final account conclusion of building projects

PROJECT TITLE

AN INVESTIGATION OF FACTORS THAT LEAD TO DELAYED FINAL ACCOUNT CONCLUSION OF BUILDING PROJECTS IN MALAWI CONSTRUCTION INDUSTRY

BY: LENSON MHANGO(BQS/09/PE/016)

SUPERVISED BY: MR. C.I.M. CHIOCHA

PRESENTATION OUTLINE

IntroductionProblem StatementObjectives of the studyResearch design and MethodologyResults and DiscussionConclusion and Recommendation

INTRODUCTION Delay can be defined as time overrun or extension of time to

complete the project.

There are high possibilities that delay issues in final account closing cannot be avoided in Malawi construction industry

Delay in final account closing is a situation when the actual planning (time and budget allocation) of a construction project exceeds the planned schedule or on the other hand, final account closing exceeds the time and other provisions specified in the contract (Zarabizan et al., 2009).

“Final Account” is taken in the construction contracts simply as a mechanism for dealing with the final contract sum or final payment due to the Contractor after the Final Measurement Period or after the Maintenance / Defects Liability Period

INTRODUCTION (CONT’D) Construction projects generally comprise five

stages(Rumus, Birchall, Griffiths, 2008):

initiation/planning,

design,

tender,

construction and

final account/defect liability stage

INTRODUCTION (CONT’D)

The role and performance of project participants and contracting parties in a construction project in each stage influence the project success

However, the importance of the final account closing in the stipulated time frame and agreed contract cost is always being neglected

Undue protracted inaction makes the closing of final account more difficult and frequently leads to the emergence of unnecessary dispute (Duncan Cartlidge, 2009).

PROBLEM STATEMENT In the Malawi Construction Industry, the period of final

payment after practical completion tends to be longer than that stipulated in the terms and conditions of various construction contracts.

Most standard contract forms contain provisions where the construction players are obliged to settle the final account and issue a final payment certificate to the contractor within a specified period of time after the receipt of the contractor’s final account statement (PWD, 2010).

Despite this, delays in final account closing continue to be a problem (Zarabizan et al, 2009).

OBJECTIVES OF THE STUDY

Main objective

The main objective is to investigate the factors that lead to delayed final account conclusion of building projects in Malawi construction industry

OBJECTIVES (CONT’D)

Specific objectives

To determine how many contractors have had their final account being paid on time in their respective contracts over the past five years

To identify the challenges that contractors face as a result of delayed final account conclusion and the suggested solutions to the challenges that the contractors face due to delayed final account conclusion

To determine the underlying factors leading to delayed final account settlement of building projects in Malawi construction industry

RESEARCH DESIGN AND METHODOLOGY

LOCATION The study was carried out in the City of Blantyre.

RESEARCH METHOD This study was based on quantitative assessments

DATA SOURCES Data was collected from a range of sources including

literature (published and unpublished), and some building contractors in the city of Blantyre

SAMPLING TECHNIGUE This study adopted the random sampling technique

METHODOLOGY (CONT’D)

SAMPLE SIZE The sample size for this study was 44 building Contractors from

within Blantyre City, Malawi

DATA COLLECTION METHOD Primary data Structured questionnaire was used Secondary data

Already published data like the internet, previous research papers, newspapers and journals

DATA ANALYSIS The main statistics calculated in the data analysis were the

mean, frequency and percentage scores with aid of SPSS software.

The data has been presented Graphically, in Tables and Pie charts

RESULTS AND DISCUSSION (OVERVIEW)

Response rateThe response rate was at 68%

Questionnaires sent Questionnaires received

Response rate

44 30 68%

RESULTS AND DISCUSSION CONT’D

Director/paterner;

23%

Manager/senior man-

agement/ quantity surveyor;

77%

Director/paternerManager/senior man-agement/ quantity sur-veyor

Position / Job Title of the persona that responded to the questionnaire


Overall experience of respondents

less than 5 years53%

Between 5 to 10 years33%

Between 10 to 15 years7%

More than 20 years7%

less than 5 years Between 5 to 10 yearsBetween 10 to 15 years More than 20 years

Years Frequency Percentless than 5 years 16 53.3

Between 5 to 10 years

10 33.3

Between 10 to 15 years

2 6.7

More than 20 years 2 6.7

Total 30 100.0


Firm category

30 million category

7%

75 million category

3%

100 million category

17%200 million category

30%

500 million cat-egory and above

43%


projects executed and completed over the past 5 (Five) years

Frequency Percent1-2 projects 1 3.3

2-4 projects 7 23.3

4-6 projects 4 13.3

6-8 projects 4 13.3

8-10 projects 2 6.7

more than 10 projects 12 40.0

Total 30 100.0

1-2 projects

2-4 projects

4-6 projects

6-8 projects

8-10 projects

more than 10 projects

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

3.3

23.3

13.3 13.3

6.7

40.0

NO. OF PROJECTS EXECUTED

PE

RC

EN

TA

GE

S (

%)


projects that had their final account concluded on time

No. of projects Frequency PercentNone 9 30.0

Less than 2 projects 11 36.7




Less than 10 projects

1 3.3

Total 30 100.0

None Less than 2

projects

Less than 4

projects

Less than 6

projects

Less than 8

projects

Less than 10 projects

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

30.0

36.7

20.0

6.73.3 3.3

NO. OF PROJECTS

PER

CEN

TA

GES %

RESULTS AND DISCUSSION CONT’D Challenges that the contractors face due to delayed final

account closing Representation of additional cost ranked highest with a mean of

3.90

The second highest challenge is reduced credit ratings with a mean of 3.80

The third highest ranking is the increment of bankruptcy among contractors with a mean of 3.76

Opportunity loss of contractors in getting other projects ranked fourth with a mean of 3.66

RESULTS AND DISCUSSION CONT’D Suggested solutions to the challenges

Variations to the contract to be settled at the earliest time possible ranked highest with a mean of 4.60

The second highest suggested solution is preparation and agreement of any aspects of the final account throughout the progress of the works with a mean of 4.57

The third highest ranking that the respondents further agreed was that the parties should start finalizing measurement upon completion of any part of the works with a mean of 4.40


Factors that affect final account closing

Delay in valuation of variations ranked highest with a mean of 4.21

The second highest influence is delay in settling claims; e.g. additional costs with a mean of 4.07

Third highest ranking is ignoring re-measurement of provisional quantities with a mean of 4.00


Findings for objective 1 From the survey, it has been considered that

Final Account, like construction dispute, is a difficult-to-settle-task which is skills-oriented, adversarial, repetitive, tactical, time consuming and, more frequently, lack of appreciation

This has echoed the common understanding in the construction industry that most final accounts were settled far beyond the period stated in the respective contract.

RESULTS AND DISCUSSION CONT’D Findings for objective 2

CHALLENGES RANK

Representation of additional cost 1

Reduced credit ratings 2

Increment of bankruptcy among contractors 3

Opportunity loss of contractors in getting other projects 4

Trade credit constraints 5

Loss of reputation 6

RESULTS AND DISCUSSION CONT’D Findings of objective 2

SOLUTIONS RANK Variations to the contract should be settled at the earliest time possible 1

Preparation and agreement of any aspects of the final account throughout 2 the progress of the Works

Parties should start finalizing measurement upon completion of any part 3 of the Works

Parties should maintain a “running” final account for which 4 measurements and agreements occur throughout the project

Parties to the contract should be up-to-date on all documentation and track 5 records regarding the project


Findings for Objective 3 Delay in valuation of variations- usually are

the root of most claims and disputes

Delay in settling claims; e.g additional costs- nowadays claims in construction contract are verily common and mostly inevitable

Ignoring re-measurement of provisional quantities- Measurement is the central aspect in building project that needs to be dealt with even if there was no change to the works


Findings for Objective 3

Poor documentation and lack of Records- which is common and essential in support of all aspects forming the Final Account, in particular in relation

to valuation of variations, substantiation of claims, measurement, day works and site works which bear

significant impact on the final contract sum

CONCLUSION

For many years, the issue of delay in final account closing of building projects in Malawi construction projects has been recorded as unsatisfactory phenomenal

Client or paymasters should practice an efficient system to make sure that the contractor receives the payment accordingly

Hence, delays of final accounts closing can be resolved at the early stage if the documents are kept properly

CONCLUSION CONT’D

Delay in the closing of final accounts may also cause problems to contractor in making working capital and eventually lead to bankruptcy

Personal in charge in the project should be maintained especially the project manager until the closing of final accounts is completed.

Thus, project managers need to have better understanding of critical success/failure factors in the construction project and how to measure them

RECOMMENDATIONS

In all circumstances, it is not suggested that final account preparation should commence only upon completion of the project

Whilst this may be the case in most situations, it is not good practice, as there is abundant opportunity for final account measurement during the course of the Works

From what have learned through this research, it is suggested that:

RECOMMENDATIONS CONT’D

Variations to the contract should be settled at the earliest time possible

Preparation and agreement of any aspects of the final account throughout the progress of the Works

Parties should start finalizing measurement upon completion of any part of the Works

Parties should maintain a “running” final account for which measurements and agreements occur throughout the project

Parties to the contract should be up-to-date on all documentation and track records regarding the project

THANK YOU

GOD BLESS YOU ALL!!!!!!!!

final account conclusion of building projects

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