transfer of
knowledge through joint ventures. Research Papers in Management Studies, Vol.
15, University of Cambridge, (all pages).
Edwards, R W, O'Reilley, H and Schuwalaw, P (1997) Global; personnel skills: a dilemma
for the Karpin committee and others, Monash University, Faculty of Business and
Economics: Melbourne.
898 Skitmore, Tone and Tran
ABSTRACT
This paper describes two recent independent studies of inter-cultural project communica-
tion – one in Singapore and one in Samoa. Although neither researcher was aware of the
other’s work, both conducted a literature review of related topics and carried out ques-
tionnaire surveys on the impact of national culture and organizational culture on project
communications.
Both studies concluded that the managers’ attitude and behaviours toward communication
are guided to large extent by their level of competence, suggesting that the individuals’
understanding of the communication process and its barriers, the way they behave with
other individuals and expect to be treated, varies according to national cultures. Of par-
ticular note were the managers’ realizations about cultural influences on their own behav-
iours including value conflicts with others, and the importance of developing at least a
tolerance for cultural differences. A further feature was the link between personal transi-
tion and cultural adjustment. Managers, who were able to set aside personal discomforts
and take on new ways of learning and relating to others, reported an impact on their value
shifts and appreciation for the strengths of the host culture.
INTRODUCTION
Right across industry, the attitude of senior management to their corporate affairs is
evolving in response to the globalisation of business, the spread of information technolo-
gies, the growth of shareholder activism and increased intrusiveness of international and
national governments in key areas of business management. A misfit of cultures has been
identified as a frequent cause of failure [Cartwright and Cooper (1996), Cartwright and
Cooper (1993), Olie (1994)]. In particular, managers’ strong preference for culturally
similar environments has been identified as a major problem [Oudenhoven and De Boer
(1995)]. A major challenge of doing business internationally is clearly to adapt effec-
tively to different cultures. Such adaptation requires an understanding of cultural diver-
sity, perception and values [Granell, 2000].
In Australia, historically high levels of protection, particularly in the form of tariffs, have
been the mainstay of Australian industry policy [Buxey, 2000]. The consequence of this
protectionism has been an inward-looking industry with a low level of competitiveness in
890 Skitmore, Tone and Tran
international markets. The tendency to date has been to take those management concepts
and techniques that worked at home into other countries and cultures. It is now apparent,
however, both from practice and cross-cultural research, that a single, universal, style
management, at least across-culture, is not tenable [Adler, 1997].
One of the most important skills for project managers in the international marketplace is
that of effective communication [Harris and Kumra, 2000]. Communication takes on spe-
cial importance in cross-culture management because of the difficulties in conveying
meanings between parties from different cultures. The problems of misinterpretation and
error are compounded in the international context. To overcome this, it is suggested that
cross-cultural managers adapt and be flexible in the new environment in addition to hav-
ing the required functional and survival skills. Thus, cross-cultural managers need to
have an understanding of the meanings and dimensions of culture, organizational culture
and diversity, and intercultural communication.
With intensified internationalisation of business, there has been a notable increase of re-
search interest in the relationship between national culture, values and managerial orienta-
tions and behaviour. The more recent work by Hall and Hall (1994a), Trompenaars and
Hampden-Turner (1998b), Hofstede (1991) and Laurent (1983) explicitly links broad cul-
tural value dimensions to management issues. Apart from Loosemore and Muslmani’s
(1999) work in the Persian Gulf region, however, little has been done to date to document
the inter-cultural communication issues in construction project management.
This paper describes two recent independent studies of inter-cultural project communica-
tion – one in Singapore and one in Samoa. Although neither researcher was aware of the
other’s work, both conducted a literature review of related topics and carried out ques-
tionnaire surveys to compare the views of local and expatriate practitioners. The Singa-
pore study aimed to explore the impact of national culture, organizational culture and in-
ter-cultural communication on the management of a company by means of a small em-
pirical study of the correlation between the culture diversity and intercultural communica-
tion and its barriers. The Samoa study was more practical and concentrated on the sensi-
tivity of expatriate nationals to the host culture and the effects on communication between
project participants in terms of their personal beliefs, the extent of implementation in their
work experience, the impact of barriers to communication, and the extent to which com-
munication strategies were employed.
The major finding of both research projects was identical – that the managers’ attitude
and behaviours toward communication is guided to large extent by their level of cultural
competence.
For many Australian corporations in the 1990s, the highest priority has been to develop
an Asian focus – the so-called Asian Challenge. However, international knowledge in
Australia is biased in favour of Europe and there has been slow progress in developing
significant and meaningful changes in attitudes, knowledge and awareness of Asian ways
[Edwards et al., 1997]. Thus motivated, the study involved an exploratory questionnaire
survey of 31 construction industry managers in Singapore derived from synthesis of cul-
Culture and project communication 891
ture dimensions from Trompenaars and Hampden-Turner (1998b), Hofstede (1980, 1991)
and Schein (1992). These dimensions enabled the description and comparison of critical
manifestations of organizational and national culture.
The respondents were from geographically and culturally diverse backgrounds, with a
diversity of management experience, and with an average of 9 years of cross-cultural ex-
perience per respondent. There were a variety of nationalities involved, with two major
response groups being Australian (23%) and Singaporean (22%). The majority were pro-
ject managers, with 85% having five or more years of experience in the construction in-
dustry.
For analysis, the respondents were allocated into Far Eastern (46%) and Anglo (54%)
groups [after Ronen and Shenkar, 1985]. Sample correlation coefficients were then com-
puted between the cultural variables (National, Organisational and Personal Characteris-
tics) and communication variables (Communication in General, Project Based Communi-
cations and Barriers) for Pooled Data, Anglo Cluster and Far Eastern Cluster.
• For organisational cultures, the more externally oriented organisations of the respon-
dents were found to require higher levels of inter/intra-personal skills. In addition,
these organisations were more likely to establish a communication strategy for cross-
cultural interactions. The more task-focused organisations, on the other hand, tend to
place the demands of the job before the individual. Organisations may therefore have
to reduce their resistance to change if they wish to strike a balance between their ac-
tivity and social orientation. Those belonging to a Risk-averse culture were found to
have a higher level of ambiguity tolerance than those of a Safety-conscious culture, so
that language is not viewed as a communication barrier. They may, however, per-
ceive personal skills to be a barrier to communication. Finally, those from a Planning
culture emphasised the need for structure and a non-ambiguous communication proc-
ess, while those from an Adhockery culture require an informal communication struc-
ture. Planning culture members also had a greater recognition that cultural dimen-
sions are important factors in the communication process.
892 Skitmore, Tone and Tran
Data was collected by postal questionnaire. The questionnaire questions, which concern
the skills that are required to manage everyday situations in a new cultural context, were
loosely based on Furnham and Bochner (1982). Respondents were asked to rate on 5-
point scales developed for various sojourner groups, and which have consistently proved
to be reliable and valid [Ward and Kennedy, 1996]:
a) Their personal beliefs (endpoints: strongly disagree/strongly agree.)
b) the extent of implementation in their work experience (endpoints: never/always)
c) the impact of barriers to communication (endpoints: insignificant/catastrophic)
d) the extent to which communication strategies were employed (endpoints:
never/mandatory)
A 3-point rating scale [after Zung, 1965] was also used for responses to part of the ques-
tionnaire to rate the extent to which communication barriers were overcome (endpoints:
not at all/totally).
Consistent with previous perspectives on transition [eg., Zaharna, 1989], the question-
naire also elicited perceptions of the ways in which respondents’ self-identity, personal
beliefs, and worldview regarding international project management had changed as a re-
sult of their cross-cultural experiences. Several behaviour questions were also included,
such as: “To what extent did you employ communication strategies?” and “How did you
overcome barriers to communication?” In addition, the critical incidents methodology
was used to encourage individual reflection regarding unique experiences, with open-
ended prompts such as “Are there any other issues concerning cross-cultural communica-
Culture and project communication 893
tion not covered in the questionnaire?” and “Has the questionnaire missed any important
related issues?
37% and 39% of respondents were Samoan and Australian nationalities respectively, with
Other Expatriates making up the remainder. 47%, 13%, 11% and 29% had less than 6, 6-
10, 11-15 and over 15 years cross-cultural experience respectively, indicating a diversity
of cross-cultural experience and thus of project management knowledge and skills
[McCaffer, 2000]. The types of projects managed by the respondents in Samoa are typi-
cal and correlate with the Government of Samoa’s ‘Statement of Economic Strategy’ as
well as ‘aid’ policies in the Pacific [World Bank, 2000], with projects in the areas of Con-
struction (42%), Institutional Strengthening (37%), Industry Development (13%), and
Energy Supply and Distribution (8%).
The responses to each question were grouped according to the nationality of the respon-
dent and their sample means and variances calculated. The means were tested pairwise
for differences between nationality groups by the formula:
t= (1)
{(1 n1 ) + (1 n2 )}2 {(n1 − 1)s12 + (n2 − 1)s22 }2
1 1
where x1 and x 2 are the sample means of the first and second samples, s12 and s 22 are the
sample variance for the first and second samples and n1 and n 2 are the number of values
in each sample. The distribution of t can be approximated by the Student’s t-distribution
with n1 + n 2 − 2 degrees of freedom, with the test for inequality conventionally made at
the upper 5 per cent point [Pollard, 1979:159]. The test is robust for moderate departures
from normality and homogeneity of variance. The procedure used was to (1) rank order
the mean ratings for each nationality group for question 1, (2) test the difference between
the means of the first and second ranked means, (3a) if the means are significantly differ-
ent, test the difference between the second and third ranked means or (3b) if the means
are not significantly different, pool the two nationality groups and test the difference be-
tween the mean of this pooled group and the third ranked mean. This was repeated for
each question. The next step was (4) to rank order all the means for all the questions and
nationality groups found to be significant in this way, (5) test the difference between the
means of the first and second ranked means (6a) if the means are significantly different,
test the difference between the second and third ranked means or (6b) if the means are not
significantly different, pool them and test the difference between the mean of this pooled
group and the third ranked mean. Repeating this for all the ranked means results in sev-
eral sets of poolings each with significantly different means, the interpretation of which is
provided in the next section.
894 Skitmore, Tone and Tran
For personal beliefs overall, all the items had a MR of over three, indicating a general
agreement on the need for effective communication in a cross-cultural environment – the
higher rated items suggesting support for emphasising [eg., Dinsmore, 1984] the ‘soft’
side of project management.
The overall figures for What happened in the projects that you worked on? suggest that
relatively effective communication processes are in place, as none fall below 2.9 MR, but
that they are not regularly achieved or fully met, as none come above 3.8 MR. Cross-
cultural theorists [eg., Jaafari 2001] may attribute this to the tendency of managers to ap-
ply key success factors intuitively, based on the manager’s reference framework (knowl-
edge and personal experience) and his or her ability to apply reflective thinking. The
largest differences between the three nationality groups show the Samoans recording rela-
tively lower ratings against the other two for ‘Understanding and appreciation of cultural
difference involved’, ‘Effective communication reflecting openness and tolerance of cul-
tural differences’, ‘Flexibility of form and style of communication’ and ‘Clear communi-
cation giving stakeholders opportunity to comment/cast a vote’. Australians, on the other
hand, are high against the other two for ‘Ongoing communication between project propo-
nents and stakeholders’. This suggests that the Samoans found the management style to
be relatively unresponsive. Another interesting aspect is the marked differences between
these and the personal beliefs results, offering some support for Dieckmann (1996) and
Pardu’s (1996) view that the quality of the intentions is often greater than the quality of
what is actually practiced.
Table 1: Communication barriers: impact
Question
Grp Mean Var No. Statement Nationality
1 Political/community interference SO
3 Varying perception/interpretation ASO
4 Conflicting cultural values S
5 Lack of support and commitment S
6 Varying capacity and capability ASO
7 Unclear channels of communication S
8 Ineffective reporting system SO
9 Language difficulties SO
10 Interpersonal conflict S
12 Conflicting interest S
13 Resisting change AS
15 Lack necessary skills ASO
A 2.89 0.90 16 Varying concept of time ASO
18 Limited resources SO
19 Poor planning ASO
20 Limited time ASO
21 Lack of motivation ASO
22 Information filtering SO
24 Poor listeners SO
26 Lack of confidence SO
27 Poor leadership S
29 Personal preferences SO
30 Poor negotiation skills SO
33 Unclear objectives S
35 Lack of trust S
1 Political/community interference A
2 Lack of/inappropriate technology ASO
4 Conflicting cultural values AO
5 Lack of support and commitment AO
7 Unclear channels of communication AO
8 Ineffective reporting system A
10 Interpersonal conflict AO
13 Resisting change O
17 Organisational mishaps ASO
18 Limited resources A
22 Information filtering A
B 2.30 0.88 23 Religious issues ASO
24 Poor listeners A
25 Family commitments ASO
26 Lack of confidence A
27 Poor leadership AO
28 Concept of space ASO
29 Personal preferences A
30 Poor negotiation skills A
31 Conflicting business/industry ethics ASO
32 Stereotyping SO
33 Unclear objectives AO
34 Lack of concern ASO
9 Language difficulties A
11 Age difference ASO
12 Conflicting interest AO
C 1.86 0.65
14 Gender issues ASO
32 Stereotyping A
35 Lack of trust AO
The respondents’ perceptions on the impact of barriers to communication (Table 1) have
an overall range of 1.7 to 3.15 MR, reflecting a minor to moderate impact, with the results
generally supporting what some theorists posit as cultural values, tasks as well as situ-
ational variables that help determine the norms for communication. Terpstra (1991) as-
serts that the multiplicity of language use and the diversity of cultures may have a con-
straining influence on communication in cross-cultural situations.
The majority of the results of the overall responses pertaining to the communication
strategies employed (Table 1) range from 3 to 4 MR. This is consistent with the literature
[Saphiere, 1996], which asserts that it is necessary for overseas assignments to have posi-
tive interactions between project staff, team-building, problem solving exercises, and
strategies for conflict resolution and cultural adaptation, which may be integral ingredients
for project success. According to the literature [Black, 1988] conflicting signals about
what is expected of individuals in a new setting i.e., role conflict would be expected to in-
crease uncertainty and inhibit adjustment. In a new cultural setting, conflicting signals
may generate a high degree of uncertainty since individuals need to first understand the
messages about what to do and then decide which messages to either follow or ignore.
That none of the items returned ratings at either end of the score analysis continuum sug-
gests that variables within cultural contexts need to be addressed through appropriate pre-
departure training, as well as through support during sojourner period in cross-cultural en-
vironments [Black and Mendenhall, 1990].
CONCLUSION
The results of the Singapore study suggest that the managers’ attitude and behaviours to-
ward communication may be guided to large extent by their level of competence. The
study also provides evidence to suggest that the individuals’ understanding of the commu-
nication process and its barriers, the way they behave with other individuals and expect to
be treated, varies according to national cultures. This suggests that organisations should
have a balanced dual strategy, as advocated by Abell (1993) and supported by the research
of Appelbaum et al. (1998), which is to encourage managers to think globally and act lo-
cally. To accomplish this change management process, organisations would need to for-
mally develop key behavioural skills and individual competencies to deal with conflict,
culture and change.
Similarly, the most useful finding in the Samoa survey was the need for non-indigenous
managers to achieve an adequate level of cultural competence. Of particular note were the
managers’ realizations about cultural influences on their own behaviours including value
conflicts with others, and the importance of developing at least a tolerance for cultural dif-
ferences. A further feature was the link between personal transition and cultural adjust-
ment. Managers, who were able to set aside personal discomforts and take on new ways of
learning and relating to others, reported an impact on their value shifts and appreciation for
the strengths of the host culture. This is consistent with the literature [Child and Rodri-
gues, 1994] on international project managers as agents of learning. Stress-management
training has been identified as a necessary feature of programs designed to prepare manag-
ers for effective communication overseas [Harvey, 1997]. This is likely to be especially
useful at the initial entry into the new environment when differences between home and
host cultures are most noticeable and overwhelming.
REFERENCES
Abell, D F (1993) Managing with Dual Strategies - Mastering the Present, Pre-empting
the Future, Free Press, New York.
Adler, N J (ed.) (1997) International Dimensions of Organisational Behavior, Southwest-
ern, OH., Cincinnati.
Appelbaum, S H, Shapiro, B and Elbaz, D (1998) The management of multicultural group
conflict. Team Performance Management, Vol. 4. No. 5, pp. 221-234.
Buxey, G (2000) Strategies in an era of global competition. International Journal of Op-
erations and Production Management, Val. 20, No. 9. pp. 997-1016.
Cartwright, S and Cooper, C L (1993) The role of culture compatibility in successful or-
ganisational marriage. Academy of Management Executive, Vol. 7. pp. 57-70.
Cartwright, S and Cooper, C L (1996) Managing mergers, acquisitions and strategic alli-
ances: integrating people and cultures, Butterworth-Heinemann, Oxford.
Child, J and Rodrigues, S (1994) The role of social identity in the international transfer of
knowledge through joint ventures. Research Papers in Management Studies, Vol.
15, University of Cambridge, (all pages).
Edwards, R W, O'Reilley, H and Schuwalaw, P (1997) Global; personnel skills: a dilemma
for the Karpin committee and others, Monash University, Faculty of Business and
Economics: Melbourne.
898 Skitmore, Tone and Tran
ABSTRACT
Keywords: Factors influencing project selection, Ministry of Defence, Project life cycle,
Project management, Public sector, Strategic management, Thailand
INTRODUCTION
It is worthy to note that the most intricate stage of strategic management is not the means
of formulation of organizational strategies but its implementation. Ernst and Young [1998]
point out that the ability to execute strategy is more important than the quality of the
strategy itself. Similarly, Charan and Colvin [1999] find that 70 percent of the real
problems in strategic management are not bad strategy but bad execution. One of the most
important steps required for successful strategy implementation is project (or program or
activity) selection, which is an organization’s essence to accomplish its ultimate goal.
Kaplan and Norton [2001] confirmed the importance of project selection stating that a
critical component for linking strategy to short-term actions is selecting strategically
valuable initiatives.
In the public sector, project selection becomes more complex due to the long procedural
and hierarchical nature of government organizations. Moreover, the mission of non-profit
organizations is service, which is often intangible and difficult to measure. Wheelen and
Hunger [2002] state that implementation plans tend to shift form results to resources. This
has caused public agencies to concentrate their planning efforts on resource input, which
can easily be measured, than on service, which can hardly be measured. Consequently,
results or outcomes of their investments in initiative projects have not been examined or
measured after project completion. This leads to a lack of feedback which could be
instrumental for improving the project selection criteria.
Generally, project selection or decision making involving investments could be carried out
using a number of methods which depend on the nature of work, size, structure, and
organizational culture. In a small organization, especially in the private sector, top
management such as the CEO of the firm make decisions for organization’s resource
utilization by himself without consultation. On the other hand, in a large organization,
there are various personnel involved in the decision making and is done in several steps.
However, investments related decision making in the public sector is mostly carried out
step by step and completed from the lower to the top management.
Strategic project selection 901
STRATEGIC
TARGETS
Functional
Initiatives
Conceptual Stage
CYCLE
Conceptual
Design
Factors Influencing
Selection of
Conceptual Stage
Initiatives
(I)
Detail Design
Detail Design Stage
LIFE
Stage (III)
PROJECT
Implementation
Termination OUTPUT/
OUTCOME
There are many studies discussing the broad topic of project selection out of which, each
differs in perspective. Among these are a few studies investigating factors influencing
project selection [Mohanty (1992), Rengarajan and Jagannathan (1997), Kaplan and
Norton (2001)].
Mohanty [1992] recommended that the criteria for classification of such factors could be
separated into intrinsic and extrinsic criteria as listed below:
Intrinsic criteria:
• Project-identification ability
• Resource requirements and availabilities
• Past experience of the organization in managing the project
• Management attitudes
• Time horizon of the project
Extrinsic criteria:
• Risk/return ratio
• Market environment
• Government policies and regulations
• Socioeconomic climate
• Legal and technological implications
In addition, Rengarajan and Jagannathan [1997] listed 13 criteria for the selection of R&D
projects as follows: successful completion of the project, work related to the existing
products only, new product, manufacturing plant association in selecting the research
programs, patenting, publishing the work done, social objectives, image of the
organization, duration of the project, cost of the project, space availability, availability of
executive manpower, and availability of technical supporting staff. While Kaplan and
Norton [2001] suggested 6 criteria in the screening of initiatives as follows: strategic
importance, initiative cost, NPV, elapsed time, interdependencies, and risk/complexity in
implementation.
The factors mentioned in mostly all the studied literature take into consideration, only the
holistic view of project selection rather than in the different stages of the project selection
process. With reference to the project selection framework in Figure 1, the factors
influencing project selection in the different stages of the project selection process are
systematically tabulated in Table 1. It is seen that there are a set of intrinsic and extrinsic
factors as mentioned above which influence project selection in the conceptual stage.
Regardless of new projects being created mostly from functional units to satisfy their real
needs, most of these factors are those influencing the organizational level. This is because
the selected projects in this stage is designed to basically meet the expectation of
achieving the strategy of the organization based on a rough feasibility study which
includes a description of objectives, the target outcome, and availability of resources
[Sang, 1995].
Strategic project selection 903
During the detail design stage, the selected initiative is further revised and redesigned.
This detailed design contains an analysis of all the essential technical and economic
aspects of the proposition and includes estimates of its cost and benefits, as well as its
direct and indirect effects. Therefore, the factors influencing project selection in this stage
are mostly related to technical and economic indicators such as legal and technological
implication, rate of return, and the time horizon of the project. The selected projects in the
detail design stage are the final strategic initiatives, which are reviewed by top
management of the organization. Three factors influencing this final review are resource
requirements and availability, priority of strategic initiatives, and current environment
related to the project. This final review is carried out with an aim of justifying that the
final strategic initiatives are appropriate at the time of budget allocation.
time, a major core function of the management components, which the Thai government
needed to reform was Budget Management. This reform focuses on improvement of the
budget management system to emphasize outputs and outcomes. It is understood that
effective budget management will lead to improved public management processes as a
mechanism to control and examine the utilization of resources for public benefit. Kaplan
and Norton [2001] mention that organizations can classify the budget into 2 types, which
are operational and strategic budget. The operational budget comprises of the ongoing
expenses required to maintain existing products and customers whereas the strategic
budget is the budget for initiatives that enable the organization to develop new products
and services, new capacities, new and enhanced customer relationships, and expand its
capacity for future growth. Accordingly, the Ministry of Defence has these two types of
budget and most of its budget obtained from the government is an operational budget. This
covers for salaries of non-commissioned officers and officers to maintain operations. Only
a few percentage of the budget is used for strategic initiatives. However, in this study, the
researcher concentrates on the budget used for new strategic projects. With reference to
the project selection framework in governmental organizations in Figure 1, the factors
influencing project selection in the different stages of a project life cycle can be illustrated
as follows:
Conceptual stage
As it is in the private sector, when a potential project is found promising, a formal project
proposal is formulated. Potential projects may arise from ideas of officers needing to
improve their organization’s performance, organization’s demand itself, as well as
technical necessity. Nonetheless, the unit which creates a new project and requests for the
MOD’s budget is required to fill the Budget Request Form of MOD. The Budget Request
Form states important criteria, which the project-owning organization has to consider
when new projects require the use of MOD’s resources. The criteria mentioned therein are
project objectives, project rationale, commander’s concept, past executions related to the
project, project alternatives, project duration, project budget, and project outcome. After
this step has been taken, the proposal is approved by a logistics agency responsible for the
planning of resource allocation and utilization. Factors influencing this step are mostly
related to the mission and action plans of MOD. The proposal is thereafter examined again
from the comptroller agency based on the project budget, opportunity of budget
utilization, as well as regulations concerning budget utilization. In addition, there are two
committees in the Supreme Commander Headquarter which consider and review the
proposed projects based on factors related to the nation and MOD such as national
strategy, government policy, vision of MOD, Mission of MOD, strategy of MOD, and
action plan of MOD. Two other groups of factors which the committees pays attention to
are factors related to project benefits such as benefits to the target population. On
completion of this stage, although the projects are approved for further detail design, the
grant of MOD’s budget is not ascertained until its final approval.
The projects, having passed the conceptual stage are reviewed in the detail design stage in
order to obtain more necessary information for consideration in the proceeding step. The
detail design stage includes construction drawings, specifications, and other documents
appropriate to procurement management later on in the project. Factors influencing this
Strategic project selection 905
stage are appropriateness of project size, method and technology as well as future
operations and maintenance. With the completion of this step, project budget, project
duration, required personnel and equipment as well as project plan and schedule are
identified exactly. Simultaneously, MOD is informed about the budget allocation limit
authorized for use by the MOD in the specific fiscal year. As previously mentioned, most
part of the budget is used for operational purposed; only a limited few is allocated and
utilized for strategic activities. However, MOD tries to reduce and redesign this
operational budget to make allowance for reallocation of the budget and thus facilitate
effective strategic budgeting. Once the strategic budget is recognized, the project’s
finishing details are prioritized. Factors influencing prioritization are budget spent by the
predetermined time, project objectives, project rationale, resource requirements and
availability, commander’s concept, and government policy.
As explained above, strategic projects are selected through strategic prioritization and
dependent on the strategic budget available to MOD. During this final approval stage, the
top management of MOD reviews the selected projects once again to ensure that the
strategic budget is appropriately used when budget is allocated. This consideration can be
done by the commander of each military department (Army, Navy, and Air Force) or the
Supreme Commander or the Minister of Defence depending on the project budget. In
practice, staff officers of the top management are responsible for preparing the necessary
information to facilitate top management’s decision making. Due to the fact that top
management is responsible for the success of an organization, the critical success factors
of project management come into play. Factors influencing during this stage are factors
related to the nation and MOD such as government policy and strategy of MOD; factors
related to project necessity such as project objectives and project rationale; factors related
to risk management such as budget spent by predetermined time and conformance to
regulations and laws; factors related to project benefits such as benefits to target
population, performance measurement and evaluation plan; and factors related to project
impact such as impacts on local people and society.
As discussed above and in reference to the strategic project selection framework in MOD
(Figure 2), the factors influencing project selection in the different stages were obtained
from empirical analysis in the project selection process. These factors are illustrated in
Table 2. In the conceptual stage, the factors influencing project selection are related to
appropriateness and feasibility of proposed projects and maybe categorized into 4
perspectives, which are factors related to policy level, factors related to project necessity,
factors related to project feasibility, and factors related to project benefits. In the detail
design stage, there are two essential points to be considered, which are technical
appropriateness and project prioritization. The factors influencing at this stage, therefore,
are related to 5 perspectives, which are factors related to technical appropriateness, factors
related to project feasibility, factors related to risk management, factors related to project
necessity, and factors related to policy level. And finally, in the final approval stage, the
top management of MOD, who reviews the final selected initiatives, is responsible for the
success of the organization and thus, the factors influencing in this stage are related to
success factors of the organization. The factors influencing in this stage are mostly related
to 5 perspectives, which are factors related to factors related to policy level, factors related
906 Puthamont and Charoenngam
to project necessity, factors related to risk management, factors related to project benefits,
and factors related to project impacts.
STRATEGIC
TARGETS
Functional
Conceptual Stage Initiatives Factors Influencing Conceptual
Stage (I)
CYCLE
appropriateness
LIFE
• Factors related to
Selection of project feasibility
Functional • Factors related to risk
Initiatives management
• Factors related to
project necessity
Final Strategic • Factors related to policy
Initiatives level
Implementation level
• Factors related to project
necessity
• Factors related to risk
management
Termination • Factors related to project
benefits
• Factors related to
project impacts
Output/ Evaluation/
Outcome KPIs
CONCLUSION
The objective of this study is to gain an understanding of the factors influencing 3 stages
of a project selection process, namely, conceptual stage, detail design stage, and final
approval stage. With the application of the proposed strategic project selection framework
in project selection process of the Ministry of Defence (MOD), results show that factors
influencing project selection in these 3 stages are significantly different. In the conceptual
stage factors influencing project selection are related to appropriateness and feasibility of
908 Puthamont and Charoenngam
proposed projects whereas in the detail design stage, the factors are related to technical
suitability and project prioritization. Finally, the factors influencing project selection in the
final approval stage are related to the success factors of the organization.
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Duncan, W R (1996) Project management Body of Knowledge. Project Management
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Wilson, I (1994) Strategic Management Isn’t Dead-It Changed. Long Range Planning,
August 1994, pp. 20.
PROJECT FINANCE SYSTEMS IN TOLL ROAD PROJECTS IN ASIA
ABSTRACT
Project finance (PF) has become a key financial mechanism for mobilization of private
capital into road infrastructure projects. The application of PF and related sub-systems,
such as BOO/BOT (Built-Operate Own/Built-Operate Transfer) arrangements, for toll
roads has demonstrated many dimensions in the recent past. The objective of this research
is to examine the role of PF as a financial mechanism to promote BOO/BOT type toll road
projects in Asia. While the main focus is on key aspects associated with structuring of PF
transactions into toll road projects, attention is also paid to examine how different mecha-
nisms are arranged in response to riskiness of the PF transactions. Following presentation
of a framework encompassing aspects of structuring of PF arrangements, case studies on
BOO/BOT type PF transactions in toll road projects are conducted. Findings show that the
organisation of key aspects, namely the project company (corporate governance), the capi-
tal structure, and the contractual structure (transaction governance) are governed by politi-
cal, regulatory and financial environments. Financial and contractual risk management
mechanisms are arranged in the capital structure and transaction governance in response to
the risk level of the PF arrangement. Thus, complexity and structure of PF transaction in
toll road projects will vary depending on the stability of the external environment.
Keywords: Asia, BOO/BOT arrangements, project finance, risk management, road in-
frastructure
INTRODUCTION
The term "Project Finance"(PF) has been used to explain many types of financing of pro-
jects. However, according to Nevitt et al (2000) the definition of PF could be summarized
as,
"A financing of a particular economic unit in which a lender is satisfied to look ini-
tially to the cash flows and earnings of that economic unit as the sources of funds
from which a loan will be repaid and to the assets of the economic unit as collat-
eral (p3)”.
The economic unit in the definition typically refers to a capital investment project incorpo-
rated as a single venture company (economic unit) with a set of legally and economically
independent assets with a single industrial use [Esty, 2000]. For example, it could refer to
oil refineries, mines, highways, pipelines, power plants, and telecommunications systems
separately incorporated that rely on cash flows generated by asset use to service debt and
910 Devapriya, Genz and Alfen
generate equity returns. However, in PF, creditors have recourse only to the project’s cash
flow and assets since each project is legally independent. Esty (2000) states that due to
these reasons PF typically represents a form of off-balance sheet finance, meaning that
project liabilities do not appear on the sponsors' balance sheet if certain limitations on
shareholdings in subsidiary/ associated companies are observed. It is instead an indication
of non-recourse financing of physical assets. In non-recourse finance, the lender has no
recourse to the assets of the sponsors beyond those held by them in the PF transaction, in
case of default [Nevitt et al., 2000].
Table 1: Different BOT model: Project Finance Arrangements in Toll Road Projects
However, the evolution of popular application of PF for PIPs in Asia highlights a number
of dimensions. While Lang (1998) reports some of the characteristics of these dimensions
in the 1990s, challenges are still associated with structural arrangements in PF in dynamic
financial, legal and regulatory environments in Asia.
Amidst mix experiences in BOO/BOT type PF transactions, refinancing and restructuring
of PF arrangements in toll road projects are gaining grounds in Asia. It is in this back-
ground that an investigation is conducted into the application of PF for toll road projects in
Asia to understand the underlying factors of sustainability of PF to promote PIPs in
emerging economies. While extensive studies have been undertaken on private finance in
Project finance system 911
toll roads in Asia [ADB (2000), World Bank (1999) and Walker and Smith (1995), for
example], the current research focuses on the role of PF as an effective financing mecha-
nism for toll road finance. Thus, the research question is why a PF transaction is structured
into a toll road project in a particular manner in the institutional characteristics given. Ac-
cordingly, the paper is structured to present a unique framework encompassing the key
aspects of structuring of PF transactions and an analysis of BOT-type PF transactions in
toll road projects in Hong Kong and China within the above-mentioned framework.
The stakeholders in the project company enter into various contracts to form the contrac-
tual structure of the project. The contractual structure provides a comprehensive tool for
risk allocation and thereby to establish a bankable balance of interests among participants
to the project. For this purpose, the particular contracts consist of every right and obliga-
tion of the project participants and thus work as a risk management system. The contracts
establish relationships to provide inputs and deliver output or service. This is necessitated
by the huge sunk investment with highly asset-specific characteristics in investment pro-
jects such as infrastructures.
Financial/Capital Structure
The debt capacity depends on the extent to which the credit risk can be effectively man-
aged through contractual arrangements and the project’s ability to generate a cash-flow
sufficient to serve the repayment of debt [Nevitt et al., 2000]. Concerning financial in-
struments, equity, senior debt and subordinate debt are used to form the capital structure.
Equity and subordinate debt assume the risk of cash-flow volatilities and thus provide a
buffer for the lenders at simultaneous filling the gap between debt and project costs [Esty,
2002]. The risk reduction elements such as derivative elements, guarantees and incentives
function as credit enhancement arrangements [Devapriya and Alfen, 2003]. In particular,
derivative elements in PF are used to reduce risks associated with currency, funding costs
and price fluctuations of the project’s output. In this manner, an appropriate financial
structure is derived during delivering, refinancing and restructuring of the project.
Project finance system 913
A credible and stable policy environment that is committed to privately financed infra-
structure projects and a well developed legal framework suitable to protect interests of
sponsors as well as lenders are pre-requisites for successful PF transactions. Political, le-
gal, financial, administrative and regulatory factors create the external framework in which
the transaction is embedded and operated. The structure of PF transaction is derived in
relation to the external environment so that project’s risk exposure is managed properly.
Availability of long-term debt instruments in the capital markets could work to arrange
and maintain an effective financial structure of the project. Similarly, specifically-created
legal and administrative mechanisms such as BOO/BOT laws could affect derivation and
operation of PF arrangements positively [Devapriya and Alfen, 2003].
1.1 In accordance with legal, tax and accounting 3.1 Debt and equity are arranged in relation to the
considerations the project company is incorpo- project’s risk exposure.
rated.
3.2 Responses to the project’s risks exposure in
1.2 The aim of non-recourse/ limited recourse is order to stabilize the cash flow and reduce
achieved. lender’s credit risk.
Within the above framework (Fig.1) this section conducts two case studies, namely West-
ern Harbour Crossing (WHC) in Hong Kong and Guangzhou-Shenzhen-Zhuhai (GSZ)
Superhighway in China. According to Yin (1993) a case study is an empirical inquiry that
914 Devapriya, Genz and Alfen
investigates a contemporary phenomenon within its real-life context, when the boundaries
between phenomenon and context are not clearly evident, and in which multiple sources of
evidences are used. Accordingly, evidences of BOT type PF transactions in WHC and
GSZ Superhighway are collected from case study manuscripts [Lang 1998, for example],
sector specific studies [Fishbein and Babbar, 1996, for example]; and country-specific
reports from development banks [ADB (2000), World Bank (1999), for example]. While
the PF arrangement in WHC has passed many stages including refinancing in 2002, GSZ
Superhighway shows many challenging situations including replacement of the guarantor
for financial risk in its PF arrangement being one of the top ten toll road projects in DCs in
1990-2001.
Figure 2 reveals background information about the WHT project in Hong Kong. The pro-
ject company of the WHT project was incorporated as a corporation. The SPV, namely
Western Harbour Tunnel (WHT) Company Limited, was able to raise debt capital based
on its own name, its own assets, and thereby to create a charge over them.
The US$966 million Western Harbour Crossing (WHC) is the fourth BOT toll road project, the third
harbour crossing in HK, the longest underwater and first dual-3-lane road tunnel in Southeast Asia.
Being a fundamental part of the overall road network in Hong Kong the WHC is one of three road
links between Hong Kong and Kowloon and a component of the road infrastructure system connect-
ing the new airport with the western parts of Hong Kong. The WHC is a key segment of Route 3
connecting the north-western part of the New Territories between Hong Kong and the Chinese bor-
der. Constructed by use of the immersed-tube-technique, the tunnel was opened on 30 April,1997, the
year in which Britain handed over the political sovereignty of Hong Kong to China. The sponsors
formed a project company to finance, build, operate and transfer the WHC to the Hong Kong gov-
ernment, at no cost, at the end of the 30-year concession period. Until now, the WHC was except for
the construction which was completed three month ahead of schedule and within budget not a suc-
cessful toll road tunnel project. Since its opening in 1997, it has been under-utilized mainly because
of toll differences among the three cross-harbour tunnels in HK, as well as the capacity limitation on
the approach roads to and from the WHC. The daily throughput of the crossing has improved, al-
though not so far as to cover all costs.
(Source: ADB, 2000, Lang, 1998 and World Bank, 1999)
Because of this feature, connected with a liability restricted only to the extent of the spon-
sors’ particular shares for the project’s obligations, the nature of PF was supported very
well, and limited recourse financing became possible. The sponsors selected this particular
legal form to facilitate a simple BOT-vehicle and to reduce the transaction cost effectively.
Simple corporate governance contributed to an effective project structure. It worked effec-
tively as a risk management mechanism concerning the uncertainty connected with the
handover of Hong Kong’s sovereignty to China. Shareholding position of Chinese state-
owned entities pawed way for managing political risks in the formulation of WHT Com-
pany Limited.
Project finance system 915
The construction risk was successfully hedged using a turnkey contract involving a com-
pletion guarantee and adequate incentives to manage risk associated with the application
advanced technology in construction and completion of the tunnel. Evidences were re-
ported concerning reduction in construction time and costs. This also applies to the rights-
of-way (ROW) acquisition problem. The ROW acquisition was completely assigned to the
government in order to eliminate the corresponding pre-construction risk. Among other
contractual arrangements, the concession agreement included a toll adjustment mecha-
nism, set up in the project agreement. The HK government’s first compromise and stan-
dardized toll adjustment mechanisms aimed at managing revenue risk and flexible and
independent approvals concerning toll adjustments. It calibrated the project’s ability to
generate revenues, to not only cover the cost, but to also ensure a reasonable return, and
was therefore regarded an effective security system for the project’s lenders. The traffic
risk was unhedged because of the government’s unwillingness to provide corresponding
guarantees. This still possesses a danger to the project. As a result WHT Company Ltd had
to increase tolls in February, 2003.
The capital structure, too, consisted of measures to reduce the riskiness of the transaction.
The debt to equity ratio amounted to 68:32 to meet the requirements of the Western Har-
bour Crossing Ordinance. The project company used different financing instruments, to
balance debt and equity, to assemble the capital in order to expand the borrowing capac-
ity. In particular, multiple-layer of guarantees and currency and interest rate hedging
mechanisms have worked to minimize financial risk in the capital structure. The financial
risk was effectively minimized by adequate structuring of the capital structure with long-
term debts under Hong Kong Inter Bank Offered Rate (HIBOR). Three factors are impor-
tant in this context, i.e. the proper structuring of the long-term loan facility connected
with a special drawdown mechanism, the hedging of the interest rate of 50% of the out-
standing debt for a period of five years of operation, and the borrowing in local currency.
However, the project capital structure was refinanced through loan syndications in July,
2002 and only three foreign banks (out of 18 banks) participated in over-subscribed HK $
3.5 billion facility. Lesser number of foreign banks participated in loan syndication due to
risk associated with the PF transaction in the WHC Company Ltd.
The political, legal and regulatory environment of the WHT project can be described as
stable, transparent with comparatively high certainty for sponsors, investors and lenders.
It allowed to set up the project company in a flexible manner, adjusted to the needs of the
project, and to structure it without being restricted massively by legal barriers.
Figure 3 shows background information about GSZ Superhighway project in China. The
project company of the GSZ Superhighway project took the legal form of a corporative
joint venture (JV) with two sponsors, a PRC utility and a foreign investor, namely Hope-
well Holdings. Because of the legal requirements, Hopewell had to provide the necessary
debt at the early stage of the project.
The US$1,922 million GSZ Superhighway was the first project financing in the PRC. The road
was planned to connect Hong Kong and Guangzhou, one of China’s largest industrial regions.
The project was initiated at a time indicated by booming economical growth in Southern China
and relaxation of PRC policy towards foreign investment projects. The GSZ Superhighway
should shorten the time for travelling between the two regions from 6 hours, caused by heavily
congested roads, to approx. 75 minutes. The project was not immediately successful, at the pro-
jects outset it suffered several set-backs related to the late completion, to huge cost-overruns
largely due to design changes and additional land acquisition costs, and to traffic levels being far
below expectations. However, the present traffic levels are above expectations and continue to
increase.
(Source: Fishbein and Babbar, 1996, Lang, 1998)
This made a web of contracts necessary in order to provide the private sponsor with the
necessary guarantees or securities to raise PF loans on a limited recourse basis. The JV
arrangement in GSZ Superhighway project was not necessarily chosen by Hopewell in
order to establish a separate legal entity to raise PF loans. But, it was a legal requirement
for foreign investments in China.
The construction contract took the form of a turnkey contract in order to manage the risks
related to construction by shifting them to the contractor consortium or their parents. The
turnkey contract therefore involved specific features including a completion guarantee, an
early completion bonus, performance and retention bonds. This was strengthened by 50%
of the completion guarantee provided by Slipform, a subsidiary of Hopewell. Thus,
Hopewell’s commitment in the project has become a strong incentive for meeting the per-
formance standard to the expectation of lenders. However, time schedule and budget could
not be regarded credible since there was a good chance for unforeseen circumstances due
to incomplete ROW acquisition at construction start.
The capital structure shows a relatively high equity share due to legal and administrative
requirements associated with the JV arrangement in China. The initial debt to equity ratio
of 40/60 represented comparatively high equity contribution of PRC utility. The security
structure embedded in the different contracts supported the different PF structure in GSZ
Superhighway project. Guangdong International Trust & Investment Corporation (GITIC)
provided a cash-flow deficiency guarantee ensuring repayment at operation stage. The
GSZ project was initially funded with a combination of several financing instruments in-
volving equity, shareholder loans, third party US$ debt from a 34-bank-syndicate of for-
eign commercial banks, and third-party RMB debt (subordinated to bank facility) from
Chinese banks.
The political/ regulatory environment contained large uncertainties over the project. At
project development stage, the legal environment consisted of very few specific instru-
ments to promote PF projects effectively. To lower the political risk, investment insurance
was arranged with the People’s Insurance Company of China (PICC) by the borrowing
party. It worked to manage commercial lenders’ risks during construction. Finally, and
perhaps most important, the cash-flow deficiency guarantee from GITIC was aimed at
managing the financial risk at the operation stage. However, during the operation of the
project, this cash-flow deficiency guarantee of the repayment of the bank facility was rear-
ranged due to the bankruptcy of GITIC. Since the demand is expected to remain strong in
Project finance system 917
the long-term the main operation risk of the GSZ Superhighway is regulatory risk. Toll
adjustments require an approval from the Guangdong Province Price Bureau. However,
there is no contingency plan to address possible delays in the approval of price increments.
This can affect the cash-flow negatively. In fact, the toll setting (adjustment) methodology
of the government department remains unclear. A failure in getting permission for periodic
toll adjustments can cause a considerable downturn of performance of the PF arrangement
in the GSZ Superhighway.
The BOT type PF arrangements in the WHC Company Ltd and the GSZ Superhighway
projects indicate that each key dimension consists of unique characteristics to manage
credit risk in the legal, political and administrative environments given in Hong Kong and
China. Legal form of the project companies and contractual arrangements facilitate struc-
turing particular financial structures for non-recourse/limited recourse financing in toll
road projects. While the WHC Company Ltd functions as a corporation to manage credit
risk of a highly leverage capital structure in a matured market, risk in equity based PF
transaction in the GSZ Superhighway is addressed through a JV arrangement in develop-
ing environment. Contractual bonding and financial instruments, namely guarantees and
incentives and hedging instruments in the contractual and capital structures have paved
way for managing credit risks effectively in PF arrangements in the WHC Company Ltd
and the GSZ Superhighway. Therefore, derivation of appropriate corporate governance,
transaction governance, and the capital structure is largely governed by project-specific
requirements, as well as the characteristics of the external environment represented by
political, legal, and administrative factors. Riskiness of the PF transaction in the particular
environment is reflected in the corporate governance, the transaction governance, and the
capital structure. Financial and contractual bonding mechanisms are arranged in the capi-
tal structure and the transaction governance in response to the risk level of the PF ar-
rangement. Thus, complexity and structure of PF transactions in toll road projects will
vary depending on the stability of the external environment.
Unlike most PF studies that focused on how a particular PF arrangement worked, this re-
search attempted to examine why a PF transaction was structured in a particular manner to
suite the conditions given. Thus, findings of this research indicate how replications of PF
transactions in other infrastructure sectors could be achieved effectively based on a coun-
try’s unique characteristics. The research therefore offers initial insights to understand
underlying factors of sustainability of PF in infrastructure development.
Acknowledgement:
This research paper arises from the EU-Asia Public-Private Partnerships Network
(EAP³N) sponsored by the European Commission under Asia-Link Programme, 2004-
2007.
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tries in 1990-2001, The World Bank.
Yin R.K.; (1993); Case study research – design and methods; Sage Publications; Newbury
Park, California.
GLOBALISATION, CORPORATE GOVERNANCE AND THE CONSTRUCTION
INDUSTRY
ABSTRACT
Good corporate governance practices include the corporation’s business behaviour in its
operational environment. Investors are therefore guided as much by the financial
statements as they are by the enterprise’s business behaviour.
The construction industry has thus far escaped such scrutiny: however, many of its
participants are being subjected to good corporate governance requirements.
Governments and consumers too have due diligence expectations, much of which is being
translated into statutory regulation. Regrettably, there has thus far not been a global
holistic and proactive response from the construction industry as a whole.
INTRODUCTION
Good corporate governance practices extend beyond financial requirements to include the
corporation’s business behaviour in its operational environment. As an extension to this
requirement, the operational environment, in good corporate governance terms, includes
the corporation’s social and environmental performance. Investors are therefore guided as
much by the financial statements of an enterprise as they are by the enterprise’s business
behaviour.
Consumers too are increasingly supporting those products that can demonstrably show an
appropriate response by the enterprise to its operational environment. Increasingly
consumers are avoiding products produced by enterprises that fail in performing due
diligence in the manufacturing and marketing of those products.
With the exception of listed construction enterprises, the construction industry has thus
far escaped such scrutiny, for a variety of reasons. However, many of its participants,
such as investors, the workforce and material manufacturers are being subjected to good
corporate governance requirements. Governments and consumers too have due diligence
expectations, much of which is being translated in statutory regulation. Regrettably, there
has thus far not been an adequate and proactive response from the construction industry
as a whole.
CONTEXTUALISING GLOBALISATION
Globalisation enjoys many definitions: some define it within strictly economic terms,
going so far as to embed it within the modernist capitalist model. Others define it within
broader-based anthropological and sociological concerns. However, much of the literature
on globalisation is polarised into diagnosing globalisation as a process leading either
toward global uniformity or increasing global differentiation. Consequently, globalisation
has become the prism through which to view the entire collective human condition
including issues of power, religion, culture, poverty, ecology, gender, identity and the
Diaspora.
Globalisation, like economies and ecologies, crosses geographical, political and religious
borders. It challenges the notion of a separate nation state and shifts the paradigm from
the arena of international politics to the realm of planetary politics.
There appears to be a consensus building among analysts and policy makers on some of
the characteristics of globalisation the core ones being globalisation is:
There are however many more areas of controversy about globalisation, the core ones
being:
For the purposes of this paper globalisation will be defined as ‘the process of continuing
integration of human activity both empirically and at the level of the collective
unconscious’ [Pieterse, (2004)].
There are two core struggles occurring throughout the globalisation debate; the first is
how to pursue change while preserving core values, the other is determining a
management model. This struggle about core values is predicated on the assumption that
high levels of social cohesion exist in any society, a rather difficult circumstance to find,
and even harder to define. Perhaps this lies at the very heart of the globalisation struggle:
the 21st century will be defined by the search for a new paradigm on social cohesion. The
search for core values is manifest in the inclusion of social issues like poverty alleviation,
job creation, human rights, corporate governance, and ethics and spirituality onto the
global agenda. The second struggle – determining a management model – is playing out
in global institutions such as the World Trade Organisation, the United Nations, and the
World Bank.
Two of the major areas in which globalisation have a significant influence are economics
and human rights.
ECONOMICS
The integration of world affairs has created a world economy that is interdependent and
interconnected. A prime example is the attack on the World Trade Centre: this event in a
single modern state wiped millions of dollars off global stock values and continues to
impact upon thousands of air travellers around the world. Yet another example of the
extent of economic integration is the ability companies have to undertake and locate their
work in different countries, either in whole or in part. This is largely due to information
and communication technologies facilitating a virtual 24-hour workday.
HUMAN RIGHTS
The development of human rights is one of the areas that support the anthropological
view of globalisation: the history of the evolutionary process of human civilisation is one
in which the strengthening of individual rights, as opposed to group rights, is a definite
trend. In more recent times, the ease and extent to which information is capable of being
spread has increased awareness of global human behavioural patterns and quality of life.
The global population is now more aware of what behaviour is acceptable and what is
not, and who is enjoying what quality of life and where. As an example, internal
resistance is increasing in countries and societies where women and children’s rights are
abused or non-existent.
924 Wyk and Chege
CONTEXTUALISING CORPORATE
The second set of principles was enunciated by the United Nations Development Program
[UNDP, (1997)] and has received universal acceptance: they are tabulated in Table 1
below [Graham, (2003)].
Globalisation, corporate governance and construction industry 925
The inclusion of the social dimension has become of such import due to the critical it
plays in determining societal well-being. The Secretary-General of the United Nations,
Kofi Annan, states “good governance is perhaps the single most important factor in
eradicating poverty and promoting development’ [Annan, (2003)].
The United Nations Conference on Trade and Environment (UNCTAD) has released new
guidelines on eco-efficiency indicators that link environmental performance of
corporations to their financial performance. Intended for both preparers and users of
financial statements, they cover accounting treatment of such areas as water use, energy
use, contributions to global warming, ozone-depleting substances and waste [GreenBiz,
(2004)].
Already securities exchanges around the world are introducing various indices to measure
the social responsibility of listed companies. In Britain, the Co-operative Bank’s Ethical
Purchasing Index, which annually analyses the extent of ethical consumerism, calculated
926 Wyk and Chege
that the cost of consumers switching brands for ethical reasons during 2002 was $4.6-
billion in lost business. The reverse of this scenario is equally true: the total sales of
ethical products rose by 44% from $8.5-billion to $12.2-billion between 1999 and 2002.
It has been said that if the 1800s was about entrepreneurship, and the 1900s was about
management, then the 2000s will be about legitimacy. Civil society is also developing its
own mechanisms to influence good corporate governance practices. The use of
boycotting, recycling and second hand purchasing as a way to express personal values is
an emerging trend towards greater social engagement. A new generation of consumer
activists is emerging: in Britain, more than one in two people are boycotting the products
of unethical companies. This may well impact directly on the material manufacturing and
supplier sector of the construction industry in future, and impact indirectly on
shareholding.
A major paradigm shift in defining corporate responsibility occurred in 1992 with the
release of the Rio Declaration. This event marked a watershed in the management of the
Earth’s finite resources: in the three decades prior to the Rio Declaration on Environment
and Development, the sustainable development debate focused predominantly on the
protection of the natural environment. The Rio declaration of 1992, whilst seeking to
build upon the United Nations Conference on the Human Environment held in Stockholm
in 1972 developed the theme further to resolve the antagonism between environment (the
green issues), and development (the brown issues).
The Rio Declaration’s Principal 1 resolved to shift human beings to “the centre of
concerns for sustainable development.” This gathering of almost 50,000 people, among
them 9,000 journalists, representatives from 16000 non-governmental organisations,
indigenous peoples, religious groups, business and industry, trade unions and 114 heads
of state, constituted what has been described as the inception of the Environmental
Revolution.
This approach later gave rise to the notion that development must be subjected to triple-
bottom line auditing. Triple bottom line accounting interrogates development beyond its
performance in the realm of economic viability: social well-being, and environmental
stewardship are to receive equal consideration.
The relationship between business practice and societal issues took on a specific
dimension in the political and social transformation process in South Africa. The Institute
of Directors in South Africa released the King I Report on Corporate Governance in 1994
as the response of business to emerging global pressure for good corporate governance
standards. However, the subsequent political transformation process that commenced
with the election of the first democratic government in 1994, made it necessary to review
Globalisation, corporate governance and construction industry 927
the Report for relevance. The King II Report was released in 2002 with a few notable
inclusions: the earlier inclusion of soft environmental issues provided for under the ‘Non-
Financial Matters’ section in the first report was extended into “Integrated Sustainability
Reporting.” Essentially, this requires triple bottom line auditing.
Of greater significance, however, was the linkage between triple bottom line auditing and
black economic and social transformation [King II, (2002)]. This linkage acknowledged
the need for business to participate in the social transformation process, and to report on
the contribution and progress made in that regard. The list of non-financial items
requiring disclosure included the nature of and commitment to social, ethical, safety,
health, environmental practices and organisational integrity; the implementation of a
HIV/AIDS plan; and procurement practices, particularly in relation to Black Economic
Empowerment.
This notion has now been encapsulated in law in terms of the Broad-Based Black
Economic Empowerment Act [Act 103 of (2003)] and requires that economic sectors
agree on a set of transformation targets that are to be included in their audited statements
each year. The targets are essentially socio-indicators that link social transformation of
corporations to their financial performance. The progress made toward the targets
determines the extent to which government will engage with enterprises in that sector.
It is perhaps not surprising that one of the earliest known codes of law, the Code of
Hammurabi dating from around the 18th century BC, contains numerous references to
construction since construction is such an integral force in the development of
civilisation. The code is a record of Hammurabi’s legal decisions based on 282 cases
dealt with in terms of Sumerian law. According to the prologue, the code exists “to cause
justice to prevail in the land, to destroy the wicked and the evil, that the strong may not
oppress the weak” [Time-Life, (1995)]. The reason neatly matches significant portions of
the UNDP Principles of Good Governance. Regrettably, the Code raises age-old
complaints against the industry: a contractor whose poor work resulted in the collapse of
a structure and the death of the inhabitants could be put to death as punishment.
Buildings are significant users of scarce resources and significant contributors of global
warming emissions and of waste [Edwards, (2002)]. Construction and post-construction
activities consume:
2) 45 percent of all energy generated to heat, light and ventilate buildings and an
additional 5 percent during construction;
3) 40 percent of water used globally for sanitation and other uses in buildings;
4) 60 percent of agricultural land lost to farming is used for construction activities; and
5) 70 percent of global timber products.
The construction industry will have to commit to upholding the key elements of corporate
governance, namely participation, strategic vision, responsiveness, effectiveness and
efficiency, accountability, transparency, equity, and rule of law.
Having regard for the UNDP Principles of Good Governance, and taking cognisance of
the nature of construction activities, this paper proposes that an enabling framework,
incorporating the following defining characteristics as indicated in Table 2 below, need to
be inculcated into the business enterprises of all construction industry participants.
CONCLUSIONS
Significant progress has been made over a relatively short period to integrate the
principles of justice and equity contained in Hammurabi’s Code into the broader societal
fabric of this globalised world.
In essence, the construction delivery process remains a complicated and complex delivery
system involving multiple participants such as clients, financiers, developers, investors,
professional consultants, contractors, subcontractors, specialists, materials suppliers,
inspectors, and users in a dynamic process. Its impacts on the natural and built
environment, the community in which it is located and the communities its serves, remain
for decades and sometimes centuries.
The paper proposes a framework for the global construction industry that aligns
construction enterprises with global characteristics of corporate governance. In so doing,
it proposes a fundamental paradigm shift by all participants in the construction industry to
enterprise development and management, a shift based solidly on probity and respect. The
paper argues that such a commitment by industry participants could lead to an enabling
environment for effective delivery and for growth, improved performance and continuous
development of the industry. Good corporate governance is after all, about the values
supporting excellence as well as the creation of an ethical culture.
930 Wyk and Chege
REFERENCES
KEIZO BABA
Kochi University of Technology, Tosayamada, Kochi Prefecture 782-8502 Japan
baba.keizo@kochi-tech.ac.jp
ABSTRACT
After a long period of growth, the Japanese economy was plunged into a deep recession
which started in 1990. This period is often referred to as the “Lost Decade” due to the
failure of all attempts made by the Government of Japan to lift the country out of the
recession. Although, the government adopted an economic theory similar to Keynes
theory which was employed in the New Deal Policy in the United States of America after
Crash of Wall Street ’29, it proved unsuccessful in ending the recession.
Recently however, some groups of Japanese companies such as Toyota, Honda and Sony
have shown signs of full recovery and have been experiencing substantial growth by
doing their business in the area of environmental protection.
Although infrastructure seems to have been considered as an investment for the future
development of economies, nowadays however, infrastructure should be viewed as an
investment for environmental economy as this will boost the present economy. In this
respect, the developed countries could support environmental economy in a number of
ways such as providing appropriate infrastructure to alleviate the adverse effects of
disasters caused by climatic changes.
INTRODUCTION
Immediately after the Second World War, the Gross National Product (GNP) per capita of
Japan was at par with the Philippines’. However, 50 years after the war, the Japanese
GNP per capita is approximately 50 times that of the Philippines. What could be
responsible for such a great disparity? Naturally, Japan can be regarded as a poor country
since its only resources is human resources. This natural limitation notwithstanding,
Japan has been transformed into a rich nation through industrialization whereby many of
its products are now exported all over the world. The experience of Japan supports the
notion that the development of any country implies an increase in its GNP per capita by
industrialization.
However, while the growth of the Japanese economy appears to have reached its peak,
China is fast becoming a rapidly developing country with a corresponding increase in
932 Baba
GNP through industrialization. Since many other countries are using almost the same
approach, there is bound to be competition in industrialization and increase in GNP. This
situation is quite worse from the global environment point of view as it will bring
shortage of resources and increase pollution as well.
In order to prevent this trend, it is necessary to adjust the “Japanese Model of
Development” in consideration of the environment, and to find more active ways of
preparing some countermeasures for the disasters caused by the sub-effects of
development in developing countries. One way to do this is develop countermeasures for
the effects of climatic changes.
Priority of Environment
As the countries in Asia become richer and richer, environmental problems will assume a
greater preoccupation. However, many of the countries will not be able to meet the
trade-off between the environment and economic development.
Since it is very difficult to calculate social and environmental costs, the trade-off between
development and the environment is carried out in consideration of the environment in
developed countries, while emphasis is placed on development in the less developed
countries where the GNP is considerably low.
Naturally, the trade-off between the environment and economic development should be
done in balance between priority of development in less developed countries and more
consideration of the environment in the relatively developed countries.
This fact could be explained by the result of the study of GATT on the relation between
GNP per capita and air pollution as shown in Fig.1. According to this study, more
consideration will be given to environmental problems when the income per capita
exceeds about US$4,500.00.
Source: Grossman & Krueger 1991 in GATT (Trade & the Environment) Report
Development of global infrastructure for environment protection 933
Of course, it is necessary to shift this curve as a whole to the left but at the same time
developed countries need to pay more attention to environmental problems. By so doing,
the North and South problems between the countries will be reduced and every country
could make some contribution towards solving environmental problems.
In Asia, many countries suffer from environmental problems especially pollution in big
cities like Bangkok, Jakarta and Manila. Such countries are located on the left-hand side
of the peak of the curve in Fig. 1., while other Asian countries such as Japan, Korea,
Taiwan, Hong Kong and Singapore with less city pollution are located on the right-hand
side of the peak of the curve.
The report of the International Panel of Climatic Change: 1995 (IPCC) identified five
likely influences of climatic change on the life of man:
From the viewpoint of sustainable construction, items 2, 3 and 5 will be appropriate areas
of study. Civil engineering in particular, should be responsible for providing solutions to
some of the effects of global climate on man.
The possibility of a global average temperature increase of one or two degrees centigrade
over the next few decades may not sound very alarming until we compare it with past
climatic oscillations and consider what their effects have been.
Generally speaking, computer models estimate that one of the effects of such a global
warming could be an increase in global mean sea level of perhaps 20cm by the year 2030
or 45cm by the year 2070. This could occur due to the slight expansion of the ocean water
when it is heated and also because the warmer climate will cause increased melting of
mountain glaciers. Such increases in the sea level would cause major disruptions for a
large portion of the world’s population who live in coastal regions, especially in the less
developed countries of Southeast Asia such as Bangladesh where most of the population
live at or near the edge of the water.
934 Baba
The National Research Council (NRC) Panel on Sea-Level Change projects a rise in sea
level by 50cm ± 100cm by the year 2100 (the assumed doubling time for CO2). A 3°C to
6°C global air temperature rise over the next hundred years is assumed based on the
results from general circulation models at NOAA’s Geophysical Fluid Dynamics
Laboratory, the National Center for Atmospheric Research, and NASA’s Goddard Space
Center.
The thermal expansion (static) part of this estimate is based on the work of [Frei et al,
(1988)] who used two models to convey heat into and out of the subsurface layers of the
ocean, a pure diffusion model and an upwelling-diffusion model. The researchers
projected a 10 to 50 cm rise in seawater level over the next century.
Rise
of sea 150cm N.R.C (1990)
water Wigley & Paper
level 100cm Warrick Target
Frei
50cm
2,100 year
Fig.2 Estimated Amount of Rise of Seawater Level
In contribution to the rise in seawater level from ice wastage/melting, the NRC Panel
used the results of the NRC Committee of Glaciology (NRC, 1985), in which the “most
likely” scenario is 55 cm ± 21cm rise in the sea level by the year 2100.
Warrick and [Oerlemans (1990)] (in the IPCC report on scientific assessment of climatic
change) projected for a “business as usual” scenario, a sea level rise of 21cm to 71cm by
the year 2070, with a best estimate of 44 cm (66 cm for the year 2100). The thermal
expansion part of this estimate is based on the upwe11ing-diffusion model of [Wigley and
Raper (1987)] with a projected global air temperature rise of l.5°C, 2.5°C, and 4.5°C, the
middle value being regarded as the best estimate. The glacial contribution calculated by
[Raper et al., (1990)] was used with a simple global glacial melt model, and no
contribution from the Greenland or Antarctica ice sheets was assumed. These two review
Development of global infrastructure for environment protection 935
papers also list projections made by various researchers, the “best estimates” ranging
from 20 to 100 cm.
Many estimation reports have been made on the amount of the rise of seawater level as
shown in Fig.2. Since the estimation of the rise in seawater level is not decisively fixed, it
is better to consider as some condition, that the amount of rise in seawater by the end of
this century might be about 100cm as a target.
The major food crops in the world include wheat, rice and potatoes, etc. The distribution
of the regions of production of these crops depends on the geological and climate
characteristics of various lands.
Therefore, the influence of the rise of sea level on rice production in Southeast Asia
would be an important issue in discussing the supply condition of rice in the future. Rice
production and the possible influence of the rise of sea water level in Indonesia, Vietnam
and Thailand will be studied since China and India are too large to study in the first stage
of the research.
The effects of rise of seawater level will be very significant on agriculture. In particular,
the effect on rice production is considered serious because rice is produced in the paddy
fields where water should be supplied from rivers or creeks close to the sea. If the sea
water level rises, the seawater will flow through rivers or creeks into paddy fields. Since
rice cannot grow on seawater, the production of rice will be drastically affected.
Rice is a major food crop in Southeast Asia where there are so many cases of damaged
paddy fields through the penetration of seawater. Some of them become fields for the
production of salt or ponds for the cultivation of shrimps.
Fig. 3 shows the general vegetation in Southeast Asia and the major rivers with large
deltas where paddy rice fields are concentrated.
936 Baba
1
Names of rivers 1.Yellow River 3.Hong 5. Menam (Chao Phraya) 7
Ganges
2.Chang Jiang (Yangtze) 4. Mekong 6. Ayeyarwady
The preparation for the rise of seawater level could be done through different methods:
1. Preventing the penetration of seawater into rivers by some kinds of wears and water
gates.
2. Making channels of water line with shorelines to prevent the penetration of seawater
into paddy fields near the coast with some corrosion protection.
3. Some form of countermeasures against unforeseeable rise of sea water level is also
necessary. In many regions, some lands are constantly subjected to floods. Abundant
rainwater during the rainy season will help fertile the soil and thus enhance rice
production. In these regions, elevated house floors are common and if the seawater
level rises, the seawater will easily flow into the paddy fields. Although difficult to
conclude, a combination of some systems such as 1 and 2 above could be applicable.
However, these countermeasures cannot be done in isolation by one country since most of
the rivers run through many countries and in many cases, country borders have been
created along the major rivers. Regional and international actions and cooperation are
very important in preparing any countermeasure for problems like this.
Development of global infrastructure for environment protection 937
According to the general systems of countermeasures mentioned above, two systems will
now be considered for detailed studies.
The first system is the Wears and Water Gates Dam Construction System. In the case of
wears and water gates in river mouths, the system would require the reinforcement of the
embankment against river floods. Therefore, the type of wears and the reinforcement of
the embankment should be planned not only for the rise of sea water level but also for
flood conditions. In addition, there are many public objections to building water gates and
wears in river mouths because of the division of the rivers into two parts down and up
streams, a condition which could cause changes to the environment in the region. The
handling of these public objections should be studied as well as the possibilities of
applying the “stakeholder management”, a system developed by the University of
Pittsburgh and which was quite effective in the cases of environmental improvement
projects in the city of Pittsburgh, USA.
The second system is the Water Channel along with Shoreline. This system is used in
areas where there are no big rivers nearby. However, due to the rise of seawater level, the
land will be eroded as the seawater permeates into underground water and becomes
seawater around the paddy fields. In such a case, two major actions need to be taken. One
is shore protection against erosion offshore, while the other is to provide fresh water
through water-channels to the groundwater to replace the seawater. These systems should
be done as regional development schemes. Some projects in Tokushima area of Japan and
Songkhla, in the southern part Thailand, are utilizing similar systems. However,
infrastructure such as roads and bridges should be taken into consideration when these
systems are to be used. This calls for careful studies at the planning stage.
Also, since these channels and shore protection have to be constructed in areas where
good harvest of rice has been experienced; land acquisition will be one major difficulty in
executing the actual construction. For these systems, two case studies were carried out in
Tokushima, Japan and Songkhla, Thailand in 2002/2003, through the funds provided by
the Government of Japan to the author.
The third system is the Region under Flood. A combination of the two systems mentioned
above could be applicable on a case-by-case basis. However, regions like this may be
quite wide and stretched over a wide area of land. Some case studies are planned mainly
in Thailand, Vietnam and Indonesia since there are no such cases in Japan. This is why it
is very difficult for Japanese to understand this system. Fortunately, the Ministry of
Education and Science of the Government, Japan accepted the author’s proposal for this
research project which will run until the year 2004.
In the case of environmental problems, it is not possible to determine with certainty what
results some particular policy of countermeasure will be because scientific predictions by
938 Baba
estimation are not quite precise; and it is significant that scientific uncertainty is afforded
by the global-warming problem. Certain gases, when emitted into the atmosphere, are
assumed to cause a rise in global temperature. If this is true, then there could be very
serious implications ahead.
Global warming could be triggered off by a rise in the sea level and result in the
destruction of plants including rice which cannot be planted on sea water to which they
would to be subjected.
The estimation that increase emission of carbon dioxide and other greenhouse gases cause
a rise in temperature completely depends on a computer model, and this model itself has
been partially validated. This is a very typical example of the nature of the problem.
Thus, the subject of global climatic changes depends on future predictions, and there are
many kinds of estimates. Since any countermeasure for the influence of climatic change is
very costly, more accurate and reliable predictions are needed. As the risk gets bigger, so
does the inaccuracy of estimation for prediction. In addition, during construction, there
are many so-called unknown factors not only at the planning and design stages, but also
during the construction phase. Therefore, more careful studies will be needed to reduce
the inaccuracy of estimation for the construction of effective facilities.
CONCLUSION
For sustainable development, many studies have been done mainly in the areas of
environmental problems and the saving of resources. However, one of the subjects that
should be studied before it becomes too late is the countermeasures for disasters that
might be caused by climatic changes, especially global warming.
The biggest possible disaster will be the one caused by the rise of sea water level. Since
rice plant cannot grow on seawater, the production of rice will be greatly reduced and this
might result into famine especially in Southeast Asia.
Throughout history, man has endeavored to produce enough food to feed himself.
However, through industrial revolution, the productivity of the agricultural industry has
increased tremendously. Also, surplus labor from the countryside moves to the cities in
search of jobs in the manufacturing and service industries.
Development of global infrastructure for environment protection 939
Thereafter, transportation issues become more important. It could be said that the 20th
century was a century of transportation as many major infrastructure facilities for
transportation were constructed. However, either through the emission from traffic or the
manufacturing industries, the level of carbon dioxide in the atmosphere has increased
tremendously. This causes the warming of atmosphere which subsequently brings about
climatic changes and the possibility of food shortages. This disaster should be avoided by
taking some countermeasures depending on the predictions of geophysicists and
meteorologists. However, the prediction of environmental problems is not clear.
Therefore, more flexible approaches will be necessary.
This problem should be the preoccupation of the people in Asia. Also, the developed
countries need to work together with the developing countries to study this problem and
come up with useful countermeasures. Another reason why this problem should be
studied and executed is because the sustainable development of Asia - economically,
politically, and culturally, is one of the important issues that will be taking place in the
world of today.
REFERENCES
ABSTRACT
INTRODUCTION
According to the Royal Commission report into the construction industry in New South
Wales (NSW) Australia, there is a serious lack of ethics by its participants [Gyles,
(1992)]. Vee and [Skitmore (2003)] indicate that that there is still a growing demand for
good ethical practice and that any advancement in the construction industry is dependent
on the implementation and policing of ethical guidelines and policies of professional
bodies, private organizations and public sector procurement agencies.
Ethics is generally defined as a system of moral principles, by which human actions and
proposals may be judged good or bad, right or wrong; and the rules of conduct recognised
in respect of a particular class of human actions [Oxford Dictionary, (1999)].
The purpose of this project is to assess the perceptions of construction practitioners and
clients regarding the ethics of the construction industry. The paper presents preliminary
findings both from literature and an initial industry-based workshop. Project participants
include senior construction managers throughout the entire supply chain. The project data
will be used to develop an up-to-date picture of current ethics-related practices and issues.
942 Jefferies and Kirk
The key outcome for the overall research project will be the production of a generic
“Code of Practice” for the provision of construction services in the procurement process.
To some extent the industry has addressed some of the serious ethical issues such as
corruption, collusive tendering and improper payments, however, ethics in the context of
a ‘set of moral principles’ to help guide action has not been incorporated into the
procurement process in the Australian construction industry.
The project fits within the Cooperative Research Centre (CRC) for Construction
Innovation research program A, ‘Business and Industry Development’. This study will
provide the CRC with an opportunity to publish evidence that greater attention to
adopting higher ethical standards of behaviour is an effective way of improving business
performance. Further, the CRC will publish a ‘Code of Practice’ to enable companies and
individuals to demonstrate their reliability as partners with common demonstrable ethical
standards.
BACKGROUND
The building and construction industry is critical to the welfare and prosperity of
Australia. In 2001-2002 the total production of the industry was A$59.7 billion, directly
accounting for 5.5% of Australia’s gross domestic product and 7.5% of employment
(Cole, 2003). Governments, as major clients of the industry, are providing leadership in
order to improve the way in which business is conducted and encouraging change in the
production processes to raise productivity in order to develop an industry which achieves
internationally competitive standards (Australian Procurement and Construction Council
Inc. and the Department of Labour Advisory Committee, 1997). By developing codes of
practice, Governments can develop and encourage ethical behaviour in the procurement
process.
Inter-organisational relationships are of the highest importance and the ability to build
sustainable relationships grounded in ethical practice is necessary. To achieve these
sustainable relationships parties need to develop from a low trust/low ethics base to a high
trust/high ethics base in their business transactions. The global construction industry
recognises that improving its ethical performance is important [Gyles, (1992), Latham,
(1994), Egan, (1998), and Cole, (2003)] and these various government reports highlight
the need to improve the way in which industry stakeholders relate to one another.
Reports such as these provide the impetus for the improvement of ethical standards in the
industry.
In 1997 the Australian Procurement and Construction Council (APCC) and the
Department of Labour Advisory Committee (DOLAC) formulated and published the
NCOP. This code set out eight national principles concerning future practices in the
construction industry for the client and tenderer. They can be summarised as:
Having outlined eight core principles for the construction industry in the NCOP, the
APCC expanded on each principle. Ethical tendering was outlined in the principle of
competitive behaviour. Competitive behaviour provides the potential for unethical
practices to occur. The NCOP set out nine key ethical principles to ensure ethical
behaviour occurred at all stages of the project by all parties. They are:
• All aspects of the tendering process must be conducted with honesty and
fairness at all levels of the industry
• Parties must conform to all legal obligations
• Parties must not engage in any practice which gives one party an improper
advantage over another
• Tenderers must not engage in any form of collusive practice and must be
prepared to attest to their probity
• Conditions of tendering must be the same for each tendered on any particular
project
• Clients must clearly specify their requirements in the tender documents and
indicate criteria for evaluation
• Evaluation of tenders must be based on the conditions of tendering and
selection criteria defined in the tender documents
• Confidentiality of all information provided in the course of tendering must be
preserved
• Any party with a conflict of interest must declare that interest as soon as the
conflict is known to that party [APCC and DOLAC, (1997)]
The Commonwealth, State and Territory Governments developed the NCOP. The
Commonwealth Government requires all parties working on government projects to
comply with its ethical principles. The various State and Territory governments agreed to
use the code as a minimum requirement with latitude to add to the compliance
requirements relevant to that specific State or Territory
944 Jefferies and Kirk
The NSW Government extensively sets out the requirements of clients and tenderers in
doing business with the government. They have published the following:
The principles set down in the NSWCOP are the same as those in the NCOP. The ethical
principles in the NSWCOT contain the same nine principles as well as the principle
‘parties must not seek or submit tenders without a firm intention to proceed’ [New South
Wales, Construction Policy Steering Committee, (1996)].
RESEARCH OBJECTIVES
This research is divided into three phases, namely a pilot study (local industry workshop),
a literature review and, using these two elements as a foundation, an extensive industry
partner based set of national workshops from which a series of benchmarks can be
generated. The national workshops will involve a range of construction industry
stakeholders.
The research will test the general proposition that there are a number of significant
differences between individuals and companies with regards to ethical performance.
These differences include organisational make-up, the use of codes of practice and a
range of ambience and situational characteristics including organisational focus. Further,
it is argued that the organisational objective of cost efficiency is far more dominant in the
construction sector than ethical behaviour. The research findings from the literature
review and the initial workshop (pilot study) will be used together with the national
industry-based workshops to develop a framework for cultural change.
Ethics has never been a clear-cut issue in the business environment. There have been
many attempts in the last two decades to curb ethical transgressions. The number of firms
with ethics training programs has increased from 7 percent to 40 percent in 1994 in the
United States. Companies with ethics codes have swelled from 13 percent to 73 percent
during the same period in the United States [Greengard, (1997)].
As individuals make decisions and are the ones to take actions, it is the individuals who
possess the ability to change the ethical environments in companies. Individuals are the
Ethical behaviour in construction procurement process 945
ones who must be grounded in ethics. The project will design a Code and provide case
studies of good and bad ethics so as to educate and guide the individual on ‘ethical
protocol’. An ethical industry environment makes a difference in measurable terms,
influencing quality, time, costs, and long-term business dealings, and is the major area
offering productivity increases in future.
RESOURCES
As the topic has been the subject of two Royal Commissions, generating significant
industry interest and support has not been a problem. Participants directly involved in the
project include:
Industry partners
Research partners
PILOT STUDY
An initial focus group workshop (pilot study) was held to identify issues of ethical
behaviour. Participants included government clients, union representatives, private sector
contractors, industry association representatives and various local government
organisations.
Four key questions were presented to individual groups in order to initiate discussion with
regards to their perceptions on ethical behaviour. These were:
1. What is your (individual stakeholder) perception of ethics in the construction
industry?
2. What are the ethical issues involved during the pre-contract stage? (Pre-
contract refers to the period up until the award of the project to a contractor)
3. What are the ethical issues involved in the post-contract stage? (Post-contract
refers to the period after the award of the project to a contractor)
4. How do you see an improvement being made in ethical behaviour?
946 Jefferies and Kirk
RESULTS
Reasons for differences in ethical behaviour: When money becomes an issue, a client's
ethics may be compromised. Different educational levels, and even generations, may
influence the perception of ethics. Teaching ethics at grassroots level could become a
required part of any accreditation process and attitude can be changed through education.
Older stakeholders may attempt to get around ethical requirements while younger players
enter the industry knowing the ethical standards expected and work with them. The
industry is largely ethical but ethics may vary from project to project and organisation to
organisation.
Codes of ethics/conduct: Currently there are numerous codes of practice and ethics that
contribute towards a fragmented industry. Consistency of codes would provide some
benefit. The only stakeholder in the industry not subjected to a code is the client and their
behaviour will influence the relationship. Individuals on a project may act in self-interest
resulting in the ‘buck being passed’ when mistakes are made.
Greater preparation during the tender negotiation process: Ethics during the pre-contract
stage is where the ‘tone’ of the relationship is set. A fully documented transparent
contract reduces uncertainty. Preparation leads to better results. Greater structure and
stated expectations will result in respect from clients. Client requirements and contract
size may influence ethical behaviour. People's perceptions may differ and contractors may
cut corners due to competition and the economic climate. There is a link between ethics
and commercial value and the lowest price culture does not foster ethical practice.
Environmental issues, risk management and Occupational Health and Safety (OH&S)
also need to be considered. A checklist would aid both parties.
Measuring ethical practice: Other ethical issues considered common during the pre-
contract stage include selective tendering, using ‘mates’, and contractors claiming
experience they don’t have. One option is for the client to share a code of ethics with the
contractor. A client may also rate ethics differently from how a contractor does. The
client wants a project done at a certain price, what they consider value for money, but for
the contractor to meet these requirements it may involve them compromising their ethical
standards. This is where a good consultant is required, one who will ask and answer the
required questions. Reducing consultancy often results in less flexibility at the pre-
contract stage.
Ethical behaviour in construction procurement process 947
The contract: Ethical issues in the post-contract stage will depend on the contract itself.
How transparent and detailed is it? Is it a standard contract? Is it biased? Is it fair? The
contractor aims to finish the contract to the end figure and the client wants value for
money. A contract requires flexibility.
OH&S: This may be sacrificed to achieve the budgeted outcome. Inconsistent client and
contractor requirements may emerge and common ethical standards may change. Security
of payment may become an issue. Some projects may struggle with gender issues and
when a workforce is particularly diverse, it may be difficult to enforce ‘common’ ethics
and standards. Different contractors have different rules and every project site is different.
Implementing a code of ethics is dependent upon the contractors’ understanding of what
is required and the authority to enforce ethical behaviour.
Workshop discussion identified that ethics could be either client or industry driven. An
emerging factor is social responsibility, particularly as far as ethical investment is
concerned. There appears to be a gap between the written code of ethics and reality.
Cultural differences must be considered when developing ethical standards. It was
identified that being ethical pays off in the long-term. For instance, a focus on quality
enhances the reputation of a contractor and as many client-contractor relationships are
one-off, reputation is essential in attracting continuing business. Clients prefer to work
with reputable organisations and ethical principles and behaviour reinforced by
communication help create an ethical organisation. Ethics was also seen as creating
innovation, particularly regarding technical and environmental issues.
Creating an ethical culture in the construction industry involves building trust and
establishing relationships and alliances between clients and contractors. All participants
in the industry inherently want to behave ethically. The fragmented nature of the industry,
numerous codes of ethics/conduct, a cyclical economy, cultural habits, education levels,
generational differences and different timeframes conspire to inhibit high ethical
standards. Improving ethical standards in the industry involves transparency,
948 Jefferies and Kirk
communication and fairness. Standardised codes and education of clients and contractors
would aid the industry in improving its wider perception.
RESEARCH STRATEGY
Pursuing the overall research objectives of the project will require further examination of
the issues relating to the existing ethical culture of individuals and organisations. After
analysing the findings of the pilot study the following detailed issues will be investigated
via the industry-based workshops:
• What is regarded as ethical practice in the industry, and what is the current level
of ethics awareness in construction companies?
• Does the current internal environment, which includes factors such as low capital
intensity, rigid contractual frameworks, varying procurement strategies and risk
aversion, limit the capability of construction companies to achieve a realistic level
of ethical performance?
• What are the mechanisms, forces or work practices that encourage unethical
behaviour in the construction procurement process?
• Do the current external environmental factors such as market uncertainty and
fluctuations in the level of finance prevent the industry from developing a mature
culture founded on ethical practice?
• What mechanisms are in place for the diffusion of ethical processes and practices
and are they adequate?
CONCLUSION
The findings of the pilot study (initial industry-based workshop) indicated that industry
stakeholders have wide ranging perceptions regarding ethics in the procurement process.
Currently there are numerous codes of practice and ethics that contribute towards a
fragmented industry. Education at grassroots level should become a required part of any
accreditation process leading to a change in attitude. Ethical practice pays off in the long-
term, helping to enhance reputation, attract continuing business, and act as the catalyst for
technical and environmental innovation. The use of ethical criteria in construction
contracts as an assessment tool could enhance ethical standards. Subsequently,
construction organisations and projects could be given an ethical rating. Creating an
Ethical behaviour in construction procurement process 949
ethical culture in the construction industry involves building trust and establishing
relationships and alliances between clients and contractors. Improving ethical standards in
the industry involves transparency, communication and fairness. Standardised codes and
education of clients and contractors would aid the industry in improving its wider
perception.
Adopting a common Code of Practice, requiring compliance with the principles of the
code, would help to achieve the code’s objectives. By adopting the NCOP as a template
to work from, achieving ethical practice is enhanced if compliance is enforced. The next
stage of the research involves conducting national industry-based workshops. The major
outcome of the project is the production of a “Code of Practice” for the provision of
construction services in the procurement process.
ACKNOWLEDGEMENT
The authors would like to acknowledge the contribution of the CRC for Construction
Innovation on the funding of this research.
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Australian Procurement and Construction Council Inc and Department of Labour
Advisory Committee, 1997, National Code of Practice for the
Construction Industry, http://www.apcc.gov.au/docs/code_of_practice.pdf
Cole, T.R.H. (2003), Final Report of the Royal Commission into the Building and
Construction Industry. Volume One, February, Summary of Findings and
Recommendations,
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Egan, J. (1998) Rethinking Construction, Department of Trade and Industry, UK.
Greengard, S. (1997), Cheating and stealing. Workforce, October, 1997 pp. 46-53.
Gyles, R. (1992) Royal Commission into Productivity in the Building Industry, NSW
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Latham, M. (1994) Constructing the Team: Final Report of the Government/Industry
Review of Procurement and Contractual Arrangements in the UK
Construction Industry, HMSO.
Morgan, R.M and Hunt, S.D. (1994) The Commitment-Trust Theory of Relationship
Marketing, Journal of Marketing, Vol. 58, July, pp.20-38.
New South Wales Government (1993) Capital Project Procurement Manual,
Construction Policy Steering Committee.
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Industry, Construction Policy Steering Committee,
http://www.construction.nsw.gov.au/docs/codes/cprac.pdf
New South Wales Government (1996b), Code of Tendering for the Construction Industry,
Construction Policy Steering Committee, July 1996,
http://www.construction.nsw.gov.au/docs/codes/ctend.pdf
950 Jefferies and Kirk
New South Wales Government (1996c), Implementation Guidelines for the Code of
Practice and Code of Tendering, Construction Policy Steering Committee,
July 1996, http://www.construction.nsw.gov.au/docs/codes/impguide.pdf
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Number 2, pp117-127.
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Industry: An Interim View. In Ogunlana, S. (Ed), Profitable Partnering in
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107-116, ISBN 0-419-24760-2.
Walker, D.H.T., Hampson, K. and Peters, R. (2000) Relationship Based Procurement
Strategies for the 21st Century. AusInfo, Canberra.
THE ROLES OF NON-GOVERNMENTAL ORGANIZATIONS IN
DEVELOPMENT PROJECTS: EXPERIENCES FROM THAILAND
ABSTRACT
Non-Government Organisations (NGOs) and local communities have been dealing with
the processes of development and globalization. Advocacy from NGOs has enhanced
extensive public awareness and participation in development projects in Thailand. Many
NGOs are involved in mobilizing people and campaigning against construction projects.
NGOs are still regarded with some suspicion. This paper reviews past experiences of
NGO activities in selected cases that represent contributions of NGOs to construction
projects. It shows that NGOs do not always work to solve the problems faced by the
locally affected people; hence causing conflicts between the two. NGOs have made
positive contributions to development but, at the same time, there is a need to examine the
impacts of their actions in order to facilitate effective advocacy and cooperation between
stakeholders of development projects.
INTRODUCTION
For decades, the NGOs in Thailand have developed their roles and operational directions
on development projects. NGOs have derived experiences from their work and learning
process with local people who are mostly rural and urban disadvantaged groups.
Advocacy by Thai NGOs have improved public awareness and participation in
development. In many cases, such efforts have significant impact on the national policies
stated in the social and economic development plans.
The word “development” has different meanings to different people and, thus, is not
necessarily mutually agreed upon. How NGOs have approached and attempted to solve
the problems related to development has been addressed. Additionally, it is not always
easy to define the terms ‘non-governmental organization’ (NGO). [Jumbala and Mitprasat
(1997)] offered observations towards a delineation of NGOs that view them as the
organizations that focus on charitable activities and social welfare, which usually deal
with human rights and the promotion of democracy. In contrast, the non-governmental
development organizations (NGDOs) emphasize on assisting groups of powerless and
needy people to conceive and handle development projects. Throughout this paper,
although there exist differences in the two types of organizations, NGDOs shall be
purposively referred to as NGOs in Thailand’s development projects.
952 Manawong and Ogunlana
NGOs and development are situated within the wider processes of globalization and
particular attention is paid to people’s experiences of globalization in Thai contexts. From
time to time, Thai NGOs and local communities have been dealing with the processes of
development and globalization. However, the proprietary of development projects and the
roles of NGOs are still questionable, which include: How is development defined and by
whom? How have global and local relations of power, both historically and in the present,
shaped the meanings of development? What role(s) do NGOs and their members play in
this redefinition of development? Do Thai NGOs always protest against development
projects? Do they organize protests on behalf of the affected people or on their own
initiative? Do people always support NGOs? How are development and globalization
experienced differently by people in specific local contexts? Is there a future for
development and if so, what might it look like? And, how may we incorporate the
theoretical insights gained from cases studied into future practices? These questions are
addressed in this paper.
Many Thai people have benefited from the services of NGOs. Some NGOs are accepted
as charitable organizations and are popularly appreciated throughout the country, for
organizing relief assistance to those in need. Beyond this, very few Thai people know
what NGOs are. [Poomkacha (1995)] pointed out that Thai society does not have any
special positive or negative attitude towards NGOs and further identified four roles of
Thai development NGOs as: encouraging the strengthening of community institutions;
educating the public about social problems; providing direct assistance; and, coordination
of networking development role.
In Thailand, NGOs cover a wide range of groups with varied interests, objectives and
activities. Historically, Thai NGOs have played a critical role in strengthening people’s
organizations and social movements, especially the popular democratic struggles in
1970s. In the subsequent decades, after the relaxation of political controls, NGOs have
increased their participation in national development, socially, politically, and
economically. Through this period, development NGOs has begun to realize and
emphasize the development of human and community’s capacity for self-reliance, aiming
at poverty alleviation [Jumbala and Mitprasat, (1997)]. Many people believe that NGOs
may be able to provide alternative means to tackle problems in development [Pongsapich,
(1996)].
The roles of NGOs in development projects 953
Compared with strong tension between NGOs and GOs in early 1980s, there has been
recently more dialogue, exchange, and cooperation between the two groups. The NGOs in
Thailand have great potential for active role in rural development. NGOs can not only
provide a constructive link between local government and grassroots people but also
ensure public participation in development [Prapatpaow, (2002)]. They can also play a
crucial role in developing people’s awareness and education as well as promote the
development of local institutions. Government recognition on the role of NGOs in
development activities is increasingly evident in the policy on promotion of local
organization in rural development [Pongsapich, (1995a)].
Thailand’s rapid economic growth brought several development projects which were
accompanied by greater resource extraction, affecting the environment in unprecedented
ways, with undesirable environmental controversies. Such development took a heavy toll
on the environment and saw conflicts emerging both between groups of local people and
between locals and outsiders. Movements for promoting better understanding and
outcomes of environmental development issues comprise people from many social strata.
In many cases, these people work together with NGOs to protect and rebuild their local
environment, exert pressure on government to assist, refrain from environmentally
damaging project, and attempt to have government reorient its development strategy
[Jumbala and Mitprasat, (1997)].
NGO activists argued that NGOs have emerged as an essential part of social movement in
response to the ‘mal-development’ of the country and ‘hot issues’ problems [Poomkacha,
(1995), Charoensuk, (1995). Dechalert (1999)] commented that the increased gaps
between the rich and the poor, is the consequence of Thailand’s rapid economic growth.
The disputes over resources, and the abuse of power from the authorities are main causes
of the conflicts between the rich and the poor, as well as the government and the villagers.
These conflicts then lead to protests from the poor.
[Dechalert (1999)] further opined that the emergence and intervention of NGOs in social
movements were claimed to be helpful for the people affected by development projects
since the work of NGOs work has brought more diversity to Thai society. NGOs have
come to reduce the power of bureaucracy, the rights of local communities have been
defended, and the plight of the poor has been brought into public debate. Hence, NGOs
themselves became resource to enable the poor to continue their struggles. [Poomkacha
(1995)] emphasized that the main goal of NGOs is people empowerment, which includes
assisting and encouraging people’s self-confidence.
954 Manawong and Ogunlana
Most NGOs are involved in advocacy work, which is ‘any attempt to influence the
decisions of any institution elite on behalf of a collective interest’ (Jenkins, 1987). In their
advocacy work, Thai NGOs expect policy changes in favor of the poor. They also aim for
‘social change’, which would lead to a situation in which the people may get involved in
decision-making processes, as well as ‘change in attitudes’ of their target groups
[Dechalert, (1999). As argued by Covey (1995)], successful NGO advocacy work should
strengthen the capacity of its beneficiaries to advocate for their own interests.
Environmentalist groups have been fighting for natural resource conservation arguing that
people have the right to keep resources such as forest areas undisturbed. It is now
recognized that people’s movements have sufficient power to have some influence on the
decision-making process of some government agencies. Local communities can be
encouraged by NGOs to make their voices heard. [Pongsapich, (1995a and 1996)].
There are doubts about NGOs roles as facilitators and mediators. In Thailand, the public
perception of NGOs is still a problem since many Thais have great misgiving about
development NGOs, being often perceived as ‘troublemakers’ and ‘foreign agents’
[Vichit-Vadakan, (2001)]. Further, in many cases, it has been difficult to get a joint and
conclusive agreement regarding the need to carry out development projects. This can
clearly reflect either the achievement or failure of NGOs in presuming their role of public
advocates.
The contributions of Thai NGOs to development project are well appreciated by people.
However, reactions to NGOs work and operations vary from project to project. This paper
presents cases of NGO-involved development projects that have social, economic, and
environmental impacts. The first two cases are solely study through literature reviews
while the latter two are the case studies as part of a larger study.
The roles of NGOs in development projects 955
The Bangkok’s elevated electrified BTS Sky train was dubbed Thailand's first modern
mass transit system, fully operated by the private sector (Bangkok Mass Transit System
Company Limited-BTSC). The BTS Sky train was officially opened for service on Dec 5,
1999. Its current 23.5 kilometers two-line system links key parts of the city. All stations
and track way are on structures elevated above the medians of city streets that run through
the central business district of the city. It was hoped that the project would gradually ease
chronic traffic congestion in Bangkok Metropolis.
Initially, in 1992, the project was expected to be completed within four years.
Unfortunately, the project needed seven years to become reality after facing protests from
many parties, including bird watchers, academics, environmentalists, and the disabled.
Environmentalists criticized its huge concrete pillars and rail beds snaking above
Bangkok as an eyesore that spoils the cityscape. The project’s original design was to run
15 kilometers with two routes, with a depot and maintenance center located at Lumpini
Park. Criticism arose over the location of the depot, with concerns and complaints of
possible air and visual pollution in the heart of Bangkok. It took three years to relocate
the depot to Mor Chit bus terminal and the route was then extended to 23.5 kilometers
[Bangkok Post, (1999)].
The BTS Skytrain Project was strongly opposed by a group of environmentalists led by
Khunying Chodchoi Sophonpanich, who established the Thai Environmental and
Community Development Association (TECDA), or ‘Magic Eyes’. Magic eyes, together
with its corporate members, aims to promote public awareness and social responsibility
for conserving and improving Thailand's environmental condition as well as community
affairs, well being, and problem solving (Magic Eyes, 2004). TECDA and other NGOs
were concerned about possible environmental impacts caused by the Skytrain. They
requested for and obtained a ruling from the Council of the State (COS) that the extension
should be the subject of an environmental impact assessment prior to construction.
Another problem was that teachers, parents and pupils from Mater Dei School,
successfully campaigned for the relocation of a station from the front of the school.
Access to the BTS Skytrain services was also controversial. The original design of the
project did not include elevators or escalators for disabled people. Such facility was
neither included in the construction contract (Matichon, November 1998a, 1998b). A
coalition of NGOs working for the disabled, carried campaigns leading to the Bangkok
Metropolitan Administration (BMA) approving a budget allocation for construction of
lifts for the disabled at five Skytrain stations [Matichon, (1999a)].
The relevant NGOs in the BTS Skytrain project worked as facilitators in both the
promotion of public awareness on environmental impacts from the project and the
response to requests of the people with disabilities. They worked strenuously in urging
that project implementation be adjusted in order to improve public health, environmental
protection and to improve the lives of citizens.
956 Manawong and Ogunlana
The Pak Mun Dam is a hydropower project located near the mouth of the Mun River that
runs through Ubon Rachathani province in Northeast Thailand. The Pak Mun Dam
Project is a multi-purpose ‘run-of-the river’ scheme, having main purpose of power
generation and irrigation development. Proposed and implemented by the Electricity
Generating Authority of Thailand (EGAT), the project targeted to have a power
generation capacity of 136 megawatts (MW). Financed by the World Bank, construction
of the dam began in May 1991 and was completed in November 1994.
The Pak Mun Dam project affected the Mun River during and after construction. From
the outset, the project was highly controversial. Between 1990 and 1997, thousands of
people living in communities along the Mun River opposed the dam [SEARIN, (2003)]
and blamed the project for affecting their livelihoods and occupations, especially
fisheries, since the fish populations upstream of the dam site reduced drastically. Besides,
the villagers also suffered floods causing loss of residential and agricultural land. The
campaigns against the project by environmental groups, student associations, and public
health groups focused on persuading the government to study the impacts from the
project and to reveal all information relevant to such impacts to the public [Awakul,
(2002)].
The Pak Mun Dam has also been a matter of international concern since the project was
first proposed in the 1990s. Up until the World Bank approved its loan for the project in
1994, many organizations worked with the villagers affected by Pak Mun Dam to oppose
World Bank funding. Since then, NGOs have worked to support the villager's demands
for compensation, permanent opening of the dam's gates, and even decommissioning of
the dam. The Southeast Asia River Network (SEARIN) commented that the actual output
of the dam has been less than half of its expected capacity due to insufficient water.
Moreover, the dam blocked the migration of fish, and a fish ladder, promoted by the
World Bank's fisheries experts as a mitigation measure, has proved useless [SEARIN,
(2003)]. The World Commission on Dams (WCD) also concluded that the dam failed to
meet its projected benefits and had substantial impacts on fisheries. Economically, the
Pak Mun Dam has not performed well [IRN, (2001), CSM (2000)].
NGOs have continuously assisted the people affected by the Pak Mun Dam Project since
early campaigns against the dam started. In January 1994, before the impoundment of the
dam, protesting villagers supported by NGOs came to Bangkok demanding compensation
for families who depend on fishing to earn a living. In October 1994, over 2,000
protesting villagers demanded an annual monetary compensation and land for
resettlement. In January 1995, the government agreed to compensate fishermen who lost
their livelihood. Most importantly, in December 1995, villagers suffering from large-scale
development projects decided to set up an umbrella group to address their problems under
the name of the Assembly of the Poor (AOP) [Bangkok Post, (2000)].
Domestically, the people's protest and mass demonstrations against the dam has continued
for more than 10 years. Pak Mun protesting villagers and the AOP, regarded as the largest
people’s organization in Thailand, had been demanding that the Pak Mun Dam be
decommissioned and the river restored. In April 1998, the Cabinet Resolution cancelled a
plan by the previous governments to offer compensation to 3,084 families affected by the
The roles of NGOs in development projects 957
Pak Moon Dam construction. In March 1999, having occupied the Pak Mun dam site and
established their living compound, the protestors said they would fight until the gates are
permanently opened and the fisheries of the Mun River are restored [SEARIN, (2003)].
Having been criticized by the government and urban residents for demanding money, in
late 1999 the protestors changed their demand to the decommissioning of the dam. By
doing so, they were trying to show that they were fighting for life; not simply monetary
compensation [MWJ, (2002)]. In April 2000, EGAT announced the government's
compensation program had reached its final stage, and no more villagers would receive
any money. However, negotiation over land compensation continued.
The AOP and the government agreed to hold a public forum in August 2000 in an attempt
to solve the AOP’s 16 grievances. It was hoped that the forum would bring about
effective solutions and it would include representatives from all concerned groups. AOP
also called on the government to let academic institutions arrange the hearing [The
Nation, (2000a)]. At the forum, the government officials and AOP representatives traded
accusations, denials and suggestions concerning the impacts of development projects and
other natural-resource management issues. The neutral committee established by the
government to address the villagers' demands seized the opportunity to propose more
solutions such as amending of laws, hiring neutral team to conduct environmental-impact
studies (EIA) rather than the projects' developers, with the hope to get right information
for right decision-making [The Nation, (2000b)].
At the forum, the government officials and AOP representatives traded accusations,
denials and suggestions concerning the impacts of development projects and other
natural-resource management issues. However, after a four-hour public forum, AOP
leaders insisted that their protests would continue until their problems are satisfactorily
resolved. They believed that the government was determined to stick to its methods of
development, and resist the structural and legal changes required to resolve their
problems and protect the rights of the public in the future [The Nation, (2000b)].
In October 2001, 70 members of the AOP started a long march from the Pak Mun dam in
Ubon Ratchathani to Government House to campaign for permanent opening of the dam's
sluice gates [Bangkok Post, (2001)]. In September 2002, about 700 members of the
Assembly of the Poor gathered at the Ubon Ratchathani Provincial Hall to continue their
rally demanding that the Government order the EGAT to open the Pak Mun Dam sluice
gates permanently in order to restore the nature of the Mun River [Khaosod, (2002)].
In 2001, the Thai government agreed to open the dam gates while studies were conducted
on fisheries, social impacts and the contribution of the dam to Thailand's electricity
supply. Thai government decided to close the gates for eight months each year, rejecting
recommendations from impact study team from Ubon Ratchathani University that
recommended continuous opening of the dam gates for at least five years [BWP, (2003)].
The Thai government made decision to shut the sluice gates from November 2002. Since
then, the Pak Mun Dam gates have been opened for only four months per year starting in
July 2003.
958 Manawong and Ogunlana
The Tha Chin River is one of the main lifelines, flowing over a distance of 325 kilometers
through the fertile agricultural areas in central region of Thailand. The Tha Chin River
basin annually faces problems of water shortage and drought during the dry season that
causes salinity intrusion. Also, the rapid expansion of industrial area in the middle part of
the Tha Chin River Basin has caused high demand for raw water consumption whereas
most of the area has no sewage treatment system. The undesirable result is decreased
quality of water and polluted river [RID, (2002)]. The Tha Chin River suffered a pollution
crisis in 2000 when its water became so contaminated by agricultural and industrial waste
that more than 100,000 fish perished (Bangkok Post, 2002).
Having recognized and studied problems in the Tha Chin River since 1995, the Royal
Irrigation Department (RID), proposed the construction of water retention barrage in the
Tha Chin River. The purposes of the project are to retain and store fresh water for
consumption by the local agricultural and industrial sectors, to prevent salinity intrusion
and impacts from tidal effects, and to maintain natural conditions and improve the quality
of water in the river.
From the outset, there had been relatively large numbers of people expressing objection to
the project on the basis that the project’s objectives were not wholly relevant to the actual
problems experienced at the Tha Chin River basin and the construction of the barrage
would neither solve the actual problems nor meet the people’s actual needs. Furthermore,
the EIA study showed that constructing a barrage across the river could worsen the
condition of water in Tha Chin River because closing the gates would cause an
accumulation of trapped waste substances in the river [RID, (2002)] and, hence,
aggravate the river’s already poor condition.
A local organization “We Love Tha Chin Society Nakhonpathom” (WLTSN) was the
main activist in promoting awareness on environmental problems of the Tha Chin River.
This non-governmental organization has been providing knowledge and education on
social and environmental issues affecting their local communities in Tha Chin River
basin. During the Tha Chin River water crisis in 2000, WLTSN played a leading role and
was responsible for most activities in water resources protection in Nakhon Pathom
province [Jiravitayaboon, (2003)].
Members of WLTSN are local residents along the Tha Chin River. WLTSN’s activities
focus on organizing public participation in river water management, school education in
environmental programs, outreach on pollution reduction and prevention, and raising of
the local people’s environmental awareness via educative documents such as brochures.
A study conducted by [Jiravitayaboon (2003)] concluded that WLTSN, as a provincial
NGO, has high potential to participate in water quality monitoring program.
The WLTSN played a major role in encouraging local people to oppose the construction
of barrages in the Tha Chin River. In campaigns and public participation activities,
WLTSN received technical supports from the Environmental Non-Government
Organization Assembly in organizing strategic methods and approaches to express
opposition to the project, especially at the public hearing held in July 2002. Together with
other environmental conservation groups, WLTSN also sought support from the Natural
The roles of NGOs in development projects 959
Resources and Environment Ministry to improve the quality of their life and to scrap the
barrage project. To date, the Tha Chin River Barrage project is on hold.
The proposed location of Mae Wong Dam Project is in the area of Mae Wong National
Park, Nakhon Sawan province, in the lower part of northern Thailand. The Royal
Irrigation Department (RID), as a project initiator, conducted project feasibility studies in
1982 [MWPHC, (2000)]. The study revealed that local people in the Mae Wong River
Basin suffered severe problems related to annual floods and drought. The RID then
developed policies and plans for development of the Mae Wong River Basin including
underground water, small irrigation barrages, water storage ponds, and dams. The RID
aimed to implement the Mae Wong Dam in order to solve local problems of water
shortage, flooding, and poverty. Many locals also hoped that the dam would meet these
goals and their quality of life could then be improved.
Having considered impacts of the project on the environment, such as the forest area and
wildlife, as well as the investment cost, the Mae Wong Dam project feasibility study
recommended a location for Mae Wong Dam construction at the edge of the Mae Wong
National Park. The designed dam size is 57 meters high and 730 meters long. The dam
can store 250 millions cubic meters of water. The estimated cost of the project was
approximately 4,000 million Baht [MWPHC, (2000)]. Unfortunately, the Royal Forest
Department was not supporting the project to be located in the national park area.
Besides, as in other dam projects, NGOs were actively expressing opposition to the Mae
Wong Dam Project. National and regional environmental conservation groups joined
together to carry out campaign against the project.
The Sueb Nakhasathien Foundation (SNF) and Wildlife Fund Thailand (WFT) were the
leading NGOs that had major roles in participating the meetings and discussions with the
project initiators, especially at the public hearing conducted in January 2000 at Nakhon
Sawan province. Their expressions of controversies include problems of water shortage
and floods, alternatives to solve the problems, suitability and benefits of the project,
impacts of the project, and other relevant issues. The SNF and WFT, together with local
environmental conservation activists, focused on preservation of the trees in Mae Wong
National Park as a part of the conserved Western Forest Complex of Thailand as well as
protection of rare wildlife living in the complex.
The RID organized a few meetings in the localities between 1993 and 1997. Around 600
people also registered to participate in the public hearing. At the hearing, according to the
case study result, there were complaints that NGOs were not concerned much with the
opinions from local people. The major focus of NGOs was on deforestation and
evacuation of wildlife rather than problems faced by people living in the project localities.
As aforementioned, problems related to floods and drought were the main concerns of the
locals, mainly in Mae Wong and Lad Yao districts in Nakhon Sawan province. The
groups of NGOs, led by SNF and WFT, were based in Bangkok. Other participating
environmental conservation groups were based in Uthaithani province, which is outside
the project location. NGO campaigns against the Mae Wong Dam did not focus much on
collaborating with locally affected people. In fact, there were very few attempts to work
960 Manawong and Ogunlana
closely with people in project setting. Instead, the NGOs chose to carry out activities at
the regional and national level.
The locally affected people are of the opinion that NGOs opposing the project did not
understand the actual problems that local villagers face since none of NGOs members
were locals. NGOs had negative perception on the project, primarily because they did not
consider the project’s positive contribution to local communities. During the public
hearing, the NGOs mainly expressed interest in forest and wildlife preservation. They
were not willing to listen to the opinions of affected people supporting the project. The
people also felt that they were not able to effectively present their support to the project
while the NGO representatives, who were mostly academics and expert activists, were
more influential.
In the Mae Wong case, NGOs failed to consult with and respond to the actual needs of the
local people. As such, unlike in the other projects, they did not only fail to gain support
from villagers but also proprietary to act on behalf of the people directly affected by the
project. The NGOs did not perform advocacy work on behalf of the local people. There
was no good or close relationship between NGOs and the locals. However, NGOs
members commented that tempting incentives meant only for their localities misled the
local people. So, the people were less concerned about forests, wildlife, and the country’s
natural resources as a whole than their own needs.
In addition to attempts to oppose dam projects in the country, NGO leaders often take a
strategic approach to influencing top government officials. In December 2002, the
secretary general of WFT issued a letter to the minister of the Ministry of Natural
Resources and Environment requesting revision on dam construction projects in Thailand,
emphasizing on irregularities in the initiation of such projects.
The Mae Wong Dam Project was suspended in 2001 when the National Environmental
Board (NEB) made a resolution on a revision on the project’s feasibility study result. It is
currently awaiting re-consideration by the NEB.
DISCUSSION
In the past decade, Thai NGOs have grown in number and diversified their activities
while gaining increased public acceptance. Some NGOs played important roles in
evaluating the projects initiated by the government. Their main emphasis includes
assisting groups of powerless and needy people to conceive and handle state development
projects. NGOs are generally expected to be people’s advocates in dealing with project-
related issues such as elimination or minimization of adverse effects from projects and to
help the process of compensation. The roles of NGOs in Thailand were therefore
generally satisfactory. However, given the differences in perceptions, concerns and
interests, dissatisfactions do exist. The cases reported give different perspectives on
NGOs performance in their advocacy work on behalf of the people, and for national
development.
NGOs involved in the BTS Skytrain project had two areas of interest; environment and
the right of the disabled. On the environmental front, NGOs successfully raised public
The roles of NGOs in development projects 961
awareness in protecting the green areas and inhabitants of the park in the heart of the city
from being developed as a depot for the trains. They influenced the relocation of the
depot to the more proper location. In concern of disabled people’s social right, the
relevant NGOs actively called for consideration from the city’s administration and the
Skytrain project owners regarding provision of facilities for the disabled. Sustained
efforts of the NGOs eventually resulted in installation of elevators for the disabled at five
BTS Skytrain stations.
In the case of the Pak Pun Dam, it was commented that some of the concerned
government agencies failed to do their jobs, such as increasing fish stock and assisting
local fishermen to adapt to the changed ecosystem. NGOs assisted people to be able to
continue their lives as fishermen even with the dam. Through conflicts and tensions of
people’s opposition to the project, NGOs had a constructive role in helping to direct and
advise the movements. NGOs achieved their aims in making the government to respond
to the demands for addressing the grievances of the people affected by the project. The
AOP, the leading NGO in opposing Pak Mun Dam project, managed to make agreement
with the government to hold a public forum aiming to directly discuss the project’s
controversial issues. That event was regarded as a new chapter in the development of
participatory democracy because it was the country's first ever-public forum. By
including representatives from all concerned groups, it was hoped that the forum would
bring about effective solutions. Though no solutions were reached, many participants said
they believed the forum was a success for allowing both sides to publicly air their views.
In the case of Tha Chin River Barrage Project, local NGOs were the main organizers of
activities promoting awareness on environmental problems and encouraging local people
to oppose the project. The NGOs provided knowledge and education on social and
environmental issues affecting their local communities as well as created small groups of
locals with same interest and organized public participation in river water management,
school education in environmental management, outreach on pollution reduction and
prevention. With organized procedures and technical assistance from other environmental
conservation groups, the NGOs had obvious influence when expressing local problems,
and other relevant issues, at the project’s public hearing where all stakeholders had formal
opportunities to present their views about the project.
The NGOs involved in the Mae Wong Dam Project were mainly environmental and
wildlife conservation activists. They were concerned more about the effects of the project
at regional and national level. These NGOs carried out their campaigns via media,
meetings with government agencies, and public hearing etc. to oppose the project. The
NGOs suggested that the project owner should solve local problems by using other
alternatives rather than by building a large dam in the national park. However, the local
people were not satisfied with the activities of NGOs. The locally affected people were
not well linked with the NGOs who were considered as outsiders. Local people did not
understand why NGOs opposed the project, which they believed to be good for local
communities. Based on beliefs that NGOs were not really concerned about local
problems, the local people disliked the actions of NGOs. Thus it is noted that weak
relationship and inadequate information from NGOs can cause misunderstanding and
dissatisfaction from the local people.
The four cases give both positive and negative images of NGOs in development projects.
Given that major the objectives of NGOs include resolution of economic, social, and
962 Manawong and Ogunlana
environmental problems, the point for concern is what should the appropriate scale of
NGOs role if they wish to act as advocates the people, locally or publicly. Acceptability
from the people, especially from the affected ones, together with thorough knowledge on
resolution of problems and good will toward the country’s development can also be
factors considered in proprietary of NGOs roles in advocacy work on projects. NGOs can
narrow the gap between state agencies and villagers through partnership with the
government could act as partners in helping villagers affected by state projects to make a
living.
The roles of NGOs include solving problems for the targeted people, socio-economic
appraisal, public education, lobbying, advocacy etc. Seemingly, the government and
general public have acknowledged these roles of NGOs. However, when problems are
multifaceted and in combination with local influence and separate exploitative national
policies, roles and achievement of many of NGOs working within a community context
seem to be unclear.
NGOs should learn to share experiences among themselves together with promoting
network of community leaders and organizations to exchange viewpoints on development
and experiences. Mutual learning with communities would enable NGOs to gain deeper
understanding of the situation in local communities. Empowering community is essential
since it is the people themselves who need to think about the issues and make linkages,
not the outside NGOs workers. Multilevel advocacy work proved supportive.
In the Thai context, challenging the mainstream development trend is one of the most
legitimate roles for NGOs in the future. NGOs need to enhance their work in public
education to broaden their support-base as well as to improve their research and
information regarding impacts of government development policies. There is a need to
review the performance of NGOs involved in development projects with a view to
determine whether they are really have local or national interests. Besides, approaching
the public with broader and more unified strategy is essential in acquiring support for
their operations.
Only with good understanding of the problems, strong service orientation, commitment to
reduce poverty and injustice, and clear and powerful communication of their values, can
NGOs have positive impact on Thai society. Collaboration, cooperation, transparency,
and sincerity of relevant parties in development programs would lead to successful
development. Time and efforts are required in order to obtain mutual understanding
which will result in more effective cooperation in the future.
The roles of NGOs in development projects 963
REFERENCES
Magic Eyes. (2004) Thai Environmental and Community Development Association, The
Magic Eye Story, http://www.magiceyes.or.th/Engver/About.html
Matichon. (1998) Insistence on exclusion of disabled lifts in BTS contract, Matichon,
November 10.
Matichon. (1999) Green light for construction of lifts for disabled at BTS stations,
Matichon, June 23.
MWJ. (2002) Pak Mun Dam, Mekong Watch Japan (MWJ)
http://www.mekongwatch.org/english/country/thailand/pakmun.html
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MWPHC. (2000) Mae Wong Dam Project Public Hearing Report, Mae Wong Public
Hearing Committee (MWPHC), Bangkok.
Poomkacha, D. (1995) And Then What Next Thai NGOs? in Boonyarattanasoonthorn, J.
and Chutima, G. Thai NGOs: The Continuing Struggle for Democracy, Bangkok:
Thai NGO Support Project.
Pongsapich, A. (1995) Strengthening the Role of NGOs in Popular Participation in
Boonyarattanasoonthorn, J. and Chutima, G. Thai NGOs: The Continuing Struggle for
Democracy, Bangkok: Thai NGO Support Project.
Pongsapich, A. (1996) Nongovernmental Organizations in Thailand in Emerging civil
society: in the Asia Pacific, Singapore: Co-published by the Institute of Southeast
Asian Studies (ISEAS) [and] JCIE in cooperation with the Asia Pacific Philanthropy
Consortium (APPC).
RID. (2002) Document for public hearing: The Ta Chin River Barrage project, Royal
Irrigation Department (RID). Bangkok, Thailand.
SEARIN. (2003) Pak Mun Dam, South East Asia River Network (SEARIN),
http://www.searin.org/Th/pmd_en.htm
The Nation. (2000a) Govt backs AOP public hearing, The Nation, July 31.
The Nation. (2000b) Poor’s protest campaign to go on, The Nation, August 18.
Vichit-Vadakan, J. (2001) Central Role in Development for Thai NGOs?, Global Policy
Forum, http://www.globalpolicy.org/ngos/intro/general/2002/12thai.htm
ENVIRONMENTALLY SUSTAINABLE PRACTICES IN THE DEVELOPMENT
OF THE MALDIVIAN CONSTRUCTION PROJECTS
IBRAHIM SHAHEEN
Maldives Transport and Contracting Company PLC, MTCC Building, Boduthakurufaanu
Magu, Malé Republic of Maldives , Shaheen@mtcc.com.mv
ABSTRACT
INTRODUCTION
The Maldives, being a small island nation with few natural resources, depends on tourism
as the main source of income. This creates awareness at the national level for the
environmental concern over the issues related to industries and their activities. Therefore,
the industry stakeholders are required to move on towards a practice of environmentally
sustainable construction in the country. The objectives of this paper are therefore to
• investigate the existing mechanism on construction activities that affect
environmental sustainability;
• investigate the barriers to adopting the sustainable construction practices, and
• propose mechanisms and strategies towards developing sustainability in the
Maldivian construction industry.
The concept of sustainability was evolved several years ago and several milestones have
passed since then. One of the important milestones was the formation of Agenda 21 at
the Rio Summit in 1992 which developed the discussion and concept of sustainable
development in all sectors of our society. The Habitat II Agenda, which was signed in
Istanbul 1996, covers the broader issues of human settlement thus making it more
relevant to the construction industry [CIB Report, (1999)]. Maldives enacted a law on
environment (law no. 4/93) soon after signing the Agenda 21 in 1992.
The most critical environmental concerns facing most island nations are management of
domestic waste, sustaining fisheries stock and forestry and land use
[http://islands.unep.ch]. All of these factors account for construction activities in one way
or another. Measured by weight, construction and demolition activities produce about
40% of human made wastes [CIB Report, (1999)]. For example, in the capital of the
Maldives for the year 2002, the construction debris accounted for 92% of the total
industrial wastes and 35% of the total waste generated in the city [MPND, (2003)].
Similarly the destruction of productive coastal resources from construction or dredging
activities is a common dilemma in island nations. Moreover, coral and sand mining from
coastal areas for construction aggregate materials has often caused beach erosion. This
practice is threatening the delicate and irreplaceable ecosystems in the Maldives and India
Environmentally sustainable projects 967
[Larderel, (1996)]. There are 86 islands in the Maldives with severe beach erosion since
the year 1990 [MPND, (2003)].
Apart from applying the EA only during the planning and designing phase, an
Environment Impact Assessment (EIA) can be integrated throughout the project [UNEP,
(1998)]. But, the downfall is not many actors are aware of the EIA process. The country
reports presented at the First Annual South Asian Environmental Assessment conference
which took place in Katmandu, Nepal in December 1999 showed that the officials in all
the five countries (the Maldives and Bhutan not included) were not familiar with EIA
[REAP-IUCN, (1999)].
ROLE OF GOVERNMENT
The government can play a vital role in moving towards the development of the
sustainable construction concept. These roles include forming economic instruments,
regulatory functions etc. Within the economic instrument government authorities can
provide subsidies for environmental sustainable construction practices, while charges for
pollution or non-compliance fees can be imposed [Amin, (2003)]. In contrast with the
967
968 Shaheen and Charoenngam
regulatory forms, [Deb (1998)] argued that without the existence of performance
standards, the use of the latest technology and materials and the introduction of new
safety standards will be difficult.
To summarize the above arguments, the author suggest that, sustainable construction
concept can only be developed with the clear understanding of what it means and what it
requires to do by each actor in the development activities. EIA therefore is a significant
process in this norm where it should be integrated throughout the life cycle of the project.
In addition, government role in providing regulatory standards and establishing
monitoring criteria together with providing resource people in the authorities is a
necessity. Finally, creating performance indicators and reward scheme will encourage the
implementation.
METHODOLOGY
This paper is based primarily on in-depth interviews. Two case studies were conducted
on two ongoing large public projects, where in-depth interviews were carried out with key
actors. Preparation of the field work was preceded by review of available literature and
review of documents related to the two projects. Respondents were selected based on
their key role in the projects, which includes the project owners, contractors, consultants,
regulatory authorities and NGOs. A total of six respondents were selected for each case
study. A special focus was made on obtaining the information from the most senior
officials from those stakeholder groups. Data validations were made having general
discussions with several site officers, some general public and end users and engineers in
the industry together with site visits and follow up of documents.
The Hulhu Malé Phase I, stage I A, Building Works is a part of Hulhu Malé Development
Project, which is the largest and most complex land reclamation and development project
undertaken in the Maldives. The Ministry of Construction and Public Works (MCPW)
initiated the project and started the reclamation on 16th October 1997. According to
[Roulund et al. (2003)], there were no real environmental protection measures planned
prior to the start of dredging activities apart from mobilization of 200 meters silt screen to
protect the reef in front of the Club Med Resort. The project was initiated based on an
IEE from a desk study later followed by a comprehensive EIA for the dredging and
reclamation works [Binnie Black and Veatch, (2000)]. The main objective of the project
was to establish a new land mass required to meet existing and future needs in the Malé
region for housing, industrial and commercial needs, with the specific objective being the
solution for the severe over crowding and congestion in the capital. The housing stage I
was financed by Thai EXIM Bank. The general contractor was a Thai company named
Sino-Thai Engineering and Construction public Company Limited (STECON). The
project components include constructing 280 Flats, one school, one hospital (50 Bed) four
commercial buildings and a Public Building for a cost of US$ 13,661, 689.00 within 12
months. Apart from the independent consultant team, the owner engaged a project
management team at the site to look after the task of the consultant team, where giving
the final word for each matter from the owner.
Environmentally sustainable projects 969
The Regional Port Development Project aimed to support the economic and social
development of the Northern Development Region (NDR) and Southern Development
Region (SDR). Its specific objectives include providing sea transportation efficiently and
safely and to divert imports directly to the atolls reducing shipping costs and relieving the
current congestion at Malé port. The project includes the construction of two new ports,
one in Kulhudhuhfushi Island in NDR and one in Hithadhoo Island in SDR. This case
study has focused only on the Hithadhoo Port. The Hithadhoo Port consisted of
constructing an international berth of 130 meters with draught 8 meters, domestic berth of
length 50 meters with draught 5 meters, a causeway road of 1025 meters length and 7
meters wide, paved area of 20,650 sqm, necessary buildings and required reclamation and
dredging. The project was given to a Japanese contractor named Wakachiku
Construction Co, Ltd. The cost of the project was US$ 6, 325, 993.00 for a period of 14
months. The project was mainly funded by a loan from Kuwait Fund for Arab Economic
Development (KFAED) together with local finance from the Government of Republic of
Maldives.
• Follow-up of EIA
• Regulatory forms and procedures
• Monitoring and checking criteria
• Sustainable attributes (energy & resources savings,
health and comfort, affordable cost, LCA, land use
Procurement
969
970 Shaheen and Charoenngam
Only general criteria followed in the guidelines in the criteria for procurement
procurement selection without selection.
concerning contractors having
knowledge of the sustainable
construction.
Construction Unclear responsibility for authorities Implement proper regulatory system to
to check and monitor construction enforce and implement the construction
activities. regulations, and empower the regulators.
Construction wastes are used for land Encourage reduce and reuse the
filling only. construction wastes. Construction
wastes may be used to make masonry
blocks, paving blocks, etc.
Material selection based on technical Encourage the owners and developers to
specification and cost, owners do not use environmentally friendly materials
recommend for innovative and or by providing incentives and reward
environmentally friendly materials. schemes.
Imported materials are subjected to Reduce the tariff on construction
high tariffs. material thereby allowing developers and
suppliers to introduce innovative and
environmentally friendly materials.
Utilization Occupants or operators moving into Consider end user participation in the
the new facilities without proper development stage. Operators of a
planning due to inadequate facility such as a port must train its staff
participation in the development before the facility is completed so that
stage. immediate operation will result.
The foremost factor that hinders the adoption of the sustainable construction practices in
the development of the Maldivian construction projects is the lack of human resource
with the knowledge of EIA and sustainable construction concept. Therefore, projects are
faced to engage expatriates in those projects which require an EIA. The lack of
awareness on the concept from the stakeholders and the community make no concern for
integrating this concept in any construction project.
971
972 Shaheen and Charoenngam
Another factor that bars the implementation of the concept is the current policy and
management system. Public participation is a key principle of sustainable development;
however, the current norms and policies do not provide much attention to public
consultation. The quality of physical environment depends on the philosophy and the
attitudes upon which development policies and control are found. Another factor in the
policy management is that political pressures often overrule the development scope and
decision making. Therefore, unilateral decision making is also a common phenomenon.
Finally there are also factors related to economy and financial attributes. The market
tendency for construction is reduction of costs at the expense of quality and the general
impression is that sustainable options are expensive and uneconomic and that
sustainability is a fringe issue. Stakeholders further believed that some incentive system
must be established to compensate the initial costs to accept implementing new methods
leading to sustainable construction objectives. Besides tariffs on imports of construction
materials, bar the use and/or search for innovative and environmentally friendly materials.
It is further expected that the financial sector must acknowledge the need for a sustainable
construction practice.
The barriers described above are just common to any island nation of similar nature.
However, there are several attributes that will help for example, political stability, high
literacy rate, equal opportunities for women’s participation in the society and no ethnic,
cultural or religious diversity among the population, to overcome those barriers and
implement the sustainable construction concept in the development of the Maldivian
construction projects.
CONCLUSION
impact on ecological environment. But the built-environment and its activities effects on
the natural environment are not given enough importance.
This paper has found several issues related to construction activities that affect
environmental sustainability. The study was conducted based on two case studies;
therefore, it is rational to have other impressions when the industry is taken as a whole, or
a survey is been conducted. However, the findings are based on the study groups
involved in the case studies, with additional evidence from documents and observations.
It was verified from the analysis that EIA is a mandatory process in development
activities which may have a negative impact on environment. However, resource people
are limited and sometimes projects have been initiated only with an initial desk study
report. Moreover, there are instances where the scope of EIA does not cover the total
project scope making it difficult to implement an EMS. Further monitoring is not
properly engaged throughout the project life cycle. Although a population and
consolidation plan is the main development criterion, community and sectorial thinking is
not in line with the concept. Therefore, unilateral decision making is often observed
overruling the technical findings.
There are instances where planning, economic and financial feasibilities are done on a
different scope than the project implementation. Freshwater is one of the scarce resources
in the country and there are already established good mechanisms to reduce metered
water, such as high rate for higher consumption, but on the other hand, rainwater
harvesting is not properly implemented in the housing project. This creates extra burdens
for apartment owners to minimize the metered water resource.
Construction plans and designs belonging to private projects have a checking and
approval process, where natural light and ventilation, building heights, setbacks and
structure are evaluated on guiding criteria. However, this process does not exist for
public projects, where usually only the client’s team does these kinds of evaluations.
Besides no national building codes, there are no known guidelines and regulations for
dredging and reclamation works. Moreover, tariffs on imported construction material
prevent looking for innovative and environmentally friendly materials.
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Binnie Black and Vetch, (2000) Environmental / Technical Study for Dredging/
Reclamation Works under the Hulhu Malé Project, Maldives. Final Stage 1 Report.
Bentivegna, V., Curwell, S., Deakin, M., Lombardi, P., Mitchell, G., and Nijkamp, P.,
(2002). A Vision and Methodology for Integrated Sustainable Urban
Development: BEQUEST. Building Research and Information, Vol. 30, No. 2, pp 83-
94.
Bourdeau, L., (1999) Sustainable Development and the Future of Construction: A
Comparison of Visions from Various Countries. Building Research and
Information, Vol. 27 No. 6, pp 355- 367.
Cheng, E., W., L, Li, H., and Love, P., E., D., (2000) Establishment of Critical Success
Factors for Construction Partnering. Journal of Management in Engineering, Vol.
16, No. 2, pp 84 – 92.
CIB Report (1999) Agenda 21 on Sustainable Construction, CIB Report Publication 237
pp 1-119.
Curwell, S., and Cooper, I., (1998) The Implications of Urban Sustainability. Building
Research and Information, Vol. 26, No. 1, pp 17- 28.
Deb, A., (1998) Sustainable Cities in Developing Countries. Building Research and
Information, Vol. 26, No. 1, pp 29-38.
Hill, R. C., Bowen, P. A. and Soboil, J. H., (1996) Environmental Management Systems
in the Attainment of Sustainable Construction in South Africa. UNEP Industry an
d Environment, Vol. 19, No. 2, pp 13-18.
Hill, R.C. and Bowen, P. A. (1997) Sustainable Construction: Principles and Framework
for Attainment. Construction Management and Economics, Vol. 15, No. 3, pp 223-
239.
Larderel, J. A. D., (1996) Construction and the Environment: Facts and Figures. UNEP
Industry and Environment, Vol. 19, No. 2, pp 4-8.
Maldives Data Profile, the World Bank Group http://devdata.worldbank.org (accessed on
03/08/03).
MPND (2003) Statistical Year Book of Maldives 2003. Ministry of Planning and National
Development.
Raftery, J., Pasadilla, B., Chiang, Y., H., Hui, E., C., M., and Tang, B., (1998)
Globalization and Construction Industry Development: Implications of Recent
Developments in the Construction Sector in Asia. Construction Management and
Economics, Vol. 16, No.6, pp 729-737.
REAP-IUCN (1999) Proceedings of the First Annual South Asian Environmental
Assessment Conference, Katmandu Nepal. pp 21.
Roulund, A., Iversen, C., and Shujau, M., (2003) The Hulhu Malé Dredging and
Reclamation Project, the Maldives. Sixth International Conference on Coastal and Port
Engineering in Developing Countries Colombo, Sri Lanka 15th to 19th
September 2003.
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UNEP islands web site http://islands.unep.ch/da21c17g.htm (accessed on 01/07/03)
World Commission on Environmental and Development (WCED) (1987) Our Common
Future [The Brundtland Report]. Oxford University Press, Oxford.
A COMPUTER SOFTWARE TOOL FOR TENDER EVALUATION
J. PONGPENG
Department of Civil Engineering, Faculty of Engineering, King Mongkut’s Institute of
Technology Ladkrabang, Bangkok 10520, Thailand. kpjakrap@kmitl.ac.th
ABSTRACT
INTRODUCTION
Many developing countries have accepted economic alternation policies to penetrate the
global market. These policies lead to the improvement of the countries’ performances
concerning accountability, competitiveness, liberalization of trade and so on. One
dimension of dealing with these concerns is making the tender evaluation process
transparent, i.e., no barriers to entry. This needs a reasonable computer software tool to
evaluate tenders (contractor ability and bid price) effectively in terms of cost and time.
Then, the results can be put on the web for public access in order to make the tender
evaluation process more accountable. However, most existing software tools such as
Qualifier-1 [Russell and Skibniewski, (1990)] and Qualifier-2 [Russell et al., (1990)] are
designed for evaluating only contractor ability, which is a half-finished tender evaluation.
Thus, the study aim was to introduce a computer software tool capable of evaluating both
contractor ability and bid price. As the theoretical framework, the computer software
978 Pongpeng
tool has been developed using a combination of a utility function and a social welfare
function. Also, this software tool comprises seven main steps: (1) establishing the tender
evaluation context, (2) selecting criteria and weight, (3) eliciting utilities, (4) evaluating
contractor ability, (5) evaluating tenders, (6) reporting results and (7) making a database.
MS Excel and Visual Basic for Application (VBA) are used for coding all the steps,
which provides users with good calculations and friendly interaction.
Uncertainty is always associated with tender evaluation decisions. This uncertainty then
leads to the risk of unfavorable consequences when selecting a contractor as the best
contractor to complete a project. To handle the uncertainty, a utility function is one of the
best techniques. In addition, multiple decision-makers are always involved in tender
evaluation decisions, but the utility has limitations in dealing with the involvement. To
handle this involvement, a social welfare function is introduced to aggregate all
individual utilities so as to rank the contractors or to find the best contractor that satisfies
all the decision-makers. More details of the application of a utility function and a social
welfare function for tender evaluation can be seen in Pongpeng and Liston (2003a).
UTILITY QUANTIFICATION
From Fig. 1, the utility of three broad patterns of attitude towards risk can be determined
as follows:
• Firstly, risk-neutrality type people will articulate risk-neutrality utility (denoted Urn),
using the steps (a)-(b)-(b”).
• Secondly, risk-propensity type people will express risk-propensity utility (denoted
Urp), using the steps (a)-(b’)-(c’)-(d’).
• Thirdly, risk-aversion type people will express risk-aversion utility (denoted Ura),
using the steps (a)-(b)-(c)-(d).
A computer software tool for tender evaluation 979
Clearly, the difference of utility between risk-aversion type people and risk-neutrality
type people is the variation of utility below Urn; whilst that between risk-propensity type
people and risk-neutrality type people is the variation of utility above Urn. Also, the
greater the variation, the higher the degree of attitude towards risk.
Criterion
The software tool was programmed using MS Excel with Visual Basic for Application,
VBA. There are seven main steps in this tool: (1) establishing the tender evaluation
context, (2) selecting criteria and weight, (3) eliciting utilities, (4) evaluating contractor
ability, (5) evaluating tenders, (6) reporting results and (7) making a database, as shown
in Fig. 2.
980 Pongpeng
Eliciting utilities
This step lets users identify a tender context, namely: user context, type of project, project
context, project ID no., project name, project start date, objective identification, decision-
maker identification, and contractor identification, as per the example shown in Fig. 3.
Users are provided with nine contractor ability criteria derived from the questionnaire
analysis [for more details see Pongpeng and Liston, (2003b)]. Then users have three
options as shown in Fig. 4.
• Accept the suggested criteria and their weight. This will take users to the next step.
• Change the weight. Users agree with the suggested criteria but want to change the
weight for each criterion. The model provides users with a menu to change the
weight as required.
• Change both the criteria and weight. Users can select their own criteria and assign
weight as required.
A computer software tool for tender evaluation 981
ELICITING UTILITIES
On the basis of utility quantification (explained by clicking on utility manual), users can
express utility simply for each criterion for all contractors. The utility expression is
982 Pongpeng
immediately presented to users in order to ensure that users are satisfied with their utility
as shown in Fig. 5. If needed, the changes in utility can be made interactively.
However, before decision-makers express their utilities on all contractor ability criteria,
they are encouraged to click on the “Utility Manual” button. Then the utility manual
menu will pop up as shown in Fig. 6. The manual suggests decision-makers with a
procedure for utility quantification as discussed in the previous section.
After receiving the weights for all criteria and the utilities for all criteria for all
contractors, the software tool will compute contractor ability for a decision-maker by
multiplying all the utilities and their corresponding weights together and adding them all
together, and then compute overall contractor ability for all decision-makers by
summarizing the utilities (indicating contractor ability) of every decision-maker. An
example of the results is shown in Fig. 7 [for more details see Pongpeng and Liston,
(2003a)].
EVALUATING TENDERS
The bid price of each contractor is included in this step to finalize tender evaluation. The
weights (to balance between bid price and contractor ability) are required as shown in
Fig. 8.
Then, users input the bid prices of all contractors, and articulate utility for the bid price.
After that, the software tool computes an overall social welfare utility by multiplying the
utility of bid price and corresponding weight and multiplying the utility of contractor
ability and corresponding weight, and then adding them all together [for more details see
Pongpeng and Liston, (2003a)]. Figure 9 shows the calculations including the should-win
contractor, social welfare utilities and ranking of the contractors.
984 Pongpeng
REPORTING RESULTS
The results are presented in a table for clarity of comparison of contractors. Three main
results to be printed are:
• Overall tender evaluation. This result presents the ranking order and social welfare
utility. Also, it suggests the should-win contractor.
• Contractor ability comparison, which shows the contractor ability in terms of the
social welfare utility and ranking order.
• Contractor ability comparison on each selected criterion. Where the social welfare
utilities of contractors are close in value, this result helps to determine strong and
A computer software tool for tender evaluation 985
weak areas of contractors in order to facilitate the selection of the best contractor.
MAKING A DATABASE
In this step, the average weights, as measures of central tendency, are automatically
calculated. Then, the average weights placed on criteria are recorded, corresponding to a
specific type of project, for future use. The development of this database is an ongoing
research of the author.
SOFTWARE TEST
To obtain a realistic working product, the software tool was tested for user-friendliness,
verification, sensitivity analysis, and validation. The tests for user-friendliness relied
upon the planning structure of the software tool and upon the requirements of Thai tender
evaluation practitioners. Verification used experimental proof by comparing the model
results and those solved manually. The sensitivity of the model was tested by the
variation of data inputs (i.e., weight and utility). As an ultimate test, the software tool
results were validated with the two real-case results. The tests showed that the software
tool evaluating both contractor ability and bid price was a rational product in solving
tender evaluation problems. The details of the tests can be seen in [Pongpeng and Liston
(2003a)]. Consequently, selecting the best contractor or ranking the contractors using this
software tool results in (1) a saving in time and (2) the selection of a contractor that is
likely to perform within time, budget, quality and safety requirements. However, for
greater acceptance, wider-ranging tests with more tender evaluation practitioners are an
ongoing research of the author.
CONCLUSIONS
Globalization influences the way both public and private organizations perform their
tasks. It provides an opportunity to make the tender evaluation process more transparent
and effective for the construction industry. Thus, a reasonable software tool capable of
evaluating both contractor ability and bid price is necessary. Accordingly, this study
suggests a software tool which has such capability. This software tool uses a method that
combines a utility function and a social welfare function as the theoretical framework for
its development. As the software tool is operating, subjective inputs (statements of
preference) are exchanged between the tool and the users or provided by users, for
example:
• In the step selecting criteria and weight, nine criteria with their weights of relative
importance are suggested to the users. However, the users are allowed to change the
weights and/or criteria, if required, making the model flexible to changes in relation
to a particular situation.
• In the step eliciting utilities, the users provide subjective inputs through expressing
utilities for contractor ability criteria. Here, a new utility quantification is introduced
so as to reduce the difficulty in finding a utility function.
986 Pongpeng
• In the step evaluating tenders, subjective inputs are provided via the articulation of
weights for bid price and contractor ability. Then, the subjective inputs are
exchanged again through the suggestion of utility for the bid price (by the software
tool) and the expression of utility for the bid price (by the users). Percentiles are used
to guide the users in expressing utility for bid price. This suggestion helps to reduce
the utility-expression onus on the users.
In addition, using MS Excel with VBA to create the software tool renders a good
calculating and reporting device and offers friendly interaction. Therefore, this software
tool helps practitioners to reduce the time of tender-data analysis, which leads to more
transparency and effectiveness. This then supports the process of globalization in the
construction industry.
REFERENCES
ABSTRACT
This paper introduces the application of system dynamics to the complex problem of
construction waste generation among contractors in the Singapore construction industry.
On a broader spectrum, it demonstrates how highly complex problems can be dealt with
through the use of system dynamics methodology. Archival research on waste
minimization issues was followed up which provided the necessary variables for the
construction of the system dynamics construction waste minimization model.
The system dynamics model is presented to explain the construction waste generation
waste behavior exhibited by the contractors on site in the Singapore construction industry.
The model shows that several fundamental factors, ranging from subcontractors’
performance to wasteful culture, were the main causes of waste generation among
contractors on site. The proposed model can be a useful tool for contractors in their
decision-making related to construction waste minimization. Contractors are the frontline
operatives who make decisions on construction methods and processes. The model can be
used to help develop strategies, policies and best practices for contractors to reduce waste
on site.
INTRODUCTION
The construction industry is deemed to have real and potential adverse impacts on the
sustainable development. The large amount of construction and demolition waste
produced in construction is one of the main problems of the industry in Singapore.
Therefore, there is an urgent need for contractors to minimize the construction and
demolition waste they generate.
The purpose of this study is to establish a construction waste minimization model for
contractors in the Singapore construction industry based on systems thinking. It uses the
system dynamics method as a tool, to illustrate the relations and interactions among the
factors in construction waste generation. The model established in this study attempts to
depict the construction waste generation trends on site in the Singapore construction
industry.
988 Lim and Ofori
This study explored the feasibility of using system dynamics to solve real problems and
show how problems of great complexity could be dealt with. The proposed model can be
a useful tool for contractors in their decision-making related to construction waste
minimization. Contractors are the frontline operators who make decisions on construction
methods and processes. The model can be used to help develop strategies, policies and
best practices for contractors to reduce waste on site.
The construction material waste problem is a complex one which extends beyond the site,
both in its causes and its implications. Construction waste generation on site may occur
due to one or a combination of many factors. [Gavilan and Bernold, (1994)] organized the
sources of construction waste under six categories: (1) design related; (2) procurement
related; (3) handling of materials related; (4) operation related; (5) residual related; and (6)
“others”. Similarly, [Ekanayake and Ofori (2000)] categorized the causes of waste under:
design; operational; material handling; and procurement.
Some researchers have attempted to classify causes of construction waste under different
categories. According to [Low and Tan (1997)], under the Just-In-Time concept, the
causes of construction waste can be classified as waste from (a) over-production; (b)
delays; (c) transportation; (d) unnecessary processing; (e) excess inventory; (f)
unnecessary motion; and (g) defects.
[Guthrie et al. (1998)] suggested that wastage of any material and components on the site
can be directly attributed to one of the following: damage and spillage; contamination;
storage beyond use-by date; over supply; out of specification; and theft and vandalism.
This paper identified 4 main causes of construction waste. They are wasteful culture,
subcontractors’ performance, qualities of recycled construction material and
subcontractors’ co-operation and participation.
The Singapore construction industry is inherently labour intensive [Wong, (1990)]. Under
such conditions, labour subcontracting is the most common employment practice in the
industry. It involves casual employment of labour [Ofori and Debrah, (1998)]. This
provides flexibility to the main contractors in terms of staffing. Unfortunately, it is
possible that the problem of construction waste generation in the industry may be caused,
at least in part, by this system.
The labour subcontractors on which the Singapore construction firms depend have no
responsibility for purchasing materials. Although they are mainly concerned with
producing work of reasonable standard, they are not interested in finding or adopting the
most materials efficient way of producing their output. Their main concentration is on
completing the maximum quantity of construction work within the shortest possible time
[Wong, (1990)]. All too often there is evidence that they have little pride in their works
and they are pre-occupied with their remuneration. As such, they are unlikely to concern
The dynamic construction waste generation behavior 989
themselves with new working methods that reduce waste. Furthermore, a large proportion
of the construction industry’s workforce is unskilled. The availability of this large pool of
cheap unskilled labor has contributed to not only poor construction productivity but also
high levels of wastage. Poor workmanship and the incorrect use of tools also result in a
need for much remedial works and operational wastage [Wong, (1990)].
It can be seen that both the drawbacks and benefits of the employment of labour
subcontractors have an impact on the different players of the industry. On the one hand,
with no better alternatives, the labour subcontracting system is beneficial to the main
contractors; on the other, considering the industry as a whole, the above drawbacks
highlight one of the main causes of waste generation in the industry.
Numerous studies have dwelled on the general problem, which led to low levels of
productivity in the construction industry [Bishop, (1975), Lewis, (1987)]. Studies have
pointed out that one of the factors that contribute to low productivity on site is the
inefficient management of construction resources – namely manpower, machinery and
materials, leading to wastage [Malcolm et al., (1987)]. Costs are incurred for the clearing,
removal and disposal of waste. The waste materials may cause damage or inconvenience
such as blockage of drains [Lam, (1998)].
Lam [1998] found that projects could be delayed due to the non-availability of new
materials to replace the wasted material. Even if the replacements are available, the cost
of new materials may be higher than the initial purchases. Both situations are likely to
increase the project costs. The unavailability of the wasted materials may force the use of
inferior materials or materials that are less compatible, resulting in a building of poorer
quality.
990 Lim and Ofori
Waste is often the result of the inefficient use of a natural resource. Therefore, waste
management seeks to reduce the amount of waste produced as well as to reduce the
environmental impact of that which is unavoidable. Some construction wastage is
unavoidable in the building industry. However, it is necessary that wastage be controlled
at an acceptable level as high wastage means high cost, low productivity, wasted labor,
reduced cost competitiveness.
Proper waste management does not mean sending the waste to landfills, where they will
be “covered up” for good [Kok, (1996)]. It is to exploit the possibility of minimizing or
recycling the waste and utilizing them in other areas. Much of the material wastes
generated in construction sites are not accounted for because they occur in “negligible”
amounts. To ensure full utilization of land and natural resources, a proper waste
management system should exist.
RESEARCH METHOD
The study was developed on the basis of, and conceptually supported by, a literature
review in the area of labor subcontracting in Singapore which indirectly results in waste
generation. System dynamics methodology is used in this paper to illustrate the relation
and interaction among the corresponding factors in construction waste generation. The
model established in this paper attempts to depict the construction waste generation
behaviour among subcontractors in the Singapore construction industry.
System dynamics has its own paradigm and has established itself as a powerful
methodology [Mohapatra and Mandal, (1989)]. It has been used to analyze industrial,
economic, social and environmental systems of all kinds, since it was developed initially
from the work of Jay W. Forrester [Forrester, (1961)]. In this study, the concept of system
dynamics modeling has been used to examine the effect that one variable has on another.
The dynamic construction waste generation behavior 991
System dynamics principles have been used to map and identify the major variables that
influence waste generation and to distinguish the main feedback loops.
The qualitative model developed in this study would thus provide insights into the causal
nature of the waste problem among subcontractors. This will provide subcontractors in
construction with a richer understanding of the interdependence between waste causes
and the effects of waste management.
Discussion of model
It is hoped to demonstrate the idea that system dynamics models can enable both main
contractors and subcontractors to better understand how construction and demolition
waste occur in construction projects. The adoption of such specific technology is
necessary since no mental model can adequately assess the negative environmental
impacts and high wastage caused by construction and demolition wastage.
Figure 1 depicts the four main causes of construction waste minimization from the
perspective of the main contractors. Often, construction materials are supplied by the
main contractor to the subcontractors. Therefore, if the subcontractors adopt a wasteful
culture, there would likely be an increase in construction waste generation. Furthermore,
as illustrated in Figure 1, main contractors and subcontractors who practice construction
waste minimization must ensure that the recycled construction materials should be of
good quality. Otherwise, it would indirectly increase construction waste generation.
Figure 1 also reveals that poor subcontractors’ performance would lead to a higher
construction waste generation. Another point to take note of is that without adequate
subcontractors’ co-operation and participation in relation to waste minimization issues
would as well result in an increment in construction waste generation on site.
992 Lim and Ofori
Wasteful
Culture
_ _
Subcontractors’ + Construction Subcontractors’
Performance Waste Co-operation
Generation and Participation
Qualities of recycled
construction material
Source: Author
In this study, the concept of system dynamics modeling has been used to examine the
effect that one variable has on another. Systems dynamics principles have been used to
map and identify the major variables that influence the incidence of construction waste.
This approach has assumed a holistic view of the project organization, by focusing on the
behavioral trends and the relationship between the main contractor and subcontractors.
General assumptions about the behavior of construction waste in a project system have
been determined by using influence diagrams. These diagrams were integrated to develop
a conceptual causal loop model (see Figure 2), to determine the overall causal structure of
construction waste. The model can be used to identify the main feedback loops, which
can be used to determine the major variables that influence construction waste. The
qualitative model developed in this paper provides insight into the causal nature of
construction waste in a project system.
The system dynamics construction waste minimization model developed in Figure 2 will
enable the contractors to unravel a series of complex problems, relating to construction
waste generation on site, into more manageable interrelated components. It is suggested
that emphasis should also be placed on understanding how the dynamic relationship
between the main contractor and subcontractor can have an impact on construction waste
generation, so that appropriate responsive actions can be taken in order to maximize the
effect of positive dynamics and minimize the effect of negative ones.
The dynamic construction waste generation behavior 993
Stringent selection of +
Main contractor’s subcontractors Qualities of
control + subcontractors
+ +
+
Workmanship
Need for Waste Minimisation Training and
methods development of
subcontractor + +
+ +
Subcontractor’s
Level of - performance
construction waste
+ Wasteful
culture of
subcontractor -
Rework
+ -
+ +
Waste
Subcontractors’
generation
Co-operation and
participation -
+
Effectiveness of
supply chain Qualities of recycled
management + construction material supplied
by supplier
Source: Author
Using the methodology of system dynamics, the major factors that influence construction
waste generation have been identified and discussed. It has shown in Figure 2 that
construction waste minimization initiatives such as stringent selection of subcontractors;
training and development of subcontractors; subcontractors’ co-operation and
participation in waste minimization issues and effectiveness of construction supply chain
management that do have an impact on construction waste generation. Figure 2 stresses
that implementing a proper control system over the main contractor-subcontractors
relationship represent the first step in developing a holistic strategy for minimizing waste
generation from the construction process.
This model can provide both main contractors and subcontractors in construction with a
richer understanding of the interdependence between them and the management
challenges associated with identifying effective construction waste prevention strategies.
The system dynamics construction waste minimization model also encourages a paradigm
shift in how one views the relationship between main contractor and subcontractors
within a project system: away from the traditional mechanistic view to a holistic
viewpoint. If construction waste is to be reduced or eliminated, contractors must focus on
the whole system, rather than on individual parts.
994 Lim and Ofori
Generally speaking, this model can help contractors select the appropriate waste
minimization methods that will optimize a given policy variable in a construction process.
The effect of system configuration on the performance of the system can be used to
influence the design of the system, before the planning stage is implemented. This
information is critical in developing an efficient construction waste minimization system,
both on site and in the company.
The lack of attention to construction waste, especially during the construction process,
has meant that construction waste has become an inevitable feature of the construction
process and the loss of profit due to waste has been found by [Neo and Koh (1995)] to be
exceptionally high. Such costs could be even higher because they do not represent other
intangible costs relating to construction waste. To reduce waste generation on site, an
understanding of its causal structure is needed so that effective waste minimization
strategies can be identified and the effects of waste generation can be reduced or
eliminated. The system dynamics construction waste minimization model suggests that
goal setting and feedback, in relation to waste minimization policies between main
contractor and subcontractors, can be used effectively to reduce the volume of waste
disposed of in landfills and improve the efficiency of material usage in construction.
By and large, the model presented enables contractors to better understand the process of
construction, in relation to the problem of waste generation and how it occurs in
construction projects. Waste minimization policies need to be created and clearly
communicated at project and company level by main contractors, such that visible
performance requirements are properly understood by subcontractors. In addition,
performance requirements to reduce waste must be promoted and imposed equitably at all
levels by main contractors, so as to promote a sense of collective responsibility among
subcontractors.
Insights drawn from the model suggest that main contractors need to demonstrate
commitment to the issue of waste minimization and to provide the necessary
infrastructure to help subcontractors reduce waste. Subcontractors’ involvement and co-
operation is needed to ensure that waste minimization strategies can be successful.
Similarly, effective construction supply chain management would provide an exchange
platform for the exchange of construction and demolition waste materials between
contractors, construction material and equipment manufacturers and recyclers, and
landfill facilities operators. Thus, it would increase the quality of recycled materials and
reduce waste going into landfills.
The model also reveals that it is important for training and development programs to be
initiated by the main contractor or the respective statutory boards, for the subcontractors
to increase their performance and productivity in order to minimize avoidable
construction waste on site.
The dynamic construction waste generation behavior 995
CONCLUSION
One of the current problems in the construction industry is the lack of a model to evaluate
waste generation on site. The significant outcome of this study is the system dynamics
waste minimization model. The contractors now have a tool to help them to construct
structures that produce the least waste on site. Contractors are the frontline operatives
who make decisions on construction methods and processes. They can use the model to
develop strategies, policies and best practices for their sites to reduce wastage.
Introducing the system dynamics waste minimization model will lead the way to cultivate
a waste minimization culture in the industry. This may eventually contribute towards
sustainability and indirectly promote construction productivity, which is a top priority in
Singapore today.
REFERENCES
Bishop, D. (1975) Productivity in the Construction Industry. In Turin D.A. (Ed). Aspects
of the Economics of Construction (pp 58-96). Godwin, London.
Ekanayake, L.L. and Ofori, G. (2000) Construction material waste source evaluation. In
Proceedings of 2nd Southern African Conference on Sustainable in the Built
Environment: Strategies for a sustainable built environment, 23-25 August
Pretoria, South Africa, pp. 35-1 to 35-6.
Forrester, J. (1961) Industrial Dynamics. Pegasus Communication, Waltham, MA.
Gavilan, R.M. and Bernold, L.E. (1994) Source evaluation of solid waste in building
construction. Journal of Construction Engineering and Management, ASCE, 120
(3), pg 536-552.
Guthrie, P., Woolveridge, C. & Coventry, S. (1998) Managing Materials and
Components on Site. CIRIA, London.
Kok, C.C. (1996) A Review of Construction Wastes Recycling in Singapore with Specific
Reference to Concrete. Unpublished Undergraduate’s Dissertation, School of
Building and Estate Management, National University of Singapore.
996 Lim and Ofori
Lam, W.H. (1998) Wastage Minimization Through Design & Build Procurement.
Unpublished Undergraduate’s Dissertation, School of Building and Real Estate,
National University of Singapore.
Lewis, T.M. (1987) Is Productivity a Problem? In Lansley, P.R. and Harlow, D.A. (Eds).
Proceedings of the 5th CIB W65 International Symposium on the Organization and
Management of Construction (pp. 778-787), Vol. 2, Productivity and Human
Factors in Construction. E&FN Spon, London.
Ling, Y.Y and Teo, P.W.L. (2001) A survey of contractors’ opinions on methods of
waste minimization. Architectural Science Review, 44(3), 319-323.
Low, S.P. and Tan, K.L. (1997) Quantifying “Just –In-Time” Wastages: Case Study of a
Design –and-build School Project. Journal of Real Estate and Construction, 7(1),
70-91.
Malcolm, R. (1987) Measurement of Factors Affecting Labor Productivity on
Construction Site. In Lansley, P.R. and Harlow, D.A. (Eds). Proceedings of the
5th CIB W65 International Symposium on the Organization and Management of
Construction (pp. 669-680), Vol. 2, Productivity and Human Factors in
Construction. E&FN Spon, London.
Mohapatra, P.K.J. and Mandal, P. (1989) The System Dynamics Paradigm, Decision,
16(4), pp251-266.
Neo, R.B., and Koh, T.J (1995) Accounting for Waste in Construction. In Yeo, K.T. (Ed.),
Proceedings of the First International Conference on Construction Project
Management (pp. 399-406), Singapore.
Ofori, G. and Debrah, Y.A. (1998) Flexible Management of Worker: Review of
employment and practices in the Construction Industry in Singapore.
Construction Management and Economics, 16, pp397-408.
Wong, H.L. (1990) Contractual Arrangements for the ‘Kepala’ System. Unpublished
Undergraduate’s Dissertation, School of Building and Real Estate, National
University of Singapore.
BUILDING MATERIAL INDUSTRIES FOR THE DELIVERY OF HOUSING
Bernard G. Lefebvre
Habitech Center, School of Civil Engineering, Asian Institute of Technology, P.O. Box 4
Klong Luang, Pathum Thani 12120, Thailand. bernard@ait.ac.th
ABSTRACT
Building materials in developing countries are the single largest input in construction
activities followed by labour. So far, a large proportion of building components used in
developing countries has been produced in small and medium scale units. Building
components produced in a manner that relates to traditional processes can make a
significant contribution to national development as evidenced by employment and skill
generation, as well as have a multiplier effects achieved through backward and forward
linkages to other sectors of the economy.
The generally low level of skills required for the production of building components as
well as the low level of capital required to start production means that producing building
components is relatively easy and presents no insuperable barriers.
INTRODUCTION
Self-help and mutual aid construction techniques are generally considered to be the only
way for low-income families to become house owners in less developed countries. In the
next 20 years, most of the population growth in these countries will occur in urban areas
and there is no indication that the immediate future will bring any relief to the existing
deficit in housing. In general building materials account for 65-70 % of the cost of
housing and for self-help housing their cost can represent more than 85% of the cost of
the house.
998 Lefebvre
In less developed countries, traditional construction methods used for building houses
were based on locally available materials such as earth or organic materials such as
bamboo and wood usually collected in the immediate environment of dwellers. As most
of these traditional building materials are not available within urban areas they need to be
replaced. Many of the houses built in squatters or slums areas are often partially built
using recycled materials collected from various sources in conjunction with manufactured
materials.
A large proportion of building materials are either imported as finished products, or the
main inputs and the production technology are imported. Self-help builders tend to buy
building materials in small quantities as and when they can afford them. Consequently,
they buy the majority of their building materials from building material distributors or
from small local building materials producers.
The cost of building materials can be reduced at the production stage in two ways: either
by the production of alternative cheaper and easy to put in place building materials and/or
by self-help builders producing the materials themselves. If the self-help builders under
Building material industries for the delivery of housing 999
mutual aid techniques manufacture the building materials, this reduces their cost as wages
and middle -men are eliminated.
On the other hand, if the building materials are manufactured by small production
facilities established in the community, then they create local jobs in the community and
provide income for these persons. Furthermore, small-scale building material production
units can join forces and take the form of a cooperative distributing other building
materials and offering building material loans to members in the community.
It is well known that self-help construction receives mostly unpaid help from family and
friends but that at some points skilled labour is hired in building process. When
considering what types of building materials to produce, the building materials and the
corresponding construction methods should be specially suited for easy placement by
unskilled labour. Lightweight modularly compatible building components can be
produced using simple machines and moulds to deliver inexpensive, solid and durable,
quickly and easily erected houses.
Low-cost housing or affordable housing represents a major and urgent problem in most
countries of the world. The only alternative poor families have is to live in slums that are
developing at a much higher rate than local government housing programs can address
the demand for housing. Low cost housing is a very large market that is just starting to be
looked at globally.
• Use practices that reach the informal sector and self-help housing builders by adopting
measures to increase the affordability of building materials on the part of the urban and
1000 Lefebvre
rural poor through, credit schemes and bulk procurement of building materials for sale to
small-scale builders and communities.
• Adopt standards and other regulatory measures which promote the increased use of
technologies and the sustainable utilization of natural resources in an economically and
environmentally appropriate way.
Low-cost housing projects and programs should look to light industrialization in the
production of building materials and in the house construction process itself, promote
information and technology transfer for better sustainable development. Industrialization
doesn’t necessarily mean high technology transfer but suppose a corresponding market
segment so that the technology transferred can be amortized.
Low-cost housing projects can be successful if they are rooted in the community, present
innovative solutions to real problems, enable others to imitate it and build partnerships
between the private and public sector. But mostly they need to address livelihood by
making it possible for some people to earn a living and generate income from these
projects.
Local populations should be involved in the production of building materials they will use
and in the construction process itself. After all it is their houses that will be built. These
projects should contribute locally to social and economic growth and not only serve as
foreign markets as often criticized by opponents of globalization.
Those offering solutions must be aware that they are only facilitators, filling a gap that
must legitimate expectations and incubate new micro and small-scale enterprises giving
access to technology, building capacity and propagating it through the raising of funds.
HABITECH CENTER
Habitech Center was established in 1989 at the Asian Institute of Technology in Bangkok,
Thailand. The name Habitech is derived from two words; habitat, a dwelling or settlement
and technology. The goal of Habitech is to research and develop housing technologies
that can provide affordable houses.
For Habitech, the answer to the problem of delivering housing to low-income groups lies
in a strategy employing systematized construction systems as an integral part of the
construction industry sector. These systems should allow for the use of local labor in
construction activities as well as the use of raw and processed materials that can be found
and transformed locally.
Building material industries for the delivery of housing 1001
Small and medium size building material production facilities have by definition few em-
ployees, small capital investment and a limited volume of output. They are also likely to
show other characteristics such as production with locally available raw materials,
production for local markets or specific projects and intermittent levels of production..
Ultimately, the success and the appropriateness of the research and development carried
out can be measured by the extent to which the technology has been adopted and
integrated by the private sector in the construction industry.
Table 1 shows the effects that design decisions taken in the development of the Habitech
Building System have in the construction environment.
Controlled production
Prefabrication Labour saving Cost saving
Precise dimensions
Rapid and exact products
Creates local jobs Stimulate local
Light industrialization Controlled production
Generates income economy
Controlled quality
Production on/near Configured to demand
Eliminates transport costs Cost saving
site Production unit mobility
Cost reduction
Reduces transportation
Use of local materials Easily available Cost saving
costs Eliminates
imports
Resist fire, wind, flood,
Cement based Strong & durable materials High value houses
earthquake
Optimal use of materials
Optimize strength Cost reduction Cost saving
Reduce materials quantity
Minimum training
Self aligning Use of unskilled labour
Interlocking (no
Reduce reinforcement Less supervision Cost saving
mortar)
Simplify construction Reduces wages costs
Permits self-help
Lightweight Less capital
Easy to put in place No equipment needed
components investment
1002 Lefebvre
Cost saving
Alternative to wood Minimize the use of wood Cost reduction Reduced
deforestation
Eliminates beams &
Optimal use of materials
columns Eliminates form
Load bearing walls Shortens construction time Cost saving
work Reduce
Cost reduction
reinforcement
Energy Electric when needed Labour intensive Cost saving
Environment
Environment No pollution No effect
friendly
GLOBLIZATION
Globalisation and liberalization have facilitated the increasing powers and rights of big
corporations and the private sector with concerns that at national level, there is economic
marginalization as economic resources are rapidly shifting from the people, communities
and the state to be controlled by big companies. NGOs demand that governments and
international institutions take an active role to control and regulate the globalization
process making it socially and environmentally accountable.
Big corporations can produce more cheaply and make more profit on an investment.
Therefore when they are allowed to come into a country they quickly capture existing
markets. The cement industry is chosen as example of globalization because the small and
medium scale enterprises promoted by Habitech produce components that are essentially
cement based.
Cement is a cumbersome and expensive commodity to export and is the last industry that
one would expect to go global. Cement is ideally sold within a few hundred kilometers of
its plants. Because it is difficult to export, the best way to enter growing markets when
your own slows down is to own similar assets abroad.
distinct from a global average price. In this sense cement is a commodity but not a
commodity like grain or oil. It is not possible to build a sustainable worldwide
competitive advantage by locating production in any one country. Supply and demand is
matched on a local basis. At peaks the boundaries may become regional but never global.
The cement industry requires big investments and a long-term commitment. There are no
quick returns. Therefore, to be successful in this industry, the company has to have a
long-term strategic vision and accordingly give a lot of consideration to the long-term
development of people and community relations.
In developing countries there has been a lack of interest from the private sector to
implement social housing or low-cost housing projects unless these projects generate an
acceptable return on their investment.
The delivery of low-cost housing can be approached through the set-up of small and
medium scale building material and construction enterprises, creating employment and
generating income for local population. Production facilities have economic multiplier
effects through backward and forward linkages to other areas of the construction sector
and the economy in general. Furthermore, SMEs ensure a more equitable distribution of
income, disperse economic activities to the countryside and are a potent force in the war
against poverty.
Many emerging -economy countries have adapted successful SMEs promotion programs
and established institutions with a mandate to finance such enterprises initiating a process
that is leading to a substantial increase in local production capacities. Most development
banks offer packages focusing on the promotion of SMEs development. SMEs create jobs
for 10 per cent of the cost of jobs created by larger enterprises. Furthermore, SMEs can be
more widespread, more resilient, and make better use of local resources.
In many countries the SME sector is the backbone of their economy. In the Philippines
SMEs comprise about 99% of all registered firms nationwide, employ 69% of the labour
force and contribute 32% to the economy. In Thailand, it represents 98% of firms,
employs 58% and contributes 35%. Recent Thai government policies with regards to
SMEs promotion would like to increase SMEs contribution to the GDP to 50% by 2006.
OUT-VENTURE SMEs
Just the same as Out-sourcing to SMEs has become increasingly common for many larger
businesses over the last decade and has usually resulted in more streamlined, flexible and
competitive companies we are proposing Out-venturing through SMEs in affiliation with
companies. We propose to identify potential building material producers and establish a
network of production facilities.
It is generally accepted that good practice in SMEs requires that interventions should,
wherever possible, develop and enhance existing commercial markets. Donor
1004 Lefebvre
interventions should complement or build on private initiatives rather than compete with
them. To effectively carry out this task, donors and development practitioners must
understand the breadth, scope and operation of SMEs. A greater understanding of the
building sector environment, and of the existing and potential markets, is imperative as a
preliminary step in the design of sustainable and effective interventions. New and
innovative approaches to enhance existing commercial activities should be adopted in the
construction sector and as such should take a new and objective view of all support
provided for SMEs in most countries.
Typical production facilities offered by Habitech are based on a proven model that has
been set-up repeatedly in many countries to supply construction projects of various types
and sizes. Network of SMEs can be strategically dispersed throughout regions to
manufacture in close proximity to the local building demand. A strong case can be made
for both micro and small-scale enterprise financing that credit is best linked in some way
to business training. Training materials should focus on registering new businesses under
government regulation, negotiating with financial institutions for financial aid and loan
support, administration and management, and sales and marketing.
All issues relating to the establishment of the SMEs and the transfer of technology can be
addressed through business packages including technical, business and financial
assistance. Entrepreneurs can be recruited under uniform agreements that define in full
their business relationship including rights, responsibilities, technical details, methods and
procedures illustrated in series of manuals. These manuals can include sets of plans,
instructions, actions and standards covering in detail pre-start-up, start-up, operations,
training, human resources, managements systems, marketing and sales, accounting and
finance for the successful operation of the business.
A typical production facility is based on the following a model that has been set-up
repeatedly in many countries to supply construction projects of various types and sizes.
The facilities produce concrete interlocking blocks (no mortar), an innovative product for
building walls. Load bearing walls built with these blocks are quickly and easily erected
by unskilled labour providing solid and durable construction at a much lower cost than
with conventional construction techniques. Table 2, outlines the investment costs, the
typical financial analysis and the employment that would be generated by the
establishment of a typical production facility.
NGOs have declared a common vision of global development that is equitable within and
among countries, which satisfies the economic, social and cultural needs of all human
beings, and that is in harmony with the environment.
The institutions displaying the most achievements in this field are NGOs. They exhibit an
institutional capacity and have a proven record in implementing development activities in
many fields jointly with grassroots organizations. The fields of particular interest in terms
of human settlements development are housing, micro-enterprise and employment
generation.
NGO MODEL
As Habitech has been continuously cooperating with NGOs assisting them in the delivery
of houses to low-income groups, a model facility for promoting micro-enterprises is also
presented in Table 4. This typical facility can produce all of the components of the
Habitech Building System and serve as an incubator for training micro-entrepreneurs. A
typical micro-enterprise is presented in Table 5.
Table 5 - Micro-Enterprise
Soil-cement interlocking bricks
Initial Fixed Investment Costs US $
Establishment Costs 300
Equipment 3,900
Delivery and installation 500
Total Fixed Investment Costs 4,200
Yearly Production Costs
Materials 19,300
Labour 5,050
Total Production Costs 24,350
Yearly Income Estimate 30,000
Working Capital 2,000
Loan (10%) 6,000
Yearly Net Cash Flow 3,700
Total Net Cash Flow (7 years) 35,000
Net Present Value (10% interest) 27,150
Break Even Point 20%
Capacity 200,000 Bricks / Year
6,000 M2 of Walls
23 Houses/year
Direct Employment 5 Persons
Indirect Employment 10 Persons
1008 Lefebvre
CONCLUSIONS
These units would by definition hire their employees locally, require a small capital
investment to start production and shows characteristics such as production with locally
available materials, produce for local markets, have intermittent levels of production and
a limited volume of output.
Those offering light industrialized solutions must be aware that they are only facilitators,
filling a gap that must legitimate expectations and incubate new micro and small-scale
enterprises giving access to technology, building capacity and propagating it through the
raising of funds.
Habitech Center was awarded the Matsushita Memorial Prize by the Japan Housing
Association for 1994 “in recognition of excellent achievements in improving human
settlements in Asian countries by promoting research and development related to
technologies for low cost housing as well as providing educational programs and facilities
to disseminate the results of their research efforts ”.
In 1995, one of Habitech's project: The Khao Kho Housing Resettlement Project in
Petchabun, Thailand was selected as one of the finalist for the World Habitat Awards by
the Building and Social Housing Foundation in the category for developing countries.
The Habitech Building System has been recognized by the United Nations Human
Settlements Program and the international community as contributing to housing and
economic development through the transfer of technology and has been compiled on the
Habitat Best Practices database for others to learn from and incorporate in their own
work.
ABSTRACT
This study examines the feasibility of using rainwater to substitute partial water supply
and meeting the enormous water requirements of 140 elementary schools around different
Taipei areas. The variations of rainwater-supply in different regions are also examined
and forecasted concerning local rainfall features and rainwater collection areas.
Therefore, the rainwater-substitution ratios are ascertained according to toilet water
demands in different schools and rainwater-supply of different regions. The ‘rainwater
supply-demand ratio’ that is influenced by three factors as ‘regional differences in
rainfall’, ‘rain water collecting areas [on the roof]’ and ‘variation of campus users’ is
employed to set clustering and leads to different rainwater storage designs. ‘The water-
replacement ratio’ and ‘the months that water requirements are satisfied with rainwater
supply’ are two aspects joined to set the tank volume of rainwater storage. A lower
replacement ratio setting yields lower rainwater storage, and results in rainwater wasted.
The Cluster and range of rainwater storage are set for designer reference. Results of this
study provide a valuable reference for efforts to enhance rainwater storage development,
and assist installations of water-saving facilities in Taipei elementary schools.
INTRODUCTION
Internationally, the average normal rainfall in Taiwan is only next to Indonesia. However
precipitous terrain, uneven rainfall distribution and difficult water storage due to short
river channels and rapid currents made the efficiency of yearly rainfall only 20%.
Additionally, global climate changes in recent years have also influenced metropolitan
Taipei, which has a dense population and huge water requirements; consequently it
experiences seasonal water shortages. Apart from establishing a “Green Building
1010 Weng, Lin and Huang
GOAL
This work mainly on the concept of was based on replacing gray water recycling with
collecting rainwater, of defining geographical territory and type of buildings, enabling
researchers to establish storage standards, by use efficiency, for Taipei’s elementary
schools in order to store rainwater along with geographical differences. Results of this
study can provide a valuable reference to calculate water collection and to estimate how
much rainwater schools need for washroom use.
METHODOLOGY
GIS
Rain saving Rain requirement Population (design)
Zone
Rainwater demand-supply
REGIONAL RAINFALL
According to data collected from 15 weather stations that were constructed by the Central
Weather Bureau over Taipei City, the annual rainfall varied among districts from 1,721
mm to 4,864 mm. The annual rainfall recorded in this study was classified into eight
clusters by their characteristics, including seasonal changes, daily, monthly, and yearly
average rainfall and rainfall rate as listed in Table 1[Weng (2003)]. Zone B-2a and Zone
A, which with similar rainfall, are divided by geographic site. Zone B-2a reflects season
changes, and Zone A reflects the altitude as illustrated OR shown in Fig. 1.
Table 1. Rainfall comparison between Taipei municipal elementary schools and regional
weather
Weather Stations District (schools number) Seasons Rainfall
( schools number) (ascend and descend) Geographical Distinction
Shetz(3) Shihlin(1) Beitou(2) autumn→ summer→ winter→ spring near the Danshuai River
Shihpai(11) Shihlin(2) Beitou(9) autumn→ summer→ winter→ spring near theDanshuai River
Kuandu(0) -- -- summer→ autumn→ winter→ spring near theDanshuai River
Tienmou(8) Shihlin(8) autumn→ summer→ winter→ spring basin near theRiver
Shihlin(7) Shihlin(4) Datong(2) Beitou(1) summer→ autumn→ winter→ spring basin near theRiver
Da-zhi(9) Songshan(2) Jhongshan(6) Datong(1) summer→ autumn→ winter→ spring basin near theRiver
Daluanuei(3), Shihlin(3) autumn→ summer→ winter→ spring basin near theRiver
Synyi(14) Songshan(2) Synyi(9) Da-an(1) Wunshan(2) autumn→ summer→ winter→ spring basin(East)
Nangang(12) Nangang(7) Neihu(4) Songshan(1) autumn→ summer→ winter→ spring basin(East)
Neihu(12) Songshan(3) Neihu(8) Shihlin(1) autumn→ summer→ winter→ spring basin(East)
Taipei(34) Datong(7) Da-an(3) Jhongjheng(8) Jhongshan(4) Wanhua(12) summer→ autumn→ winter→ spring basin(North)
Kungkuan(23) Wunshan(14) Daan(9) summer→ autumn→ winter→ spring basin(North)
Mucha(0) -- -- summer→ autumn→ winter→ spring Jirnan Mountain
An-bu(1) Beitou(1) autumn→ winter→ summer→ spring Yangmimgshan Mountain
Jhuzihu(3) Beitou(3) autumn→ winter→ summer→ spring Yangmimgshan Mountain
STATIONS
With annual rainfall data, researchers used ArcView GIS software and interpolation
analysis to determine the relation between location and rainfall of 140 elementary schools
in Taipei City. Comparing distance and height to determine the relationship between each
weather station revealed that the administrative districts do not correspond to rainfall, and
schools are not inside each weather station. Correspondingly, although the rainfall
recorded in schools and in stations matched, they still differed in terms of portion. The
1012 Weng, Lin and Huang
actual monthly average rainfall can be acquired, if researchers compare related ration and
equivalent stations’ data, such as that summarized in Table 2.
Zone Weather stations Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Average
A-1 Shipai 86.31 157.46 152.95 171.84 206.63 207.69 216.36 159.85 428.59 212.96 79.46 88.24 2168.34 180.69
Shetz 72.67 130.77 126.20 144.36 159.02 161.47 161.69 121.52 294.57 153.33 56.64 72.70 1654.95 137.91
A-1 average 79.49 144.12 139.58 158.10 182.83 184.58 189.02 140.68 361.58 183.15 68.05 80.47 1911.65 159.30
B-1a Tienmou 92.52 171.57 165.58 202.10 243.95 245.82 279.44 230.37 561.73 287.03 101.66 96.01 2677.77 223.15
Shihlin 96.94 185.37 170.32 188.74 223.05 231.27 244.22 249.62 394.09 223.13 70.03 102.35 2379.14 198.26
Da-zhi 100.01 176.63 167.32 219.76 269.85 309.85 259.42 288.75 502.00 272.02 78.66 104.00 2748.28 229.02
B-1a average 96.49 177.86 167.74 203.53 245.62 262.32 261.02 256.25 485.94 260.72 83.45 100.79 2601.73 216.81
B-1b Daluanuei 102.14 168.03 144.12 191.17 249.49 238.26 239.97 209.32 472.81 234.29 105.92 120.79 2476.28 206.36
B-1b average 102.14 168.03 144.12 191.17 249.49 238.26 239.97 209.32 472.81 234.29 105.92 120.79 2476.28 206.36
B-2a Synyi 151.58 263.66 237.05 294.24 356.71 493.09 303.44 367.94 760.81 427.13 183.40 201.29 4040.34 336.70
Nangang 117.78 230.54 209.61 259.80 325.74 437.66 275.14 318.91 721.77 490.51 183.84 179.25 3750.54 312.55
Neihu 110.52 216.32 196.69 243.78 305.65 410.67 258.18 299.24 677.27 460.26 172.51 168.19 3519.29 293.27
B-2a average 126.62 236.84 214.45 265.94 329.37 447.14 278.92 328.70 719.95 459.30 179.92 182.91 3770.06 314.17
B-2b Taipei 135.41 230.51 214.70 274.79 296.47 380.40 332.58 396.68 545.01 319.80 122.83 139.38 3357.66 279.81
Kungkuan 126.86 275.27 236.62 308.47 380.84 545.99 464.87 504.36 685.11 317.00 170.77 144.82 4161.00 346.75
B-2b average 128.43 243.26 218.93 276.22 333.08 453.56 326.84 377.43 678.00 402.94 166.67 166.59 3765.77 313.81
D Jhuzihu 431.20 588.14 410.60 367.21 547.55 673.68 552.58 732.33 1773.00 1656.13 894.59 933.38 9560.38 796.70
An-bu 522.70 670.34 481.07 423.71 550.48 636.43 567.11 561.90 1616.01 1517.80 959.03 1009.52 9516.11 793.01
D average 476.95 629.24 445.83 395.46 549.01 655.05 559.85 647.11 1694.50 1586.97 926.81 971.45 9538.25 794.85
Rain requirement is related to water increase, and how much rain that schools need to
flush toilets is a concern to how many people are moving around in schools. In a quest of
sustainability and according to the educational authority’s policy, school faculty, staff and
18 meter2/pupils [Huahg et al., (2003)], based on the requirement of the Ministry of
Education, has all been counted in as standard of population. There are two kinds of
population (exist population and calculate population), we choose the lowest as design
population. Based on medical statistics and research, everyone flushes the toilet an
average of two to three times per day. In this study, toilet flushing was set to twice daily
at nine liters each time, as the water-saving toilet adhered to the Ministry of Economic
Regional rainfall substituted 1013
Affair's expectation, as the standard. The regional rain requirement for supplying toilet
flushes is as follows. (Table 3)
population
3000
population(exist)
2500 population(calculat)
2000 population(design)
1500
1000
500
0
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Weather stations
B-
B-
B-
B-
Figure 2. Comparison of the population faculty (unit: persons)
Zone Weather stations population (calculated) rainwater demand Zone (average) population (calculated) rainwater demand
unit: persons unit: m 3 unit: persons unit: m 3
A-1 Shipai 1041 562.40
Shetz 699 377.33 A-1 average 968 522.74
B-1a Tienmou 974 526.20
Shihlin 1380 745.24
Da-zhi 914 493.65 B-1a average 1070 577.88
B-1b Daluanuei 198 106.74 B-1b average 198 106.74
B-2a Synyi 1149 620.35
Nangang 1136 613.62
Neihu 1246 673.05 B-2a average 1176 634.87
B-2b Taipei 995 537.08
Kungkuan 870 469.73 B-2b average 944 509.90
D Jhuzihu 160 86.58
An-bu 149 80.46 D average 158 85.05
In schools, the roof of a building is the most important space for saving rain water for its
space and lower pollution. Consequently this research recorded square measure of schools
roofs in Taipei City, examined the different runoff rates of each roofing material, and
compared rain rate as well as rainfall from weather stations, then the monthly rain saving
of municipal elementary schools in each district is illustrated in Table 4.
1014 Weng, Lin and Huang
Utilization rate is the priority concern as rain saving systems is built in a school.
Table 4. Regional school roofs monthly rain saving
Zone Weather Campus Measure Roof Measure Measure Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Average
stations unit: m 2 unit: m 2 unit: % unit: m 2
A-1 Shipai 21365 4783 22% 127.14 231.15 223.93 254.69 297.71 300.27 311.22 233.49 602.05 304.05 112.58 129.17 3127.45 260.62
Shetz 18106 5279 31% 127.14 231.15 223.93 254.69 297.71 300.27 311.22 233.49 602.05 304.05 112.58 129.17 3127.45 260.62
A-1 average 4889 4889 24% 126.48 228.70 221.07 252.54 285.82 289.33 294.85 221.85 552.96 283.81 104.86 127.44 2989.72 249.14
B-1a Tienmou 18383 3850 22% 121.71 225.70 217.81 265.85 320.90 323.37 367.58 303.03 738.93 377.57 133.72 126.29 3522.47 293.54
Shihlin 25021 5727 22% 184.98 353.71 324.98 360.14 425.60 441.28 465.99 476.30 751.95 425.74 133.63 195.29 4539.61 378.30
Da-zhi 15077 3028 21% 103.93 183.56 173.88 228.38 280.43 322.00 269.59 300.07 521.68 282.68 81.74 108.08 2856.01 238.00
B-1a average 4089 4089 22% 136.87 254.32 238.89 284.79 342.31 362.22 367.72 359.80 670.85 362.00 116.37 143.22 3639.36 303.28
B-1b Daluanuei 12085 1304 13% 56.43 92.83 79.63 105.62 137.84 131.64 132.58 115.65 261.23 129.45 58.52 66.73 1368.15 114.01
B-1b average 1304 1304 13% 56.43 92.83 79.63 105.62 137.84 131.64 132.58 115.65 261.23 129.45 58.52 66.73 1368.15 114.01
B-2a Synyi 19480 4296 23% 269.46 468.72 421.40 523.08 634.14 876.58 539.43 654.09 1352.50 759.31 326.03 357.84 7182.58 598.55
Nangang 22937 4886 23% 227.87 446.04 405.55 502.65 630.22 846.77 532.33 617.01 1396.47 949.02 355.70 346.80 7256.42 604.70
Neihu 20401 4970 24% 199.39 390.29 354.86 439.82 551.46 740.94 465.80 539.89 1221.93 830.41 311.24 303.45 6349.49 529.12
B-2a average 4695 4695 23% 232.24 435.02 393.94 488.52 605.27 821.43 512.52 603.66 1323.63 846.25 330.99 336.03 6929.49 577.46
B-2b Taipei 18206 4383 24% 251.00 427.29 397.98 509.37 536.84 688.81 602.23 718.30 986.90 579.08 222.42 252.38 6079.95 506.66
Kungkuan 17163 3288 21% 153.34 332.74 286.02 372.87 460.35 659.97 561.92 609.66 828.14 383.18 206.42 175.06 5029.67 419.14
B-2b average 3941 3941 23% 202.17 380.02 342.00 441.12 498.59 674.39 582.08 663.98 907.52 481.13 214.42 213.72 5554.81 462.90
D Jhuzihu 7679 1124 19% 227.21 309.91 216.36 193.49 288.51 354.97 291.17 385.88 934.23 872.65 471.38 491.82 5037.58 419.80
An-bu 4456 1172 26% 314.27 403.04 289.24 254.75 330.97 382.65 340.97 337.83 971.61 912.56 576.61 606.96 5721.46 476.79
D average 1136 1136 21% 270.74 356.47 252.80 224.12 309.74 368.81 316.07 361.86 952.92 892.61 523.99 549.39 5379.52 448.29
A system would be useless if it cannot satisfy a five-month need over a full year [Chen
(2000), Hwang(1996)]; thus five months is the minimum requirement in academic
definition. The facts, such as regional differences of rainfall, size of rain collecting
equipment and how many people share the water, lead some schools to satisfy the need,
while others cannot. The best saving quantity of each cluster must be based on if it is able
to meet the minimum five-month requirement, and the varied five to twelve month
replacement rate among regions in which schools are located. Zoning weather stations
aim to absorb rainfall differences, in order to reduce the complexity. However, comparing
demands and supplies of schools in each region revealed gaps even in the same regions.
Cluster analysis has been applied to this study. The demand-supply rates of schools,
which are divided by regions, are counted as the target of hierarchical cluster analysis;
and then the appropriate rain saving base for clustering is available. Table 5 reveals how
the clustering was done and schools replacement rated differences after clustering, and
the precision of designed model could be further assured than it was of original
clustering.
Zone Cluster Weather stations Proper design Replacement(12 M onths) Replacement(5 M onths) Replacement ratio choose
Lower standard Higher standard
Months Replacement ratio Replacement ratio Replacement ratio Raise Lower Moderade
A-1 average nine 44% 30% 51% *
A-1 Cluster 1 Shipai,Shetz nine 100% 81% 100% *
Cluster 2 Shipai,Shetz nine 43% 24% 55% *
Cluster 3 Shipai,Shetz nine 23% 13% 31% *
B-1a average nine 41% 24% 61% *
B-1a Cluster 1 Tienmou,Shihlin,Da-zhi nine 53% 30% 77% *
Cluster 2 Tienmou,Shihlin,Da-zhi eight 38% 20% 53% *
B-1b average nine 80% 60% 96% *
B-1b Cluster 1 Daluanuei ten 75% 72% 100% *
Cluster 2 Daluanuei eight 60% 36% 88% *
B-2a average eight 69% 38% 87% *
B-2a Cluster 1 Nangang,Synyi,Neihu eight 84% 48% 100% *
Cluster 2 Nangang,Synyi,Neihu seven 58% 27% 72% *
Cluster 3 Neihu seven 35% 16% 44% *
B-2b average nine 67% 40% 89% *
B-2b Cluster 1 Taipei nine 100% 88% 100% **
Cluster 2 Taipei,Kungkuan nine 74% 44% 96% *
Cluster 3 Taipei,Kungkuan eight 51% 26% 69% *
Cluster 4 Kungkuan eight 30% 14% 41% *
D average twelve 100% 100% 100% *
D Cluster 1 Jhuzihu,An-bu twelve 100% 100% 100% *
necessary and, then, which weather station a school linked to could be shown on a
coordinates, although a station may be associated with a different cluster. Moreover,
dividing clusters (see Table 6) with a low rainfall difference can simplify the process
when a school has an element changed and has to the procedure all again.
The clusters are set by higher difference of supply-demand ratio between different
months. The appropriate replacement ratios of different clusters is set forth, so is the
rainwater storage. The explored relationships between water supply and demand will help
schools with different rainwater supplies to forecast the variation of rainwater usage.
CASES OF STORAGE-ANALYSIS
Storage design based on the clusters’ Replacement rates, and the design can be referred to
by each school when it consider to modify its storage while basic elements, such as
population changes. The example is chosen under assumption that local regions with low
rainwater will result in high variation of water supply [Ogoshi (2001)], and the changing
water needs will influence the clusters divided setting. I-Fong Elementary School in the
Beitou District links to Shipai weather station by geographic location, and its square
measure is 20,189M2, roof square measure is 5,028M2, existing population is 414,
calculating population is 1,168; if existing population is applied as the design standard for
calculation, the monthly rain demand can be determined, i.e., approximately 224M3.
Table 7 lists the monthly rain supply and replacement rate. This school links to weather
station A-1 and its replacement rate in November is 70%, thus matching the requirement
of cluster 1; so its design replacement rate must be 100% of nine months, and the
maximum and minimum are respectively 100% and 81%. Table 7 demonstrates that this
school could offer a 100% replacement rate in nine months, and 45M3 of storage is not
only enough for minimum demand, but also is a high standard.
1016 Weng, Lin and Huang
While I-Fong Elementary School increases student population with a simulation figure of
1,168, and monthly rain requirement also increases to 631M3, the demand-replacement
rate must be changed, see Table 8. This rate is categorized into cluster 2 of Zone A-1,
according to the data, besides its nine-month replacement rate must be designed to 43%,
and maximum and minimum are respectively 55% and 24%. Although the current nine-
month Replacement rate is 40% lower than the standard, the gap is narrow. To reach the
43% standard, the school should select a seven-month rate of 49%, subsequently it is able
to reach the maximum of 55%. If a school chooses an eight-month rate of 42% that is
between seven and nine months for designing, then the storage rate is 62M3.
Figure 3 demonstrates that population change in a school would become a chief factor of
storage design. As the population rises and demand increases, the storage can still satisfy
a nine-month need. However, replacement rates are 100% and 40%. The main factor is
cluster altered and standard changed accordingly. Therefore, establishing a replacement
rate for each cluster is to ensure that schools’ rain system can be well designed.
Storage capacity
120% 100
100% population(exist)
80
80% population(design)
60
60%
40
40%
population(exist) 20
20%
population(design)
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De
No
Au
Ja
Ju
th
th
th
M
on
on
on
on
on
on
on
on
M
M
M
Satisfy months
9
5
12
11
10
Satisty months
Figure 3 Replacement rate and storage capacity with School's water demanding
population changes
SUMMARY
In this study, clusters are categorized with relative location of the school, and each
clustering effects in rainfall storage content design are presented, and demonstrate
different rainfall usage design is required to buildings in varied areas. Anchored in this
study, the following conclusions are presented below.
Regional rainfall substituted 1017
Taipei municipal Elementary schools rain demand and supply discussion: Although the
territory of Taipei is comparatively small, the terrain varies. Rainfall data is integrated
and offered by fifteen weather stations, the terrain difference effects rainfall amount, and
regional rainfall changes. Aside from this data provided by nearly weather station(s), Arc
View GIS is also applied and rainfall interpolation rate of weather stations testifies the
ratio between rain-supply and station location; then each schools rainfall base will be
collected. Analysis results indicate that the previously mentioned method can display the
preciseness of rainfall storage use design in schools, instead of reviewing regional rainfall
data, which is offered by the corresponding weather stations.
Through out the discussion of rain storage and school rain collecting Replacement rate: a
yearly 100% Replacement rate is rarely reached in most regions, except in the mountains
of Yangmingshan, the rain supply and demand base shall aim to satisfy five-month need,
plus an extra one-week requirement for fear that unexpected weather change [Lee,
(1999)], and then the most suitable storage patterns can be approached.
The nature of cluster categorizing comparison: Longitude and latitude are used to divide
weather stations in which schools correspond to. All stations are divided as rainfall
condition firstly distinguished, after further sorting they fall into each cluster, and then
those weather station clusters in which schools link to are shaped, and they can regard as
the schools comparison base. The natures of clusters affect design patterns of low rainfall
months (January and November), if focus is placed on these two months. Both rain
collecting square measure or school population led to changing clusters, even rainfall
storage, in school rainfall use storage discussion “The best use pattern study” is the
primary achievement of this study.
REFERENCES
Lin, SD (2003) Evaluation manual for green buildings in Taiwan. Architecture and
Institute, Ministry of the Interior, pp.123-125.
The compile statistics annual report. Taipei Water Department (2003), PP.286.
Huahg, SM and Shae, FJ, Lin TT (2003) Post-occupancy evaluation of clustered
classrooms space planning for public primary schools. Journal of Archite, Vol.
42, pp. 79-96.
Chen, RL (2000) Design of Rainwater Reuse System in Buildings. East Asia 2000
Regional symposium on rainwater utilization, pp.43-54.
Weng, TC (2003) Discussing in building rain-collected amount to the demand of campus
toilet flushing, 15th Conference, Architectural Institute of the Republic of China,
pp.79-85.
Shang, HT (1988) Rainfall utilization Technology. Edited by rainfall stocking and
soaking technology association, pp.96.
Ogoshi, M (2001) Water reuse Japan, Water Science and Technology, Vol. 43, No. 10.
Hwang, GT (1996) Residence rainfall utilization research, National Cheng Kung
University Master Degree thesis, pp.92.
THE ENGINEERING PROPERTIES OF MORTAR, SANDCRETE BLOCKS,
AND CONCRETE PRODUCED WITH EROSION SAND
ABSTRACT
This study investigated the suitability of the abundant erosion sand in the tropics for the
production of mortar, concrete and sandcrete blocks. It examined the effect of replacing
white sand partially or wholly with erosion sand in relation to engineering properties such
as the density, water absorption, compressive strength, modulus of elasticity and the
Poisson’s ratio.
A comparative study was carried out between the conventional white sand from sand
deposits or riverbeds and erosion sand. The mix proportions were 1:6 and 1:8 for mortar
and sandcrete blocks, and 1:1½:3, 1:2:4 and 1:3:6 for concrete cube specimens.
The results showed no significant differences in the densities and the moisture absorption
properties of mortar and sandcrete blocks from the two materials even with varied mix
proportions. Both mix ratios for sandcrete blocks met the 7th and 28th day requirements of
building codes. However, the compressive strength and the modulus of elasticity of each
specimen decreased with an increase in the percentage replacement of white sand with
erosion sand. The Poisson’s ratio for concrete from both materials ranged between 0.15
and 0.22. These results show that erosion sand is a suitable substitute for white sand in
the production of mortar, sandcrete blocks, and concrete.
INTRODUCTION
Studies have shown that bricks, sandcrete blocks, and mortar constitute the principal
walling units in many countries of the world [Uzomaka, (1977a), Lasisi, (1985)].
Sandcrete, which is very popular along the West African coast, is a matrix of cement,
sand, and water, and limited in application to non-structural works. This is because over
the years, little attention has been given to its usage in construction. Consequently,
concrete has been over emphasized for structural elements in construction even where
such strength levels are not required as in aspects of housing.
On the other hand, sandcrete blocks found on sites fall short of desired quality due to the
absence of standards relating to the types and mix ratios of composite materials, and
1020 Olusola and Ikpo
production processes. A recent survey carried out in Ile-Ife and Osogbo towns in Osun
State in Nigeria revealed that erosion sand (light brown in colour) is used partially or
wholly in place of the conventional riverbed sand, which is white in colour [Olusola et al.,
(2002)].
Erosion sand is commonly found deposited in large quantities along run-off paths
especially during rainy seasons, and particularly around river basins. Replacement of
white sand with erosion sand either wholly or partially is receiving wide acceptance from
the industry in rural, semi-urban and some urban centres of Nigeria but without
information on the effects on the engineering properties of mortar, blocks and masonry.
The factors affecting strength and serviceability of sandcrete blocks such as sand/cement
ratio, optimum water/cement ratio, sand source or type (river sand, common sand and
erosion sand), curing method and crack patterns has been investigated [Lasisi, (1985)].
The results showed that sand/cement ratios up to 8 using optimum water/cement ratio of
between 0.45 and 0.7 would more than meet the current code requirement when cured
with sprinkling of water under cover from rain and sun. However, the effects of replacing
white sand partially with erosion sand and using sand/cement ratio less than 7 for erosion
sand were not investigated. The most consistent set of studies on white sand sandcrete
blocks including some work in relation to the Nigerian code [Nigerian Standards
Organisation, (1975)] have been carried out [Uzomaka (1975, 1977)].
This paper presents the results of tests carried out to investigate the influence of replacing
100% and 50% of white sand by an equal amount of erosion sand on some engineering
properties of mortar and sandcrete blocks under specified curing conditions. It also
presents the results of tests meant to investigate the influence of replacing white sand in
gradation of 25% by an equal amount of erosion sand on the compressive strength of
concrete. The properties considered in the study included: compressive strength, density,
and water absorption. In addition, grading, water absorption and specific gravity of white
and erosion sands were studied. Based on the test results, the economic aspect of using
erosion sand in the construction industry is assessed.
Mortar
A preliminary test using the more commonly used white sand and mix ratio 1:6 was
initially designed to obtain the optimum water-cement ratio. Four water-cement ratios
namely 0.50, 0.55, 0.60 and 0.65 were used. These were, used to produce workable
mixes similar to those used on local masonry construction sites. Three curing methods
were used. These are:
Concrete produced from erosion sand 1021
1. Curing in the open, unprotected from the weather, by sprinkling with water every
morning till the 7th day to reflect current local practice in the production of masonry
blocks.
2. Curing under jute cover with a coat of wet jute bag covered with polythene for the
first two days then with the polythene removed and kept under wet jute bag until
preparation for testing.
3. Continuous water curing until one hour before testing.
The optimum water cement ratio was 0.60 and this gave a workable mix.
Mortar Mixes
(Cement: Sand)
Figure 1. Flow chart showing casting programme of mortar and sandcrete blocks
Curing method 1 gave highest mortar cube compressive strengths and was adopted (see
Table 1). The influence of sand type was not taken into consideration in this preliminary
test because in real practice, no distinction is made between the two. However, it was
expected that mix proportions and sand type would influence the compressive strength of
the mortar cube specimens. In all cases, batching was carried out by weight while mixing
and compaction, manually.
The details of mortar specimens cast for different tests using a water / cement ratio of
0.60 and curing method 1 are given below:
1. 72 cubes (50mm) of different mixes were used to determine the compressive
strength after 7, 14, 21 and 28 days.
2. 36 cubes (50mm) were used to determine the density and water absorption
capacity after 7days of curing.
55
150 40
55
75 120 60 120 75
450
PLAN
30 Mortar Capping
225
ELEVATION
All the blocks were capped as prescribed by the Nigerian Code [Nigerian Standards
Organisation, (1975)]. The details are given in Figure 2. A programme of sandcrete mixes
similar to those used for mortar mixes in Figure 1.was designed. It had earlier been
suggested that sand / cement ratios up to 8 using optimum water/cement ratios of between
0.45 and 0.7 would produce blocks that would meet code requirements [Lasisi, (1985)].
In this study, two water-cement ratios of 0.60 and 0.80 were used, the former lying within
the range and the latter just outside the range of 0.45 – 7. Curing method 1, discussed
previously, was adopted in the preparation of the sandcrete blocks. A total of 72
specimens were cast and cured appropriately for 7 and 28-day compressive strength and
density tests.
Testing of the specimens was done using ELE 2000kN compressive strength testing
machine; steel plates were used on top while the blocks rested on 500 x 300mm plate for
effective load transfer [Lasisi, (1985)].
Concrete produced from erosion sand 1023
Concrete
Figure 3 shows the flow chart for casting and testing programme of 150mm concrete
cubes. Water-cement ratio of 0.60 was used. Subsidiary tests were conducted on 100 x
100 x 300mm concrete specimens to determine the modulus of elasticity and Poisson’s
ratio.
The specific gravity, water absorption, fineness modulus and coefficient of uniformity for
the various sand types are shown in Table 2. The results of the sieve analysis show that
Concrete Mix
Table 2. Average Specific Gravity and Water Absorption for White and Erosion Sands.
Both types of sand conform to BS882 gradation limits for zone 2 grading. This indicates
that both sands can be used to produce good mortar and concrete. However, it appears
the white sand used in this study contains more coarser particles than the erosion sand
though this is not always so. The coefficient of uniformity indicated that the white sand
is well graded [uniformity coefficient (U.C) greater than 5] while the erosion sand is
uniformly graded (U.C 1.0 to 5.0). The values of the fineness moduli for both sands fall
within acceptable limits (2.0 – 3.3) and indicate the two sand types are neither too fine
nor too coarse [Tyler, (1978)].
The results shown in Table 2 show that white sand has slightly higher specific gravity
than erosion sand. This may indicate that the former probably has higher content of some
heavier oxides. The results presented in Table 2 also indicate that both sand types have
almost identical water absorption capacity. Therefore, this is expected to have no control
over the required water/cement ratio when either of the two sands is used in the mix.
Mortar
Table 3 presents the test results of the 7-day, 14-day and 28-day compressive strengths
for the mortar specimens cast as outlined in Figure 1. It also presents the density and
water absorption measured after 7 days of casting respectively. These tests were carried
out at the end of 7 days because sandcrete blocks, which form masonry units with mortar
are usually laid within 7 days of casting.
For both mix ratios, the compressive strength of the mortar specimens increases with age
and decreases with increase in percentage replacement level of white sand with erosion
sand. Depending on the mix proportion, the decrease in the 28-day compressive strength
as a result of replacing the white sand by erosion sand ranges between 30% to 42%, the
lower limit being for mix ratio 1:6 and the upper limit of the range for mix ratio 1:8.
When only 50% of the white sand was replaced by erosion sand, the decrease in
compressive strength ranged between 4% and 8% which is quite insignificant. The
specimens made from mix ratio 1:8 exhibited lower strength values (M2A to M2C). This
may be due to the water/cement ratio of 0.6, which appears not suitable for such a high
sand content.
Generally, the higher compressive strength values exhibited by mortar specimens made
from white sand may be due to the pure quartzite content (quartz is a stiff, stable, low
porosity, and a high compressive strength material) of white sands [Amjad and Alsayed,
(1999)]. Summarily, mortar specimens made from both sand types showed good
compressive strength values. The results show no significant differences in the densities
and the moisture absorption properties of the mortar specimens made from both soil
types.
Sandcrete blocks
The test results of the sandcrete block specimens are tabulated in Table 4. The results
show that both mix ratios for sandcrete blocks meet 7-day and 28-day requirements of the
Nigerian building code. The compressive strength of the sandcrete block specimens
decrease with an increase in the percentage replacement of white sand with erosion sand,
except for mix ratio 1:8 at a water-cement ratio of 0.60 in which case there is a reverse
trend. This may probably suggest that for erosion sand/cement ratio of 8, a water-cement
ratio in the region of 0.60 will be most suitable.
Water/Cement
Mix Ratio Ratio 7-day 28-day 7-day 28-day 7-day 28-day
* Nigerian code of Practice Requirements: Gross stress: 2N/mm2 at 28 days; the 7-day
strength about 60% - 70% of 28-day strength.
** 7-day tests
1026 Olusola and Ikpo
The results further show that the average compressive strength of sandcrete blocks
containing 100% white sand decrease by 32% and 23% when white sand is replaced by
erosion sand at 100% and 50% levels respectively. Regarding density and absorption, It
appears that, as was the case for mortar specimens, the sand type had little effect on the
density of the sandcrete blocks. The same goes for the water absorption, which ranges
between 5.02% - 5.63%.
Concrete
Table 5 presents the results of the compressive strength tests. The compressive strength
of each specimen decreases as the percentage replacement of white sand with erosion
sand increases. The decrease becomes insignificant between 50% to 100% replacement
levels.
Supplementary, though not extensive, tests were carried out on 100 x 100 x 300mm
concrete specimens using mix ratio 1:1½: 3 at a water-cement ratio of 0.60 and at a
gradation level of 25%. The modulus of elasticity values ranges between 22,200N/mm2
to 24,640N/mm2.
The values obtained indicate a progressive decrease with an increase in the percentage
replacement of white sand with erosion sand. The Poisson’s ratio for concrete from both
materials ranged between 0.153 and 0.215.
ECONOMIC ASPECT
It is obvious that both white and erosion sands are suitable as fine aggregates in the
production of mortar and concrete. In almost all cases, white sand gives concrete that has
higher compressive strengths. However, erosion sand proves equally useful and can be
collected in large quantities during rainy seasons almost everywhere especially in rural
and semi-urban areas.
It becomes economically reasonable that the use of erosion sand, as a fine aggregate
where readily available, should be encouraged in the construction of buildings subjected
Concrete produced from erosion sand 1027
to normal loading and environmental conditions. The utilization of white sand (which
will cost more in terms of processing and transportation) in such cases could be regarded
as a waste of the national wealth.
CONCLUSION
Based on the results obtained from the laboratory tests, the following conclusions are
drawn:
1. There are no significant differences in the densities and the moisture absorption
properties of mortar, sandcrete blocks and concrete made from both erosion and white
sands.
2. Replacing white sand with erosion sand decreases the compressive strength and
modulus of elasticity of the resulting sandcrete blocks and concrete. However, this
decrease is not so significant as to discourage the use of erosion sand as fine aggregate in
the production of these structural building components.
3. If maximum benefit is to be derived from erosion sand as a fine aggregate, care
must be taken in using water/cement ratio that is optimum for the selected sand/cement
ratio and concrete mix proportion.
4. The mix ratios of 1:6 and 1:8 meet the 7-day and 28- day strength requirements
for sandcrete blocks.
5. Erosion sand is a suitable substitute for white sand in the production of mortar,
sandcrete blocks, and concrete.
REFERENCES
ABSTRACT
INTRODUCTION
Since the early eighties, the dissemination of the Total Quality Management (TQM)
philosophy in Western countries has encouraged many companies to develop and
implement performance measurement systems. In fact, some of the basic principles of
TQM are strongly related to the use of measures, such as: provide feedback based on
actual data, build continuous improvement into the process, and encourage participation
of employees in decision-making. This is why having an effective performance
measurement system is a major requirement in the ISO9001: 2000 standard and also in
several quality awards.
The application of the Toyota Production System (or lean production) concepts and
principles in several industries has also contributed to the widespread use of performance
measurements. In the Toyota Production System, measurement systems are strongly
related to decentralised control. Measures are intensively used in the learning process at
1030 Costa et. al
the operational level, by helping the employees to see how they are performing, rather
than simply to provide feedback data for the central control function. According to
[Maskell and Baggaley (2004)], lean organizations should use simple and well-designed
performance measurements to provide operational and financial control, to motivate
people towards lean behaviour, to direct and initiate continuous improvement, and
provide focus for decision-making and management direction.
However, the lack of performance measurement is a problem that affects the construction
industry in general. This is related to a great extent to the attitude and lack of training of
managers [Formoso and Lantelme, (2000)]. In fact, several companies measure and
control a wide range of project variables, but only a few have performance measurement
systems that provide key information for supporting decision-making [CDT, (2002)].
Moreover, some companies have too many measures; most of them related to supporting
rather than critical process [Costa and Formoso, (2003)]. This tends to make it difficult
for the company staff to understand what should be the priority and also to define the key
indicators that should be used for comparison to other companies [Schiemann and Lingle,
(1999)].
Performance measurement must shift from the traditional historical orientation, which
looks only at the results and their main causes. Instead, the causes of the desired
performance must be identified beforehand and then the measurement and control process
that maintain these causes within prescribed limits can be designed [Maskell and
Baggaley, (2004)]. This new focus is concerned with identifying goals and linking them
to the critical factors required to achieve them.
In recent years, there have been some initiatives concerned with the establishment of
performance measurement systems for benchmarking in different countries, such as
Australia, Brazil [Formoso and Lantelme, (2000)], Chile [CDT, (2002)], Denmark
[Byggeriets Evaluerings Center, (2002)], the UK [KPI, (2001)] and the USA [CII,
(2000)]. Such initiatives typically aim to (1) offer some guidance for performance
measurement, (2) provide some benchmarks that could be used by individual companies
Performance measuring systems for benchmarking 1031
to establish their business goals and objectives, and (3) identify and disseminate best
practices in the industry.
The aim of this paper is to raise some key issues related to the use of performance
measures for benchmarking in the construction industry, and identify some key factors on
the effective design and implementation of such performance measurement systems.
Moreover, this paper briefly describes two ongoing initiatives that aim to conceive and
implement performance measurement systems for benchmarking in the Brazilian
construction industry.
Three initiatives carried out in other countries were investigated: (a) KPI - Key
Performance Indicators from the UK; (b) National Benchmarking System for the Chilean
Construction Industry; and (c) Construction Industry Institute Benchmarking and Metrics
from the United States of America. Information about those initiatives was obtained in
their web sites, from published papers, and also from interviews carried out with people
involved in their implementation. The aim of this investigation was to provide some
guidelines for the development of benchmarking initiatives in Brazil.
All three initiatives consist of benchmarking programmes that involve both the industry
and the academic community. Their aim is to measure the performance of the sector, and
to identify and evaluate best practices, through comparison of key performance indicators
[Alarcón et al. (2001), KPI (2001), Construction Industry Institute (2003)].
The process of selecting the performance measures was distinct in each programme. The
set of KPIs (United Kingdom) was the result of an initiative involving extensive reviews
by a panel of experts and the publication of an initial report [KPI, (2001)]. In the case of
the Chilean system, the selection was based on previous studies that included both
literature review and empirical research [Alarcón and Serpell (1996), Grillo (1997)]. And,
finally in the USA initiative, a committee involving both industry representatives and
Construction Industry Institute (CII) staff was established for defining the critical
performance measures to be used in practice. That committee also developed a strategic
approach to CII's collection, analysis, and dissemination of industry data.
The set of performance measures is wide but some of them are common among the
programmes, such as cost, time and safety (see table 1). This indicates that such
initiatives could be potentially involved in some kind of international benchmarking
scheme.
In the three initiatives a web-based online tool for entering and processing data was
developed, and a strong emphasis is given to the confidentiality of data. Moreover, the
existing softwares also support the analysis of project performance in relation to the
benchmarks results, and provide tools for displaying graphically the comparative
performance of the companies involved.
1032 Costa et. al
Table 1 – Comparison among the Benchmarking Initiatives (UK, Chile and USA)
Criteria KPI (United Kingdom) CDT (Chile) CII Benchmarking &
Metrics (USA)
Client satisfaction* Deviation of Cost by Project Cost Growth
Defects* Project* Project Budget Factor
Predictability cost* Deviation of Construction Project Schedule
Predictability time* Due Date* Growth
Profitability Change in Amount Project Schedule Factor
Lagging Contracted Total Project Duration
Safety
measures Rate of Subcontract Change Cost Factor
Productivity*
Scope of measures
companies evaluation
Availability of data and Commitment of companies Commitment of the
validity of data Measures Standardisation companies
Difficulties Do not offer opportunities Continuous measurement Implementation of
for real time control Keeping the project team improvement process based
on the findings from the
benchmarking program.
Note: * measures that could be used if measured during the process
Table 1 also presents some of the problems that have been identified in the benchmarking
programs. Regarding the KPIs in the UK, the following difficulties have been pointed
out:
The KPIs are specific to projects and offer very little indication of the performance of
the organisations themselves from a business point of view, apart from the customer
perspective [Kagioglou et al., (2001)];
It is important not only to use the right measures to measure the right things, but also
to show the relationships between the different measures from a holistic viewpoint,
since this is a way of identifying potential mechanisms for improvement [Kagioglou
et al., (2001)];
In general, the main difficulties in the whole process of the KPI programme are
concerned to the availability of data and their validity [Kagioglou et al., (2001)];
The most significant problem with the KPIs (in their current format) was that they do
not offer opportunities for real time control. They are mostly designed to be used as
Performance measuring systems for benchmarking 1033
post-result lagging KPIs. This kind of indicator is used only as a historic review
[Beatham et al., (2004)].
The investigation indicated that some construction companies involved in those initiatives
still have a limited view of benchmarking. They are simply interested in comparing their
performance to other companies, especially from the same market segment. Such
companies should see benchmarking as a source of new ideas, or route to improvement
based on observed best practices. The information provided by benchmarking initiatives
should enable a better understanding of the workings of business (their own or their
competitors’), which could lead to improvement actions, instead of only being used for
data comparison.
Based on the experiences of benchmarking initiatives in UK, Chile and USA, some key
issues for the design and implementation of benchmarking systems were identified.
First, the set of measures for benchmarking should be simple and well designed in order
to support improvement initiatives. The set of measures must give a holistic, company-
wide view including a mixture of leading and lagging indicators [Beatham et al., (2004)].
The KPI and CDT programmes mostly involve lagging measures, based on outcomes.
Such measures are important for accessing the success of strategies, but do not support
improvement opportunities during the period for which the measure has been taken
[Beatham et al., (2004)]. By contrast, the design of CII benchmarking system includes a
set of performance measures that can be used during the whole life of the project.
The procedures for data collection should be also simple, aiming to facilitate the creation
of the database and to make it simple to evaluate the project performance in relation to
other projects in real-time. The three initiatives (KPI, CDT and CII) offer an online tool
for the collection and evaluation of the benchmarking measures. For this reason, it is
useful to design an interactive online tool, which allows the user to access an assortment
of documents and provides feedback. [Beatham et al. (2004)] suggest that the online tool
must also be used throughout the life of a project, aiming to offer to the companies the
opportunity to analyse the results and to promote improvements. Another key issue of the
implementation of the online benchmarking process is data confidentiality and security.
The lack of resources is particularly critical in small sized construction firms. According
to [Hudson et al. (2001)], a strategic performance measurement system for small sized
companies must be very resource effective and produce notable short-term results. It
should also provide long-term benefits to help maintaining the momentum and
1034 Costa et. al
enthusiasm of the development team. In addition, it must be dynamic and flexible enough
to accommodate strategic changes, which tend to be frequent in companies that have
emerging strategies. For those authors, in practical terms, this means that the process
should be iterative, in order to maintain the strategic relevance of performance
measurement. Due to the problems raised above, construction companies should design
their own performance measurement systems according to their strategy and capabilities,
making sure that the set of measures are relevant and feasible. Therefore, different sets of
measures used for benchmarking should be established for distinct market segment, based
on the measures that are important for the companies that operate in each of them.
Finally, the benchmarking system must be fully understood by all people involved.
Therefore, it is also important to promote training courses for the companies involved,
including the communication of results, analysis of the evolution of the set of indicators,
and the exchange of practices between practitioners, such as the ones promoted by the
KPI and CII initiatives.
The SISIND Project (System of Quality and Productivity Indicators for the Construction
Industry) was established in 1993, involving the Building Innovation Research Unit
(NORIE) of the Federal University of Rio Grande do Sul (UFRGS), the Association of
Building Contractors of the State of Rio Grande do Sul (SINDUSCON/RS) and the
Agency for the Support of Micro and Small Businesses (SEBRAE/RS). The aim of this
initiative was to disseminate performance measurement concepts, principles and practices
in the construction industry.
The SISIND Project has been focused on small sized construction firms, since they
correspond to a very large percentage of the industry in Brazil both in terms of the
number of companies and output. Initially a set of 28 performance indicators was devised
for the residential and commercial building segment of the industry. Since the launching,
several construction firms have joined the project and participated in training courses
aimed at enabling managers to implement the proposed measures in their organisations
[Formoso and [Lantelme, (2000)]. In spite of the interest and motivation showed by the
construction companies involved in the project, only a relatively small number of them
have been able to apply performance measurement in a continuous basis. Two previous
studies carried out in Brazil [Formoso and Lantelme (2000), Lantelme and Formoso
(2000)] have indicated that there are both organisational and behavioural barriers for the
successful implementation of performance measurement systems in the Construction
industry:
Construction managers tend to look for short-time results when collecting data, and
do not perceive the benefits of a performance measurement system that takes a
relatively long time to be fully developed;
Due to the lack of resources for data collection and processing, some construction
companies tend to choose measures that are easy to collect, rather than the ones that
provide the most valuable information. This can potentially result in measures that do
Performance measuring systems for benchmarking 1035
not support decision making properly, since they are not related to the company
strategies and to its critical processes;
Aligning measures and strategic objectives is made difficult by the fact that several
companies do not have explicit and well-defined strategies.
Some managers tend to look for whom or what is to blame for the existing problems,
instead of thinking systemically about the process that generated the results and what
could have been done to improve them.
A more recent study [Costa and Formoso, (2003)] identified other problems related to the
lack of effectiveness of performance measurement systems in construction companies: (a)
lack of definition of the team responsible for data collection, processing and analysis; (b)
little use of measures in strategic decision making; (c) little use of measures for
benchmarking; (d) centralisation of data collection, processing and analysis; (e) lack of
cost-effectiveness analysis of measures; and (f) ineffective communication and
dissemination of results.
Based on the experience of the SISIND Project, two initiatives have been established
involving academic institutions, research funding agencies, industrial bodies and the
Federal Government. The first one is the SISIND-NET Project, which involves the design
and implementation of a performance measurement system for benchmarking
construction companies from the State of Rio Grande do Sul. The main targets are: (a)
devise a web-site for collecting and disseminating data, including a web based tutorial
that can be used for training; (b) create a learning environment that will enable companies
to share both qualitative and quantitative information related to their performance and
best practices; and (c) promote workshops and training courses in different places in
Brazil, aiming to disseminate and implement the set of measures.
The first stage of the SISIND-NET Project is the definition of the set of measures that
will be used for benchmarking. Eighteen construction companies from the State of Rio
Grande do Sul have been involved in this initiative, most of them from the residential,
commercial and industrial building markets. A schedule of meetings involving both
representatives of the companies and members of the research team was established. In
each meeting a sub-set of measures is discussed, including their objectives, formulae, and
data collection and analysis procedures. Table 2 briefly presents the set of measures.
The final version of the set of measures will be defined by the end of August 2004. After
that a training course will be provided for the companies’ staff who will be involved in
the implementation of performance measurement in the companies. In October 2004, the
benchmarking process will start: data will be sent to the database by the companies, and
meetings for exchanging information will be held every two months.
Form the academic point of view, the aim is to assess the benefits obtained by companies
involved in the benchmarking initiatives. Recent experiences in benchmarking clubs
around the world have indicated that knowledge sharing helps companies to accelerate the
improvement process, as well as support the internal learning process. They have also
enabled managers to clearly understand the good practices and changes that take place
Performance measuring systems for benchmarking 1037
FINAL COMMENTS
This article has presented a brief description concerning the current stage of performance
measurement systems for benchmarking the have been devised in three different countries
(Chile, USA and UK). The commonalities among these initiatives indicate that they
potentially could be used for international benchmarking.
This investigation has pointed out some of the benefits, problems and limitations of the
existing systems. The lessons learned have been used for devising two performance
measurement systems for benchmarking in Brazil. A joint effort involving several agents
is necessary for the successful development and implementation of PMS benchmarking
programs. Such initiatives should not be limited to data collection, but also provide data
analysis and training, as well as enable the exchange of good practices among the
companies. Moreover, the set of measures should be assessed and revised periodically,
according to the needs of the companies involved.
In Brazil, there are two ongoing initiatives in their very early stages of implementation.
Both of them have created good opportunities for developing research on performance
1038 Costa et. al
REFERNECES
Maskell, B.H and Baggaley, B. (2004). Practical lean Accounting: a proven system for
measuring and managing the lean enterprise, New York: Productivity Press, 2004.
Schiemann, W. A.; Lingle, J.H. (1999) Bullseye! – hitting your strategic targets through
high-impact measurement. New York: The Free Press.
The KPI Working Group. (2001) “KPI Report for The Minister for Construction”.
Department of the Environment, Transport and the Regions, Norwich.
1040 Costa et. al
CONCEPT OF STRATEGIC ASSET FOR SUSTAINABILITY OF THAI
CONSULTING FIRM
ABSTRACT
The market environment of construction industry is highly sensitive with the state of
economic and success of other industries. The ability to respond to this dynamic change
is critical to the survival of firms operating in construction industry. In order to survive,
organization must focus more toward long-term goals as oppose to fragmented project
goals. Strategic management sets direction for organization and allows management to
incorporate external environment in their decisions. It also assists the firm in managing
portfolio of assets through the concept of strategic asset in order to achieve long-term
superior performance. The objective of this paper is to propose a framework in adopting
concept of strategic asset for sustainability of firms. The applicability of the framework
in consulting firms in Thai construction industry is also explored. The results reveal that
managers of firms are aware of what are sources of competitive advantage in their firm.
However, the development of these strategic assets has not been planned out carefully,
but rather accumulated through the business operation.
INTRODUCTION
The firms operating in construction industry are faced with three major changes: the need
of knowledge workers, the expanded markets, and the information revolution [Chinowski
and Meredith, (2000)]. Moreover, the ability to respond to change in dynamic
environment is also critical to the survival of construction organization [Arditi et al.,
(2000)]. The construction industry is therefore forced to reinvestigate their traditional
management practices and seeking for new management tools.
1042 Vorasubin and Charoenngam
STRATEGIC MANAGEMENT
Strategic management is the process required to foster strategic thinking and focus
environment in an organization aiming to achieve sustainable competitive advantage
[Chinowsky and Meredith (2000), Schermerhorn (2002)]. It is emphasized that strategic
management is not a single action but a continual process, which requires resources and
commitment throughout the organization. Strategic management process comprises of
strategy formulation and strategy implementation. It is an iterative process consists of
five steps as followed: [Schermerhorn, (2002)]
The concept of strategic asset is part of resource-based theory. The resource-based theory
states that firms were fundamentally heterogeneous, in terms of their resources and
internal capabilities. Firm’s certain resources with certain characteristics lead to
sustainable competitive advantage. As a result, firm should nurture these resources in
order to be successful in this increasing competitive environment. [Barney (1991), Grant
(1991), Mahoney and Pandian (1992), Amit and Schoemaker (1993), Peteraf (1993),
Hamel and Prahalad (1994), Black and Boal (1994), Oliver, (1997)]
It was widely agreed by many studies that essential characteristics of resources leading
toward competitive advantages included rare/ unique, durable, difficult to trade, difficult
to imitate, and non-substitutable. [Barney (1991), Grant (1991), Mahoney and Pandian
(1992), Amit and Schoemaker (1993), Peteraf (1993)] Amit and Schoemaker (1993)
integrated the inside-out and outside-in perspective in order to identify the strategic assets,
which are defined as a firm’s specific resources and capabilities offering the firm a
competitive advantage in the future. Other than the characteristics previously mentioned,
[Amit and Schoemaker (1993)]also added that the strategic assets must in line with the
future strategic industry factors (SIFs), which are industry-specific factors required for
success. These SIFs are determined at market level as a result of complex interaction
among external stakeholders. It is important to recognize these SIFs change over time
and cannot be predicted with certainty in advance. [Schoemaker and Amit, (1997)]
To further discuss the rest of this paper without confusion, the three key terms critical to
the concept of strategic asset: resource, capability, and asset are defined below.
CONCEPTUAL FRAMEWORK
According to the concept of strategic asset previously mentioned, only the assets those
matched with the SIFs are considered as source of competitive advantage of firm. The
assets, which matched with current SIFs, generate present competitive advantages while
the assets matched with future SIFs will create future competitive advantages. It is
emphasized that the SIFs are changed over time along with the market environment.
Therefore, the management must periodically forecast these future SIFs, selecting the
desired competitive advantage, and constantly invest in developing these assets in order
to gain competitive advantage in the future. However, the current strategic assets should
also be managed effectively in order to secure competitive advantage generated by these
1044 Vorasubin and Charoenngam
assets as long as possible. The framework in adopting strategic management and the
concept of strategic asset for sustainability of firms is proposed in Figure 1.
Time t0 Time t1
Expected Expected
Organization Organization
Assets at t1 Assets at t2
Strategic
Management Desired Future Desired Future
Strategic Asset
Competitive Competitive
to be developed
Advantage at t1 Advantage at t2
Organization Organization
Operational Assets (t0) Asset Management Assets (t1)
Management
Competitive Competitive
Advantage (t0) Advantage (t1)
Uncontrollable change
SIFs (t0) SIFs (t1)
Figure 1 Framework in adopting strategic management and the concept of strategic assets
for sustainability of firms
The following section of the paper examines the applicability of this framework in
selected consulting firms in Thai construction industry.
The classification of assets including resources and capabilities are reviewed in order to
set up a preliminary list of assets in consulting firms in construction industry. [Grant
(1991)] classified resources into six major categories: financial resources, physical
resources, technological resources, human resources, reputation, and organizational
resources. The preliminary list of assets is then examined and modified to reflect the
practice of consulting firms in construction industry.
Strategic Asset for Sustainable Firm 1045
In investigating the applicability of the proposed framework, three consulting firms are
selected for structured interviews. The general information of the selected consulting
firms is presented in Table 1. The informants are organization-level managers. The
interview has been carried out in two separate rounds. The first round of the interview is
intended to validate the preliminary list of assets in consulting firms, the final results is
shown in Table 2. The assets have been classified into three major categories: tangible
resources, intangible resources, and organization capabilities. Contrary to the tangible
resources, intangible resources cannot be seen and quantified as easily. Finally, the
complex and simple variables have been verified to ensure that each asset is valid in
practice and whether the informants are able to understand the definition clearly.
The second round of interview is conducted to investigate the strategic assets, which are
source of current competitive advantage of each firm. After the strategic assets have been
identified, the historical development of such assets is also explored. Since the
development of these strategic assets often takes long duration, therefore, the study has
been retrospectively conducted, which means that the current competitive advantage was
competitive advantage at time t1. While the historical development of assets referred to
time t0 was collected from the past experience of the informants. The results reveal that
reputation of key personnel, previous experiences, and high standard of service are the
key sources of competitive advantage in Firm C. This may be due to the fact that Firm C
is a well-established firm in Thai construction industry, the standard of professional
service is widely accepted in the market. While Firm A, which is smaller and newer than
Firm C, creates the advantage through good service capability targeting less sophisticated
project owners. On the other hand, Firm B with public organizations as its major clients
are public organizations utilizes the existing relationships with local authority in
obtaining advantage over its competitors.
However, in searching for the development of these assets, it is found that reputations and
previous experiences of Firm C have been accumulated rather than intentionally created
by the firm. The service capability in Firm A has been developed through the customer
requirements, which are varied from project to project, rather than a standard set by
organization itself. Relationships with local authority of Firm B have been developed
deliberately; however, they were developed project by project rather than long term plan
with clear direction of network development for future success of the organization.
1046 Vorasubin and Charoenngam
DISCUSSION
2. Lack of knowledge in developing these strategic assets. Since most of these assets
are socially complex in its nature and take long time to develop, it is not clear on
its development process as well as factors affecting the continual of these assets.
As a result, managers are reluctant to invest in crafting these assets due to the
uncertainty of the success.
It is suggested that firms operating in construction industry should focus more on long-
term direction of the organization in order to sustain through this dynamic environment.
The study should be conducted to investigate strategic assets and their development in
further details, so that the managers in practice can be more confident in investing in
these long-term valuable assets for sustainability of the organizations.
REFERENCES
1-2
Charles E. Via, Jr. Department of Civil and Environmental Engineering, Virginia
Polytechnic Institute and State University, Blacksburg, VA 24061-0105.
2
Construction Claim Consultant, Hill International Inc., 1225 I Street, N.W, Suite 601,
Washington, DC, 20005, apirath@vt.edu, apirathp@hillintl.com.
ABSTRACT: Under current scheduling practices, float time is considered “free” and does
not belong to any party in the construction process [Wickwire, Driscoll and Hurlbut
1991]. Float ownership and its utilization has become a major dispute when project
delay occurs [Householder and Rutland 1990; Pasiphol and Popescu 1994; Ponce 1986;
Wickwire, Driscoll and Hurlbut 1991]. The overall purpose of this research paper is to
introduce a comprehensive practice of float pre-allocation and management term, for the
application of scheduling specifications in the CPM-based construction contract. The
principles of this new concept for pre-allocating and managing “total float” include
recommending contract clauses to direct its use and to explain the manner in which
responsibility for any resulting delay may be assigned. The bases for determining
responsibility for delay are provided in the form of six factual situations, with
illustrations. This simple step of inserting the new scheduling language into the
construction contract documents can assure all participants’ awareness that when they
consume floats, they introduce the potential that project completion time can decrease—
or increase.
1
Vecellio Professor, Charles E. Via, Jr. Department of Civil and Environmental Engineering,
Virginia Polytechnic Institute and State University, Blacksburg, VA 24061-0105, chema@vt.edu.
2
PhD Candidate, Charles E. Via, Jr. Department of Civil and Environmental Engineering,
Virginia Polytechnic Institute and State University, Blacksburg, VA 24061-0105, apirath@vt.edu.
Construction Claim Consultant, Hill International Inc., 1225 I Street, N.W, Suite 601, Washington, DC,
20005, apirathp@hillintl.com.
1044 Garza and Apirath
INTRODUCTION
The Critical Path Method (CPM) schedule technique has been widely used as a
management tool in construction projects. Many construction contracts—especially
those written for large public and private projects—require that contractors submit and
update CPM schedules showing critical and non-critical activities. In such projects, it is
common that many participating parties attempt to appropriate float time shown in the
CPM schedules to advance their own interests.
Because time is a critical element in the construction process, owners and
contractors risk incurring additional and substantial costs when construction projects are
finished beyond the contractual completion dates (Schumacher 1996; Householder and
Rutland 1990). When a project’s completion time is delayed, the owner may suffer delay
damages, such as losses of property use, revenues, and interests. Delay damages can
increase contract costs by millions of dollars. The contractor, by the same token, may
suffer monetary damages caused by the delay, including extended overhead or liquidated
damages. When this occurs, it is difficult but necessary to determine which party should
be held responsible for the damages. Determining the identity of the responsible party is
even more complicated when there is more than one event causing the delay.
Under current scheduling practices, float time is considered “free” and does not
belong to any party in the construction process (Wickwire, Driscoll and Hurlbut 1991).
Today’s widely accepted float concept identifies it as an expiring resource available to
the parties on a non-discriminatory basis (Wickwire, Warner and Berry 1999). Due to
the dynamics of schedules, however, an activity that originally has float may later have
zero or negative floats, and as a result of delays to preceding activities, it can become
critical. In this scheme, a party who delays this then-critical activity can be held
responsible for the delay regardless of its earlier performance. When such project delays
occur, float ownership and its utilization are often the source of major disputes
(Householder and Rutland 1990; Pasiphol and Popescu 1994; Ponce 1986; Wickwire,
Driscoll and Hurlbut 1991).
Many different theories have been developed to address the problems associated
with various approaches to the allocation and use of “total float” as it relates to project
delays. However, none of these theories has been unconditionally adopted. Ponce de
Leon (1986) identifies a common scheduling interpretation of “total float” as the number
of days an activity may be extended or delayed without delaying the completion date
shown in the schedule; however, this interpretation has proven ambiguous, leaving open
primary questions in the domains of schedule management and delay claim resolution.
For instance, such an interpretation does not expressly define contractors’ rights to time
extensions as a result of delays that merely decrease available float time. To reduce such
ambiguities, the issues of float ownership, treatment, and use should be addressed and
explicitly provided for in the contract documents. By doing so, both the owner and
contractor know from the beginning their entitlement to a shared benefit of float on
which they can rely throughout the project.
STUDY OBJECTIVE
Comprehensive Practice of pre-allocation of total float 1045
The proposed new concept for managing “total float” involves pre-allocating a
pre-determined amount of total float on the same non-critical path of activities to the two
contractual parties—the owner and the contractor. This research adopted an equal
allocation or 50-50 allocation concept to the two parties since it is considered to be fair
and reasonable for the two parties. However, the amount of total float allocated to the
two parties can be range from 0-100 to 100-0 depending on the agreement between the
parties prior to the start of the project, and the agreement must be incorporated into the
contract document.
This equal allocation of total float must be clearly and expressly stated in specific
clauses in the prime contract. The concept operates to give the owner and the contractor
equal rights to the total float as shown in the project network schedule, or, stated another
way, the owner and the contractor each owns one-half of the total float available on any
non-critical path activity of the project. The amount of total float owned by each party
is called the Allowable Total Float. If either party does not use its Allowable Total Float,
the other party has the opportunity, beyond its own Allowable Total Float, to use what
float is available. However, under ordinary circumstances, should either party consume
total float beyond its allowable amount and such use impacts activities on the critical path
and/or extends the project completion date, the party in question may be held responsible
to the other for any resulting delays and/or damages.
This new concept of total float management respects the dynamic nature of
construction projects, recognizes that “total float” is an essential asset for both the owner
and the contractor, and places equal responsibility on each party to mitigate
unforeseeable and unanticipated problems that arise during construction. “Total float” is
made available on an equal basis to enable both parties to benefit from their shared best
interests—that is, completion of the project on time and within budget, with full
adherence to all specifications and quality requirements of the prime contract.
1046 Garza and Apirath
As an asset, “total float” is unique in that it can cost the parties any amount from
nothing to millions of dollars. Under this new concept, however, “total float” retains a
feature shared by other theories: it remains an expiring resource. If it is not used within
a certain period of time, it simply disappears. Consequently, the owner and the
contractor must each use Allowable Total Float with care. Each should be cognizant not
just of how much of the total float is being consumed but also whether such an amount
will impact activities on the critical path, extend the project completion date, or result in
additional costs.
This new concept begins during contract preparation. The owner and/or the
contractor must prepare contract clauses that will for their purposes define the concept
and describe its application. In private projects, the owners and contractors may agree
upfront to adopt the new concept of total float pre-allocation; however, under public or
hard-bid projects, the owner with or without the contractor’s agreement will adopt this
new concept and insert contract clauses during bid preparation. In this case the public
owner will need to make an arbitrary determination of the pre-allocation percentages.
The following are recommended contract clauses that would provide for the use of total
float in its new conception.
to the owner and to the contractor, neither is entitled to a time extension or to delay
damages unless a critical delay or the accumulation of non-critical delays caused by the
other party impacts the project’s critical path, consumes all available float or contingency
time, or extends the work beyond the contract completion date.
“FORMULAS” CLAUSE
In order to properly allocate the party’s responsibility for delays, the following
formulas are recommended for 50-50 allocation:
TF = Total Float
ATF = Allowable Total Float = TF / 2
TDD = # of total delayed days for the entire project
PDD = # of days that a party delays on the affected activity path.
RDD = # of delayed days that a party is held responsible for.
If the total number of the days of delay for the entire project (TDD) is greater than
zero (0), then that each party will be responsible for the minimum value of the total
delayed days for the entire project (TDD) or the difference between its actual days of
delay (PDD) and its Allowable Total Float (ATF), i.e., PDD – ATF:
Similar to various concepts currently used, this new concept of total float pre-
allocation and management provides that no delay damage will be paid nor time
extension granted for an accumulation of non-critical delays or total float consumptions
for any activity path not impacting the project completion date and/or the project critical
path.
If a party consumes total float beyond its Allowable Total Float for any given
activity and the total float consumption or accumulation of all total float consumptions on
the affected activity path has an adverse impact on the project critical path or extends the
project completion date, then that party shall be held responsible for any delays and
damages.
Pursuant to this new concept of total float pre-allocation, the allocation of delay
responsibilities between the parties can be performed in a number of ways, as illustrated
by the following examples of six different factual delay situations which involve the
consumption of total float for non-critical path activities.
The first two cases involve the owner’s and contractor’s delays to a non-critical
path activity, which did not result in any change to the project completion date. The third
and fourth cases, while also involve delays to a non-critical path activity, show that an
1048 Garza and Apirath
accumulation of the delays results in changing the project completion date and critical
path. The fifth case shows the concurrent-delay situation which involves two concurrent
delays on two different paths of activities affecting the project completion date. The
sixth case presents the situation of multiple non-critical paths which only one delayed
path affects the project completion date.
The original baseline schedule shown in Figure 1 is a baseline for the first four
delay cases presented hereinafter. As shown in Figure 1, Activity A involves steel work,
a non-critical path activity with 50 days of total float. The steel work consists of four
related, interdependent activities: Shop Drawing Submission, Shop Drawing Review and
Approval, Steel Fabrication, and Steel Erection. Under the new concept, the total float of
50 days is allocated equally to the owner and to the contractor. In other words, the
owner’s Allowable Total Float (ATF) is 25 days and the contractor’s ATF is 25 days.
Project
Comp. Date
Project start date
Activity A
Fab. Steel
50-day
Erect Steel Total float
Figure 1 presents the baseline schedule for the steel work, noting the amount of total
float and Allowable Total Float.
Case 1
The first case involves two delay events: the owner’s 20-day delay to the review
and approval of steel shop drawings and the contractor’s 20-day delay to the steel
fabrication. Figure 2 demonstrates the as-built schedule and the delay events. The
Allowable Total Float for each party is 25 days, and under this scenario each consumes
total float for the affected activities within its allowable total float. The accumulation of
the two parties’ consumptions of total float does not impact the project completion date.
By applying the formulas shown previously, the total number of days of delay for
the entire project is equal to zero (TDD = 0); therefore, the delaying parties are not held
responsible for any delay damage (RDD = 0).
Comprehensive Practice of pre-allocation of total float 1049
Activity A
Figure 2. As-Built Schedule Showing Owner’s 20-day Delay and Contractor’s 20-day
Delay
Case 2
The second case also involves two delay events, but in this scenario the parties’
consumption of total float exceeds the Allowable Total Float allocated to each. First, the
owner delays the review and approval of steel shop drawings for 30 days, five days
beyond its Allowable Total Float. Subsequent to the owner’s delay, the contractor delays
the steel erection for 10 days, an amount within its allowable total float time. Figure 3
shows the as-built schedule and the two delay events.
The accumulation of the two parties’ consumptions of total float does not impact
the project critical path or extend the project completion date. Similar to the first case, by
using the above formulas, the total number of days of delay for the entire project (TDD)
is determined to be equal to zero; therefore, the delaying party is not held responsible for
any delay damage (RDD = 0).
Under the new concept, the total float is still considered to be free as long as an
accumulation of consumption on the affected activity path does not adversely impact the
project completion date.
Figure 4 shows the contractor’s two delay events. First, he delays the submission
of shop drawings for 20 days; later, he delays the steel fabrication for 30 days.
Therefore, the contractor consumes the total float for 50 days, well beyond the Allowable
Total Float of 25 days. The contractor’s consumption of total float, however, does not
impact the project completion date; therefore, the contractor is not held responsible for
any associated delay and/or damages to the project.
1050 Garza and Apirath
Figure 3. As-Built Schedule Showing Owner’s 30-day Delay and Contractor’s 10-day
Delay
Erect Steel
Case 3
The third case describes three delay events the accumulation of which does
impact the project completion date. As shown in Figure 5, the contractor delays the
submission of shop drawings for 20 days in the early time frame and later delays the steel
fabrication for 30 days. The total number of days of delay attributed to the contractor’s
steel activity equals 50, a full 25 days beyond its Allowable Total Float.
Subsequent to these events, the owner’s actions delay the steel erection for 10
days, which is within its Allowable Total Float of 25 days. When all three delays are
accumulated, the result is an adverse impact to the project critical path, which extends the
project completion date by 10 days.
By using the above noted formulas, the contractor’s delay responsibility may be
allocated as follows:
Thus, the contractor is held responsible for 10 days of delay to the project’s
completion.
By using the same formulas, the owner’s delay responsibility may be allocated as
follows:
TDD = 10 days, PDD = 10, ATF = 25 days.
Since (PDD – ATF = -15) < 0, RDD = 0
Thus, the owner—who has not consumed float beyond the allowable total—is not
held responsible for the delay to the project’s completion time.
Original Project
Project start date completion date
Activity A
10-Day Project
20d Contr. Sub. Shop Dwg
delay delay
Figure 5. As-Built Schedule Showing Contractor’s 50-day Delays and Owner’s 10-day
Delay
Case 4
This case also describes three delay events, the accumulation of which does
impact the project completion date. As indicated in Figure 6, the contractor delays the
submission of shop drawings for 20 days and later delays the steel fabrication for 30
days. The total number of days that the contractor delayed the steel activity equals 50
days, 25 days beyond its Allowable Total Float.
Subsequent to these events, the owner’s actions delay the steel erection for 30
days, which exceeds its Allowable Total Float by five days. The accumulation of all
three delays results in an adverse impact to the project critical path and extends the
project completion date by 30 days.
By using the above formulas, we can determine the allocation of the contractor’s
delay responsibility, as presented below:
TDD = 30 days, PDD = 50 days, ATF = 25 days.
Since TDD > 0, RDD = MIN ((TDD = 30), (PDD – ATF = 25)) = 25 days
1052 Garza and Apirath
Thus, the contractor is held responsible for the 25-day delay to the project
completion date. The above formulas also indicate the number of delay days for which
the owner is responsible:
TDD = 30 days, PDD = 30, ATF = 25 days.
Since TDD > 0, RDD = MIN ((TDD = 30), (PDD – ATF = 5)) = 5 days
Thus, the owner is held responsible for a five-day delay to the project completion
time.
Original Project
Project start date completion date
Activity A 30-Day
Project delay
Figure 6. As-Built Schedule Showing Contractor’s 50-day Delays and Owner’s 30-day
Delay
Case 5
In this case of concurrent delays3, the contractor and the owner concurrently delay
activities on two non-critical paths which the accumulation of the delays to the two paths
does change the project completion date. The original baseline schedule of this case is
presented in Figure 7. The activity path of A- D originally has 8 days of total float or
each party has 4 days of ATF. The activity path of E – H has 7 days of total float or each
party has 3.5 days of ATF.
3
Concurrent delays in this paper is defined as the situation in which an owner and a contractor
each delay simultaneously delay activities on two separate critical paths and impact the overall project.
Comprehensive Practice of pre-allocation of total float 1053
Original
Project start date Completion date
A
D ATF = 4 Days
Total Float of 8 Days
E
Figure 7 presents the baseline schedule for Case 5 – Concurrent Delay Example
noting the amount of total float and Allowable Total Float.
As indicated in Figure 8, the contractor delays Activities B, C and H for 4, 6 and 3 days
respectively; and the owner delays Activity G for 9 days and D for 3 days. At the
completion of the project, the two original non-critical paths (A – D and E – H) then
become the longest or critical paths. The delays on the two paths are considered to be
concurrent delays. In order to allocate the delay responsibility under the proposed
concept, each then-critical path would be considered separately by using the same
methodology presented in the previous cases.
On the activity path of A-D, the total number of days that the contractor delayed
the activity path of A – D equals 10 days, 6 days beyond its ATF of 4 days while the
owner delays this path for 3 days, within its ATF. Therefore, the contractor which
delayed 6 days beyond its ATF is held responsible for the project delay of 5 days.
By using the above formulas, we can determine the allocation of the contractor’s
delay responsibility, as presented below:
TDD = 5 days, PDD = 10 days, ATF = 4 days.
Since TDD > 0, RDD = MIN ((TDD = 5), (PDD – ATF = 6) = 5 days
Thus, the contractor is held responsible for the 5-day delay to the project
completion date. The above formulas also indicate the number of delay days for which
the owner is responsible:
TDD = 5 days, PDD = 3, ATF = 4 days.
Since PDD < ATF, RDD = 0 days
Thus, the owner is held responsible for a 0-day delay to the project completion
time.
Concurrently with the delays on the path of A-D, the owner delays Activity G for
9 days which is 5.5 days beyond its ATF while the contractor delays the activity H for 3
1054 Garza and Apirath
days within its ATF. Therefore, the owner is held responsible for 5 days of project
delays on the critical path of E-H; and the contractor is responsible for 0 days.
By using the above formulas, we can determine the allocation of the owner’s
delay responsibility, as presented below:
TDD = 5 days, PDD = 9 days, ATF = 3.5 days.
Since TDD > 0, RDD = MIN ((TDD = 5), (PDD – ATF = 5.5)) = 5 days
Thus, the owner is held responsible for the 5-day delay to the project completion
date. The above formulas also indicate the number of delay days for which the contractor
is responsible:
TDD = 5 days, PDD = 3, ATF = 3.5 days.
Since PDD < ATF, RDD = 0 days
Thus, the contractor is held responsible for a 0-day delay to the project
completion time.
In conclusion, both the contractor and the owner are held responsible for the 5-
day project delay. The owner in this case should give a 5-day time extension to the
contractor, but the 5-day delay is not compensable because the contractor is also held
responsible for the project delay. It is noted here that the new concept considers the
situation to be concurrent delays only when the project involves two or more concurrent
longest (critical) paths.
Original
Compl. Date
Project start date
5d Project Delay
A
4d Contr. B
delay
6d Contr. delay C Actual
Compl.Date
E 3d Owner D
delay
F ATF = 4 Days
9d Owner delay G
3d Contr. H
delay
Case 6
This case involves multiple non-critical paths which one of them becomes then
the project’s critical path. Figure 6.9 shows the original baseline schedule of this case
which consists of three non-critical paths. Path 1 consists of Activity G-H-I which each
has the total float of 6 days and the ATF of 3 days. Path 2 consists of Activity J-K-L-M
which each has the total float of 3 days and the ATF of 1.5 days for each. Path 3 has
Comprehensive Practice of pre-allocation of total float 1055
Activity J-K which each has the total float of 9 days of the ATF of 4.5 days. The number
of ATF for each party and each activity is indicated in the activity bar in the Figure 9.
D
J; ATF=1.5
E
K; ATF = 1.5
F
L; ATF=1.5
Figure 9 presents the baseline schedule for Case 6 – Multiple Non-Critical Paths
noting the amount of total float and Allowable Total Float.
Original
Compl. Date
I; ATF = 3
Project
Start date 5d Delay
G; ATF = 3
C
Actual
D Compl.Date
E F
K; ATF = 1.5
L; ATF=1.5
7d Contr. delay N; ATF = 4.5 M; ATF = 1.5
CONCLUSION
This new concept begins during contract preparation. The owner and/or the
contractor must prepare contract clauses that will for their purposes define the concept
and describe its application. In private projects, the owners and contractors may agree
upfront to adopt the new concept of total float pre-allocation; however, under public or
hard-bid projects, the owner with or without the contractor’s agreement will adopt this
new concept and insert contract clauses during bid preparation. In this case the public
owner will need to make an arbitrary determination of the pre-allocation percentages. In
this dissertation, an “equal allocation” of total float concept is adopted. Four
recommending contract clauses are developed to direct its use and explain the manner in
which responsibility for any resulting delay may be assigned. The recommending clauses
include:
“FLOAT DEFINITION” CLAUSE
“PRE-ALLOCATION OF FLOAT” CLAUSE
“NO DAMAGE FOR NON-CRITICAL DELAY” CLAUSE
“FORMULAS”CLAUSE
Similar to various concepts currently used, this new concept of total float
management provides that no delay damage will be paid nor time extension granted for
Comprehensive Practice of pre-allocation of total float 1057
REFERENCES
Householder, Jerry L. and Rutland, Hulan E. (1990). “Who Owns Floats”, Journal of
Construction Engineering and Management, 116 (1), March, 130-133.
Pasiphol, Suthi and Popescu, Calin. (1994). “Qualitative Criteria Combination for
Total Float Distribution”, 1994 Transactions of AACE International the
Association for Total Cost Management, DCL3.1-DCL3.6.
Ponce de Leon, Gui. (1986). “Float Ownership Specs Treatment”, Cost Engineering,
28 (10), October, 12-15.
Schumacher, Lee. (1996). “An Integrated and Proactive Approach for Avoiding
Delay Claims on Major Capital Projects”, Cost Engineering, 38 (6), 37-39.
Wickwire, Jon M., Driscoll, Thomas J., and Hurlbut, Stephen B. (1991).
“Construction Scheduling: Preparation, Liability, and Claims”, Wiley Law
Publication, New York, NY.
Wickwire, Jon M., Warner, Tony, and Berry, Mark R. (1999). “Chapter 17--
Construction Scheduling”, Construction Law Handbook edited by Cushman,
Robert F. and Myers, James J., Aspen Law & Business, Gaithersburg, NY.
1059
S
N
Sachs, Tillmann 421
Naoum,Shamil 827
Sammy Kin Man, Wan 369
Ng, S. T. 497
Serpell, Alfredo 455
Ngowi, B. 123
Shaheen, Ibrahim 965
Nitithamyong, P. 467
Skibniewski, M. J. 467
Skitmore, R. M. 889
Smyth, Hedley 475
O
Sommerville, James 205
Odeyinka, Henry A. 359
Ssegawa, J. K. 307
Obas J. Ebohon 103
Stewart, R. A. 3
Ofori, George 275, 287, 987
Sultan, Basel 379
Ogedengbe, P. S. 657
Suraji, A. 389
Ogunba, Olusegun 679, 689
Sutheerawatthana, P. 725
Adebayo
Sze, E. K. K. 497
Ogunlana, S. O. 747, 951, 401
Ogunsanmi, O. E. 631
Ojo, S. O. 185, 591
T
Oladapo, Ade A. 359
Taha, S. A. 703
Olaleye, Abel 601
Takim, Roshana 533
Olanipekun, E. A. 185
Talukhaba, A. 123
Olomolaiye, P. 619
Tang, S. L. 579
Oloyede, S. A. 611
Tangkitsiri, W. 747
Olusola, K. O. 1019
Tatsa, E. Z. 559
Onishi, masamitsu 859
Teerajetgul, W. 261
Orr, R. J. 879
Teo, Melissa M. M. 807
Oyediran, O. S. 91, 401
Tijhuis, I. R., Wilco 433
Tiong Lee Kong, Robert 421
Tochaiwat, Kongkoon 547
P
Tone, K. 889
Palaneeswaran, E. 497
Torrance, J. V. B. 81
Pamulu, Muhammad 521
Tran, D. 889
Sapri
1061
U
Ugwu, O. O. 497
Uwakweh, Benjamin O. 217
V
Vorasubin, P. 1041
W
Walker, D. H. T. 485, 509
Walker, Gary 827
Watanabe, T. 111, 839
Wei, Zhang 145
Weng, Tsai-Chung 1009
Windapo, A. O. 631
Wongwitdecha, S. 849
Wyk, Llewellyn Van 921
Y
Yan, S. 25
Yuen, Rosen W. S. 249
Z
Zannou, S. D. H. 91
1062
1063
Failure 827
D FDI 103
Dam 725 FIDIC 547
Dam removal 725 Flood plain 667
Decision analysis 795 Forces facing the built 165
Decision-making 759 environment
Demand 631 Formal and informal 601
Demographic 631 land market
Indicators Fragmentation 441
Demographics 81
Demotivator 195
Determinants 631 G
Developing countries 135, 217, 323, Gender issues 205
807 Gender participation 185
Development 703, 951 Ghana 619
Development barriers 379 Global market 123
Development strategy 25 Globalisation 15, 69, 81, 103,
Diagnosis 455 249, 807, 921
Diffusion 485 Globalisation 347
Dispute resolution 409 challenges
Diversification 433 Globalization 35, 47, 111,
Dubai 35 145, 433, 817
Dynamic programming 795 Green construction 369
Dynamic strategic 795 alliances
planning
H
E Harmony 153
Economic Indicators 631 Health and safety 135
Economic integration 123 Healthcare projects 783
Education 165 Hong Kong 579
Electronic Project 467 Housing 579, 997
Management Systems Housing Construction 631
Elementary school 1009 and Modeling
Emerging markets 103 Housing- delivery 619
Engineering 827 Housing demand 611
Engineering properties 1019 Housing need 611
Environment 807, 965 Housing policy 667
Environment 931 Human resources 185
protection Hybrid Building 647
Environmental concern 47 System
Environmental 369
excellence model
Erosion sand 1019 I
Ethics 15, 921, 941 Identity 871
Expectancy Theory 217 Indonesia 195, 521, 715
Indonesian 389
construction industry
F Industrial Colonisation 441
Factors influencing 899 Industrialisation 647
project selection Industrialised 297
Factory Built Service 647 buildings
Core Industry 997
1065
P
Paradigm Shift 69 R
Perceived fairness 409 Rainwater resources 1009
Perceptions 807 usage
Performance indicators 533 Readiness assessment 389
and performance Real options 735
measurement Reclamation 965
Performance 1029 Regional initiative 123
measurement Registration 275
Political 715 Relational contracting 239
Political aspect 725 Replacement ratio 1009
Post contract 359 Retarding Agents 441
Post-reclamation 591 Risk 359, 759, 783
management Risk analysis 689, 795
Power 15, 153 Risk area 667
Power projects 715 Risk management 807, 839, 909
Pre-contract 359 Risk management 839
Primary Mortgage 657 process
Banking Risk sensitivity 795
Private infrastructure 103 Risks 715
investments Road infrastructure 909
Privatization 715 Rural infrastructure 335
Process 409
Procurement 57, 111, 771,
941 S
Procurement methods 91 SADC 123
Procurement system 335 Safety 227
Productivity 195, 249, 619 Safety Practice and 817
Project Control 849 Safety Performance
Project finance 909 Sandcrete blocks 1019
Project life cycle 899 Sea water level 931
Project management 827, 889, 899 Secondary Mortgage 657
Project managers 619 Banking
Projects 951 Served and Serving 647
Property development 689 Areas
appraisal Skilled labour 205
Prospect for unitisation 569 Small & Medium 497
vehicles Contractors
Public sector 899
1067
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