Difficulties, inefficiencies and opportunities within the

Portuguese construction industry

Alexandre Batista Brito da Silva

Extended Abstract
Civil Engineering

Supervisor: Prof. Doctor. António Morais Aguiar da Costa

December 2014
Introduction

Construction inefficiencies are seen one of the most recurring problems in the construction industry
with consequences such cost and time overruns. As such, several studies have been published in the past and
technological advancements have been made in an effort to mitigate such issues, but perfect solutions are yet
to be found due to the complexity of the problem. Experiencing less favorable economic times, the
construction industry realizes the urgency in bettering their efficiency levels in all aspects related to
construction works. With that in mind, listing the most relevant issues based on the experience of professionals
in the industry can be seen as adequate starting point. Both national and international authors have
approached this subject in this manner although most international studies relate to developing countries
rather than first world countries. Most of the national studies seem to have been published between 2005 and
2010 [1-6] and given that Portugal is considered to be a first world country, there is a possibility that
discrepancies between study conclusions will be encountered.

The main purpose of this study will be to evaluate the current state of the construction industry in
Portugal by seeking differences in terms of challenges and inefficiencies experienced between construction
companies of different sizes and regions. This will be achieved via a survey which will also make it possible to
identify the differences between projects of different magnitudes in terms of inefficiencies. The final part of
this study will revolve around the opportunities which are available to construction companies to reverse their
current situation.

1. Objectives of the study

The main objectives of the study include the following:

 Identifying the biggest challenges currently being faced by construction companies in Portugal
 Describing how these challenges evolved between 2007 and 2012
 Identifying the most relevant inefficiencies experienced during construction works in Portugal and how
these compare to the results obtained in previous studies
 Measuring the impact of these inefficiencies on the capabilities and results of construction companies

 Determining which opportunities available to construction companies show the most promise and are
more likely to be explored by them in the near future

2. Background

In order to have a better understanding of the challenges being faced by construction companies in
Portugal, it is important to first study the environment that surrounds them. As other authors have previously
pointed out, there is an excess of construction companies in Portugal given the number of projects currently
being built [7]. This is due to an abnormal amount of construction being done in the last two decades which has
now come to an abrupt halt since the arrival of the financial crisis.

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 If we look at the construction industry’s weight on the Portuguese gross national product since 2007, it
is possible to observe a sharp decline from 16% to 12% over the six following years [8]. It is also said that as the
level of development of a country rises, the significance of the construction industry tends to diminish since the
needs of the population in terms of comfort and availability are met [8]. In a comparison between Portugal’s
construction industry and the rest of the European Union members, most of Western and Northern Europe
have experienced similar situation to Portugal’s, while only a few exceptions like Norway and Poland has
experienced a somewhat significant growth with 4.7% and 1.6% respectively [9].

When looking at the numbers of private and public projects being built in Portugal, the tendency has
been on a down turn. Looking at the figures from 2010 throughout 2012, the number of private building
projects being concluded each year has gone from 28.100 to 26.400, and in the public sector the amount of
money being allocated for public projects has gone down from 4.8 million euros in 2009 to 1.4 million euros in
2012. In terms of regions, Portugal can be crudely divided in five regions with them being the Northern,
Central, Southern Regions and the Autonomous Regions of Madeira and Azores. The Northern and Central
regions amount to more than half the total number of buildings being made, mostly due to location of the two
biggest cities of the country, Lisbon and Oporto. Following them is the Southern Region and lastly the
Autonomous Regions. [9]

There are several requirements needed for construction companies to bid on projects of a certain value,
with a business license being the most important one. In Portugal these licenses are structured between nine
levels, being that the highest level allows companies to bid on projects for whichever their value. The way
construction companies are spread in terms of these business licenses is shown in the following table:

Project limit License levels 2006 2007 2008 2009 2010 2011 2012 2012/2011
166.000 € 1 16.354 15.229 15.614 14.958 14.580 14.511 13.037 -10,20%
332.000 € 2 2.486 2.706 2.840 3.393 3.465 3.399 3.295 -3,10%
664.000 € 3 2.990 2.808 2.834 2.673 2.590 2.450 2.219 -9,40%
1.328.000 € 4 1.652 1.615 1.632 1.635 1.614 1.546 1.448 -6,30%
2.656.000 € 5 886 945 948 1.007 1.018 1.036 1.035 -0,10%
5.312.000 € 6 354 290 290 323 321 334 291 -12,90%
10.624.000 € 7 122 115 120 126 135 132 123 -6,80%
16.600.000 € 8 53 38 38 43 40 44 42 -4,60%
Over 16.600.000 € 9 88 83 84 86 96 103 98 -4,90%
Total 24.985 23.829 24.400 24.244 23.859 23.555 21.588 -8,40%

Table 1 – Distribution of construction companies amongst business license levels in Portugal [9]

What these numbers translate to is that the vast majority of construction companies in Portugal is
actually composed of smaller companies being that more than half of them have only obtain a level one
business license. The construction industry is also one of the biggest employers in a large number of countries
with Portugal being no exception as the industry accounted in 2007 for around 11% of the more than 5 million
people employed in the country. As the challenges faced by the industry increased, that percentage kept

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dropping year after year with it being a bit over 6% in 2012. Similarly to the decline of employees in the
construction industry, the number of companies has also been steadily getting smaller since 2008 with there
being a drop of 8.4% just from the transition of 2011 to 2012 alone. The way these companies spread
themselves in terms of regions also follows a similar pattern to those of buildings being constructed. The
Central Region accounts for 51.1% of the total number of companies while the Northern Region comes second
with 31.8%. The Southern and Autonomous Regions of Madeira and Azores follow with 12.9%, 2.3% and 1.8%
respectively. [9]

With a better understanding of the direction the Portuguese construction industry has taken since the
beginning of the financial crisis, it becomes quite obvious that both companies and individuals associated with
it need a lot of support in facing the challenges ahead of them. Other issues such as inefficiencies encountered
during construction works will also be analyzed and presented during the literature review.

3. Literature review

Given that several national and international studies have been conducted on the subject of delays
related to inefficiencies in the construction industry, it is important to review them not only for a possible
result comparison, but also to develop our own understanding of the subject at hand. Besides the challenges
and inefficiencies faced by construction companies, a review on literature detailing other opportunities for
these companies was also carried out with the sole purpose of later on presenting them in the survey of the
study.

In 2002, Chan and Kumaraswamy [10] tried to evaluate the construction industry of Hong Kong by
starting with an important overview of a significant amount of previously published studies regarding factors
affecting construction durations and the reasons for project delays. Following this contribution, the authors
took a different approach to those of most studies, being that they tried to identify which where the most
contributing factors for faster construction in Hong Kong instead of what was causing the delays. During the
same year, Odeh and Battaineh [11] published a similar study but in regards to Jordan. The survey conducted
by them sought which were the most important causes for delays in construction projects with traditional type
contracts from the viewpoint of contractors and consultants. This resulted in owner interferences, inadequate
contractor experience, financing and payments, labor productivity, slow decision making, improper planning
and subcontractors being the top contributors for the delays.

A year later, Frimpong et al. [12] analyzed which were the most contributing factors for delays and cost
overruns in groundwater construction projects in Ghana. Their survey was distributed amongst owners,
consultants and contractors involved in groundwater projects and its results revealed that monthly payment
difficulties from agencies, poor contractor management, material procurement, poor technical performances
and escalation of material prices were the main causes for the delays encountered in past projects.

After another year, Long et al. [13] proclaimed that although several other studies had already been
published regarding the subject of delays and inefficiencies in the construction industry, these issues were

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rather contextual and thus needed to be focused on specific geographical areas, regions or countries. In their
study related to large construction projects in Vietnam, the data collected revealed that incompetent
designers/contractors, poor estimation and change management, social and technological issues, site related
issues and improper techniques and tools were the main contributors for the occurrence of delays.

In 2005, Moura and Teixeira [1] present one of the first ever studies conducted within the subject in
Portugal. Although their objective was only to correlate the cost overruns of public railroad projects with delays
encountered during construction works and decision makings, this could be considered the stepping stone for
studies of this nature in Portugal.

The following year, Assaf and Al-Hejji [14] assessed the time performance for different type of
construction projects and the causes for delays in Saudi Arabia. Reaching out to owners, consultants and
contractors it was concluded that 70% of projects experienced time overruns and that the most common cause
for delays was unanimously identified as change orders. That same year, Faridi and El-Sayegh [15] studied the
subject but in regards to the United Arab Emirates. The authors stated that the effects of construction delays
are not confined to the construction industry but rather influence the overall economy of a country such as the
United Arab Emirates where the industry contributes 14% to the GDP. Through the perspective of consultants
and contractors they discovered that 50% of construction projects were experiencing delays with the most
significant causes being approval of drawings, inadequate early planning and slowness of the owners’ decision-
making process. Lastly during that same time period, a second study from Portugal is published by Couto [2]
where a national survey is conducted amongst all types of entities linked to the construction industry. In that
study the owners and contractors are pointed out as the main culprits for delays in construction projects with
the main cause being change orders by the owners.

Four more studies were done in 2007, one of them belonging to Alghbari et al. [16] where they studied
delays in construction projects in Malaysia. The study found that financial and coordination problems were the
most important factors causing the delays. Coincidently, Sambasivan e Soon [17] also researched the subject in
regards to Malaysia during that same time period. In their study they found that improper planning, poor site
management, inadequate contractor experience, inadequate finance and payments for completed work,
problems with subcontractors, shortage in material, labor supply, equipment availability and failure, lack of
communication between parties, and mistakes made during construction stages were the top causes for
delays. A third study from Portugal done by Branco [3] determined that change orders, unrealistic deadlines,
late arrival of equipment and materials, late availability of construction sites and a slow process regarding
Municipal licensing where the main causes for delays according to the contractors interviewed by the author.
Another study still related to Portugal and conducted once again by Moura and Teixeira [4], tried to analyze the
lack of competitiveness amongst the industry focusing on aspects such as time and cost overruns. The main
causes according to the owners and contractors interviewed were change orders and project design errors.

A couple more studies were published in 2008, one of them being a second study regarding the
construction industry in Jordan, this time conducted by Sweis et al. [18]. Collecting the data from a survey

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distributed amongst contractors, consultants and owners, the authors proclaimed that most correspondents
found financial difficulties face by the contractor and too many change orders by the owner to be the leading
causes for construction delays in Jordan. The other study was done by Cabrita [5] where part of his research
involved identifying the main causes for delays in construction projects in Portugal. As such, slowness and
change orders by the owners, late arrival of materials and adverse climate conditions were determined to be
the main causes.

Following these studies, Kaliba et al. [19] studied in 2009 the delays and cost escalation events
encountered in road construction projects in Zambia. It was revealed that bad or inclement weather due to
heavy rains and floods, scope changes, environmental protection and mitigation costs, schedule delay, strikes,
technical challenges, inflation and local government pressures were the main causes for cost escalations. On
the other hand delayed payments, financial difficulties, contract modifications, material procurement, drawing
changes, staffing problems and labor disputes, equipment unavailability, poor supervision, construction
mistakes, poor coordination on site and changes in specifications were the leading causes for the delays.

With the last reviewed study regarding delays and inefficiencies being done by André [6] and once again
in Portugal, this study stated that nine out the top ten identified causes for delays originated from owners
while contractors were only responsible for one of them. This might be due to the fact that the survey was
conducted only amongst contractors and thus became biased in favor of that group.

4. Research methodology

As already mentioned, the main objectives of this study revolve around the challenges, inefficiencies
and opportunities experienced and available to construction companies in Portugal. The intent would be to
explore this in a manner of comparisons between construction companies of different sizes, construction
companies with activity throughout the different regions of Portugal, and to identify differences in terms of
inefficiencies amongst projects of different magnitudes.

Similarly to previous studies, a survey structured with the following parts was distributed amongst a
large number of construction companies with the help of the Construction and Real-estate Institute and the
Portuguese Association of Designers and Consultants through the months of October-December of 2012:

 Part I – General Information regarding the respondent and his company

 Part II – Challenges and Inefficiencies encountered by construction companies
 Part III – Opportunities available to construction companies

Most of the questions in this survey followed a five point Likert format where the lowest value (1) meant
irrelevant and highest value (5) very relevant. It should be noted that not all questions followed these terms,
seeing as a few of them intended to measure the answers in terms of importance or impact.

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 Given that the total number of construction companies with business licenses in Portugal at the time of
this survey was 22.737 [9], the sample size needed in order to claim a confidence level of 95% and a confidence
interval of around 5% was determined through the following steps:

( )

( )

( )

( )
( ) ( )

After collecting all the data, while using a program called Statistical Packages for the Social Sciences,
statistical tests were to be run in order to prove or disprove hypotheses. These tests could be classified as
either parametric or nonparametric, being that nonparametric tests are seen as the least powerful and more
vague regarding conclusions. As such, running parametric tests would be more adequate and provide better
findings although certain requirements need to be met beforehand. Parametric tests require that the sample
means follow a normal distribution which can be achieved according to the Central Limit Theorem by
comparing individual groups with sizes only larger than 30. [20]

Given the sample size for each of the nine levels of business licenses, it would become impossible to run
comparisons with the intent of finding differences between companies with different business licenses and
simultaneously respect the requirements previously stated:

Business licenses Total

Sample
1 2 3 4 5 6 7 8 9
distribution
111 70 37 30 38 16 11 7 23 343

Table 2 – Sample distribution of construction companies according to their business licenses

Therefore these samples would need to be split into three larger groups and thus become possible to
conduct such comparisons:

Business licenses Total

Sample
1 2 3 4 5 6 7 8 9
Redistribution
218 84 41 343

Table 3 – Sample redistribution of construction companies according to their business licenses

In regards to the whereabouts of these companies, having divided Portugal in four regions with them
being the Northern, Central, Southern and Autonomous Regions, the size of the groups met the minimal
requirements and needed no further grouping:

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 Sample distribution
Northern Region 167
Central Region 175
Southern Region 120
Autonomous Regions 41

Table 4 – Sample distribution of construction companies according to their location

As a final note regarding group samples, construction projects were to be divided into two groups with
one of them being projects under 2 million euros and the other one projects over that same mark.

The different types of statistical tests to be used for the data analysis were the following:

 T-Student
 OneWay ANOVA
 Welch
 Tuckey

With the exception of T-Student tests which merely serve the purpose of producing descriptive tables,
all other tests are designed to test the null hypotheses. If a null hypothesis is rejected then we are able to
affirm that there is a statistically significant difference between the values given by the selected groups.

5. Data analysis

By running a descriptive analysis with the intent of figuring out which were the biggest challenges
currently being faced by construction companies in Portugal, the following results were obtained:

Confidence level – 95%

T-Student [full sample] Mean
Inferior Superior
1 Lack of private projects 4,63 4,55 4,71
2 Lack of financial resources 4,43 4,34 4,53
3 Tighter profit margins 4,41 4,31 4,50
4 High-risk investments 4,38 4,28 4,47
5 Obtaining lines of credit 4,31 4,19 4,42
6 Lack of public projects 4,19 4,06 4,33

Table 5 – Most relevant challenges according to the full sample of construction companies

It should be noted that these values place these challenges somewhere in between the terms relevant
(4) and very relevant (5) according to the construction companies. If we take a closer look at the values given
by each business license group, the challenges which in fact rejected the null hypotheses were: lack of public
projects, obtaining lines of credit, number of competing companies and high process complexity. In general,
larger companies gave higher values to these challenges with the exception of high process complexity which
followed an opposite tendency. An interesting detail was the value given by the smaller companies to the lack
of public projects when compared to the value given by larger companies. The larger companies gave this a

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4.95 which is extremely close to the maximum value while the smaller companies gave it only a 3.94, which
could explain the reason why the challenge only topped at number six on Table 5. The reasoning behind it
could be the value of these projects generally being too high for these smaller companies to bid on. In terms of
regions, although each region rejected a null hypothesis when comparing challenges with the rest of the
country, the highest discrepancies happened within the Autonomous Regions of Madeira and Azores. These
regions registered a much higher value for both lack of public projects and obtaining lines of credit when
compared to the rest of the country. On the other hand, the Southern region showed smaller values for most
of the challenges with the exception of lack of private projects. In regards to how these challenges progressed
between the years of 2007 and 2012, the only null hypotheses rejected were between larger companies and
medium and smaller companies, with challenges seemingly being harsher on larger companies with a value of
4.78.

Regarding inefficiencies in the construction industry, a list of 59 inefficiencies was presented in the
survey which ended with the following being given the highest values in terms of relevance:

Confidence level – 95%

T-Student [full sample] Mean
Inferior Superior
1 Financial difficulties and delayed payments by the owners 4,55 4,46 4,65
2 Financial difficulties and delayed payments by contractors towards subcontractors 4,25 4,14 4,37
3 Slowness in obtaining Municipal permits 4,01 3,88 4,14
4 Low labor productivity 3,71 3,58 3,84
5 Errors and inaccuracies made by project designers 3,64 3,50 3,78
6 Slow decision-making process and change orders by the owners 3,61 3,48 3,75

Table 6 – Most relevant inefficiencies according to the full sample of construction companies

The top two inefficiencies listed appear to be linked given that project funds follows a top-down
hierarchy. As owners become late on their payments towards contractors, subcontractors will only be paid at a
later date. The other four inefficiencies all seem to be scattered amongst other categories such as external
factors, labor, designers and owners. Similarly to challenges faced by construction companies, exploring the
differences between larger and smaller construction companies in terms of inefficiencies has also shown higher
values in almost all inefficiencies that reject the null hypotheses for larger companies. The most notorious
pointed out by these were: slow decision-making process and change orders by the owners, slowness in terms
of revisions and approvals by the owners, errors and inaccuracies made by project designers, delays in work
done by subcontractors and inflexibility by consultants. Regionally speaking, all of them with the exception of
the Autonomous Regions of Madeira and Azores exhibited differences of opinion to specific inefficiencies when
compared with the rest of the country. These differences always presented higher values regarding the regions
being analyzed with the single exception of budget errors achieving a smaller value for the Northern Region.
Projects of over 2 million euros also experienced higher values in all inefficiencies when compares to smaller
projects. The differences between them were mainly allocated to owners, project designers and external
factors. The levels of impact inefficiencies have over the capabilities and results of these companies have

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proven to be quite extensive. The main factors hindered by these inefficiencies would be their ability to remain
afloat given that companies now face bigger challenges and thus need to be wary of costly mistakes, and also
their ability to innovate which has diminished given the lack of funds necessary to invest in themselves. As a
final point regarding inefficiencies, companies were asked whether they believed that mitigating inefficiencies
would be the correct approach to reverse their current situation and to become more competitive to which
they rendered a value of 4.52 and thus were in agreement.

In spite of the negative aspects being faced by the industry, some say that there are other opportunities
for construction companies yet to explore and better their profits. The following list was included in the survey
with a brief description of each item in order to mitigate any confusion by the respondents:

Confidence level – 95%

T-Student [full sample] Mean
Inferior Superior
1 Building rehabilitation 4,59 4,50 4,68
2 Sustainability 4,34 4,24 4,43
3 Building management and maintenance 4,08 3,98 4,18
4 Environment 4,08 3,97 4,18
5 Information and communication technologies 3,91 3,81 4,02
6 Supply chain management 3,83 3,72 3,94

Table 7 – Opportunities available to construction companies and their levels of interest

Given the results, it becomes quite obvious that construction companies within Portugal are more
inclined to diverse themselves towards building restorations and sustainability. This could be due to the large
quantity of cultural heritage buildings being displayed throughout the cities and a large amount of publicity and
research being done on modern buildings becoming more sustainable. Regarding the possibility of companies
forming more partnerships and improving their collaboration skills, it was agreed upon that these practices are
indeed extremely important but despite the fact, they are seen as almost nonexistent within the Portuguese
construction industry. To conclude the survey, several questions concerning the internationalization process of
companies were answered where although the process was seen as being complex and time-consuming, it
would become a likely scenario especially for larger construction companies given the state of affairs in
Portugal.

6. Conclusions

In between the survey data and the work done regarding the background and literature review, several
conclusions were reached. Challenges faced by construction companies showed some of the highest values
gathered amongst all questions presented in the survey. There was also a certain level of agreement between
what other authors had stated in the past and what was observed. The lack of both private and public projects
has indeed become more relevant as each year passes by. Every construction company motions against the
lack of private projects while the larger companies express the same feeling towards public projects. With the
arrival of the financial crisis not only were banks less likely to concede credit lines, but it also turned away

9
investors given the high risk of proposing new projects in an already saturated real-estate market. With the lack
of business being done, companies start to see their financial resources dwindle and their profit margins
become smaller. Given all possible groupings, it would be acceptable to state that larger companies and those
located within the Autonomous Regions of Madeira and Azores are the companies experiencing the biggest
challenges while smaller companies in the Southern Region of Portugal are being less challenged.

Concerning the most relevant inefficiencies, the owners are guilty of being at the center of two of them
while having an indirect influence on a third one. Previous national studies [2][3][5][6] had shown that owners
were in fact guilty of a slow decision-making process, change orders, setting unrealistic timeframes and always
accepting the lowest bids when appointing contracts. The international studies [11][12][14-19] on the other
hand, associated the owners with a slow decision-making process, change orders and financial difficulties along
with delayed payments towards contractors. Is it then possible to say that there is a high level of agreement
between the findings of previous studies and those of this study, while also mentioning that slowness in
obtaining Municipal permits, low labor productivity and errors and inaccuracies made by project designers
were also extremely relevant. Given that previous national studies had not done any kind of comparisons
between companies of different sizes and locations or projects of different magnitudes, it was then impossible
to seek a match for those findings. Nevertheless, it was found that whenever the null hypotheses were
rejected, values for inefficiencies were generally higher for larger companies and consequently for bigger
projects. These inefficiencies were also thought to have quite a severe impact on the capabilities and results of
construction companies and as such trying to mitigate them would be an important step towards upping the
level of competitiveness of the construction industry.

In terms of opportunities presented to construction companies, some interesting results were achieved
such as building restorations and sustainability being the most valued. There is a possibility that these areas
might have some contextual influence given the cultural heritage of buildings in Portugal and the spread of the
term sustainability amongst newly built buildings. The low levels of collaboration within the Portuguese
construction industry are seen as a weakness but construction companies still regard it as an important
practice in order to survive and achieve better results. Lastly, the internalization process spiked some interest
mainly from larger construction companies where although they see it as a difficult process, they believe it
might be the only realistic solution given their current situation.

Considering the objectives initially proposed for this study, these were fully achieved. Through the
research done it was possible to identify the most relevant challenges and inefficiencies according to
construction companies in Portugal. A comparison between these findings and those of other authors in
previous studies was also done. A characterization on how challenges evolved after the arrival of the financial
crisis, and a measure over the impact inefficiencies had over the capabilities and results of construction
companies was also presented. As a final step the areas which construction companies thought as the most
promising in the future were also listed.

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References

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[2] Couto, J. P., (2006). Tese de Doutoramento em Engenharia Civil “Incumprimento dos Prazos na Construção”,
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[3] Branco, D. M., (2007). Tese de Mestrado em Engenharia Civil “Causas e Efeitos dos Atrasos na Construção”,
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[12] Frimpong, Y., Oluwoye, J., Crawford, L., (2003). “Causes of Delay and Cost Overruns in Construction of
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