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Investigating Challenges in Financing Contractors for Public Sector Projects in Ghana

  • CSIR-Building and Road Research Institute, Ghana
  • building and Road research institute kumadi
Journal of Building Construction and Planning Research, 2017, 5, 58-70
ISSN Online: 2328-4897
ISSN Print: 2328-4889
DOI: 10.4236/jbcpr.2017.52005 June 15, 2017
Investigating Challenges in Financing
Contractors for Public Sector Projects in Ghana
Prince Abrokwa Ofori, Kwadwo Twumasi-Ampofo*, Joseph Agyei Danquah,
Ernest Osei-Tutu, Safowaa Osei-Tutu
CSIR-Building and Road Research Institute, Kumasi, Ghana
Contractors working with the Public sector encounter numerous challenges in
financing projects in Ghana. The challenges which have persisted over the
years are both financial and managerial. This paper seeks to ascertain the e
tent to which contractors’ challenges in acquiring funds to execute public se
tor projects have been solved. The study involved both qualitative and qua
titative methods to ascertain the various
strategies the contractors go through
to obtain public sector projects focusing on the challenges associated with the
project execution. The study revealed that delayed payments and inadequate
cash flow on the part of government, lack of credit worthiness
and inadequate
collateral security from contractors are key determinants to challenges ass
ciated with financing public sector projects in Ghana. This paper recommends
the establishment of a Construction Development Authority (CDA), within
the Ministry of
Works and Housing to develop financial plans, policies and
laws for this important sector of the economy.
Public Sector, Project Financing, Delayed Payments, Performance and
Contractor Classification
1. Introduction
Contractors in Ghana have encountered many challenges over the years which
affect performance and delivery. What is prominent among these challenges is
financing contractors for public sector projects. A number of studies have been
conducted on the success of projects and factors affecting contractors’ perfor-
mance in Ghana; [1] [2] [3] [4]. However, these studies show poor performance
by both large and small scale contractors. Other authors also claim that perfor-
mance is greatly hindered due to managerial inefficiencies [5] [6] [7]. Most gov-
How to cite this paper:
Ofori, P.A., Twu-
-Ampofo, K., Danquah, J.A., Osei-
, E. and Osei-Tutu, S. (2017) Investi-
gating Challenges in Financing Contractors
for Public
Sector Projects in Ghana.
of Building Construction and Planning
, 58-70.
March 19, 2017
June 12, 2017
June 15, 2017
Copyright © 201
7 by authors and
Research Publishing Inc.
This work is licensed under the Creative
Commons Attribution International
License (CC BY
Open Access
P. A. Ofori et al.
ernment contracts are poorly planned in the mist of government’s fiscal con-
straint [8] while managerial issues affect contractor performance [9]. Financing
public sector projects continues to play a dominant role in the delivery of infra-
structure development in Ghana. Financing is an arrangement to ensure that all
demands on an institution for money to support expenditures and repayment of
loans that are due can be met [10]. Financing is therefore an attempt to coordi-
nate economic decision making to ensure that all payments are made on goods
and services without debts or outstanding payments to be made. The govern-
ment of Ghana is the main client (Employer) for public sector projects with
most funding through the Consolidated Fund, Ghana Education Trust Fund
(GET-Fund), National Health Insurance Scheme (NHIS), District Assembly
Common Fund, Donor Agencies and International Partners. Public sector
projects in Ghana are usually designed and supervised by either private or public
consultants who help in the contract documentation, monitoring and evaluation
[11]. With interest rate comparatively high at 25.32% as at January, 2016BoG,
[12] coupled with enormous collateral requirements from financial institutions
make it extremely difficult for contractors to access loans and therefore rely on
informal and ad- hoc financial services. The most prominent constraint faced by
contractors in Ghana is the difficulty in obtaining funds for the acquisition of
construction equipment which form the basis of collateral for project financing.
For example, in United States of America (USA), the financial growth rate of
construction firms is exactly related to the quantum of collateral that a company
can produce when seeking for funds [13]. There have been difficulties in acquir-
ing funds, especially, bank loans in Ghana which have been a major setback to
the development of small-scale businesses in developing countries [14]. The
success of obtaining loans largely depends on the conditions of contract, condi-
tions of the local financial market and the degree to which the design of the ar-
rangements is adapted to the local circumstances [15]. Contractors eligible to
execute projects in the public sector must first be registered with the Registrar
General Department and also be of good standing in terms of personnel, equip-
ment and fulfillment of all tax obligations. According to the Ministry of Works
and Housing (MWH) [16], contractors are selected for specific projects based on
their classifications for building and civil works. The classification register is
solely for the use of Government Ministries, Departments, Agencies and Corpo-
rations, National, Regional, Metropolitan, Municipal and District Tender Boards
and other Institutions which require the services of Building and Civil Contrac-
tors for the execution of projects. The Classification exercise aims at the proper
grading of contractors into categories and financial classes (
. D1/K1, D2/K2,
D3/K3 and D4/K4) with K1D1 being the highest on the classification scale. The
aim of this study is to ascertain the extent to which contractors’ challenges in
acquiring funds to execute public sector projects have been solved.
2. Literature Review
Performance is the behavioral competencies to achieving the goals of project-
P. A. Ofori et al.
based organizations [17]. The definition suggests that performance entails the
output and outcome of all activities of an organization in relation to the organi-
zation`s set goals and objectives. The performance of the public sector contracts
in relation to effective and efficient financing of public sector projects has been
the challenge of the sector over a period with successive governments. The po-
tential reasons for construction delays of public projects has been due to un-
timely honoring of certificate by client, credit inaccessibility by contractors and
price fluctuations [2]. Badu
et al
. [18] confirmed this by stating that both large
and small-scale contractors experience difficulty in accessing funds. It is en-
shrined in the general public contract conditions of the Public Procurement
Authority (PPA) [19], that certificates be honored within 28 days of issuance of a
claim but this barely happens especially with contracts involving local contrac-
tors. It is therefore difficult for local contractors to compete with foreign firms
both in terms of financial and material resources and as a result fail to win most
of the major projects in Ghana [20]. Also, the contractors revealed challenges
such as delayed payments by government, inadequate cash flow, change of gov-
ernment, and bureaucratic processes involved in acquiring funds from financial
institutions hinder the successful execution of public sector projects leading to
eventual abandonment of projects [21]. Memon
et al
. [22] claim that payment
difficulties are a major issue confronting contractors in construction projects,
causing delays and a consequent cost overrun. Access to credit, a lack of capacity
to compete with foreign contractors, low technology, poor project preparation
and contracts awarded based on political considerations had the greatest effects
on the performance of Ghanaian contractors [23]. Major factors affecting con-
tractor performance is cash flow among others [24].
Every construction project needs to be regularly financed for its successful
completion. Most common sources of funding for construction projects are as
follows: Firstly, through trade credit where a contractor receives credit from a
supplier of goods in the normal course of business. In practice, the contractor
does not have to pay cash immediately for material purchase to be made. A sup-
plier sends goods to the contractor on credit, which the contractor accepts and
therefore agrees to pay the amount due on a future date. Trade credit is a spon-
taneous source of financing, easily available and flexible [25]. This source of
funding is largely dependent on the personal relationship between the contractor
and the supplier. Secondly, accrued expenses is another spontaneous source of
short term financing and is a natural source as it allows the contractor to receive
services before paying for them. This represents spontaneous, interest-free
source of financing. Thirdly, deferred income is when the contractor receives
funds for the services he has agreed to supply in the future. These receipts in-
crease the contactors’ liquidity in the form of cash. This advance payment made
by clients constitutes the main item of deferred income [25]. Finally, Bank bor-
rowing is when construction firms borrow from banks, which happens to be the
main institutional source of working capital finance. Contractors receive funds
in the form of overdraft, cash credit, and discount of invoices, letters of credit
P. A. Ofori et al.
and working capital loans. After trade credit, bank credit is the most important
source of working capital requirements for contractors. As reported by the
American Institute of Architects, [26], funding problems have been the primary
factors stalling commercial real estate construction. There was cancellation of
many construction project contracts at the beginning of the economic recession
in 2008 due to lack of funding [27]. The Immigrant Investment Program (EB-5)
was set up in 1990 to help stabilize the economy of the USA through job creation
and capital investment by foreign investors. Construction Investors benefited as
this provided them a source of funding and succeeding or remaining on the
sidelines. Sewalk
et al.
, [27] further state that, although there are benefits to the
EB-5 program, industrial projects proved rather challenging, especially high-tech
projects that employ few people. Deloitte, [28] suggests that government should
investigate into mechanisms to stimulate market interest and make infrastruc-
ture asset more attractive so that a relatively small investment by government
(for example through co-funding or a guarantee) could leverage into a much
larger increase in total financing as private sector financing is increased by a
multiple of government investment in the United Kingdom (UK). Under
co-funding, government provides a proportion of about 50% of the total funding
requirement as loan at a low rate of interest reflecting the government’s cheaper
cost of funding. This by Deloitte, a UK private company, is advantageous since it
reduces cost of funding and increases the pool of funding available; financing
large projects and involve government lender to encourage additional finance as
the market is more confident in the projects. In the United States, as public
budgets continue to tighten at all levels of government, innovative financing is
becoming increasingly important. In September, 2014, a U.S. department of the
Treasury, office of the economic policy, reported an alternative financing which
include Public Private Partnership (PPP), the Transportation Infrastructure
Finance and Innovation Act (TIFIA), bonds (such as Build America Bonds),
tax-exempt qualified private activity bonds (PABs), and credit enhancement.
Nesan, [13] reported that, critical factors responsible for increased rate of busi-
ness failures among the small contractors in the United States include; liability of
newness, smallness and adolescence, pace of growth, and unplanned regional
growth. Nesan [13] further explains that the line of credit system predominates
construction financing and that collateral intensive of companies become the
commonality among them when they seek for fund. Cushman
et al
., [29] make
mention of refinancing, mortgage, and transaction loans as other forms of credit
Financial Institutions in Ghana usually request documents from contractors
as evidence before granting any form of support. These documents include con-
tract award letter, contract document, letter of undertaking, audited accounts,
management structure, source of funding, size of the project and collateral
property. Most importantly is the financial standing and Ministry classification.
In Ghana, two main ministries are responsible for public construction namely;
Ministry of Works and Housing (MWH) and Ministry of Roads and Highways
P. A. Ofori et al.
(MRH). Eligible contractors are classified under either ministries. They classify
the construction firms from K1D1 to K4D4 where K1D1 is the highest classifica-
tion level eligible for large contracts while K4D4 is the minimum level eligible
for small contracts. There is a direct connection between financial institution
and the construction industry. The issue of funding cannot be left out in the op-
eration of a construction company in every country. Each party has a role to play
in ensuring a successful completion of construction projects. Commercial banks
are mostly seen to be collaborative with contractors so that, they are mentioned
frequently in signing of contracts. Kibodyo, [30] agrees that some of the most
common internal problems attributed to liquidity in construction firms are poor
cash flow. Most of these contractors in Ghana have been classified under Small
and Medium Scale Enterprise (SME) category of businesses. One of the most
pressing challenges of SMEs is obtaining the working capital required for
projects [31]. Where collateral security and other documents are available to se-
cure loans, there is a further inhibition of high interest rates. It is very difficult
for small scale contractors to work on several projects simultaneously due to
unavailability of funds [32]. Some factors considered critically which includes
liability of newness, smallness and unplanned regional growth could be held re-
sponsible for the increased rate of business failures among construction firms
[30]. To handle these factors effectively, appropriate construction financing sys-
tem needs to be instituted for small scale firms so that, the liabilities and risks
associated with them can be efficiently addressed.
It is worth noting that the construction industry is very important as it con-
tributes between 5% and 10% of most countries GDP including Ghana [4]. Its
contribution to GDP has shown an increasing trend from 8.5% to 11.8% from
2010 to 2013 respectively and various attempts have been made to boost this
sector over the years. Some of the solutions include the establishment of finan-
cial institutions to sustain the construction sector. For instance, the Bank for
Housing and Construction (BHC) and the First Ghana Building Society were es-
tablished to fund and support contractors and other players in the construction
industry between 1957 and 1987. These outfits, before they were closed down by
government in 2000 due to liquidation, sought to mobilise savings for project
financing. The Supreme Military Council I (SMC I) regime financed the Low-
Cost Housing project in the 1970s. This led to establishment of estate housing in
some districts and regional capitals [33]. The structural adjustment programme
in 1983 saw the formation of a national housing policy committee. This com-
mittee had, as part of its mandate, to find alternatives in solving the problems
associated with public project financing. There still exists a huge infrastructure
gap despite various attempts by successive governments. To close this infra-
structure gap, the government of Ghana has since 2001, encouraged Build-Own-
Operate and Transfer (BOOT) system through Public-Private Partnership (PPP)
[34]; where a private entrepreneur finances public projects, operate/own for an
agreed period of time and transfer it to the government upon expiry of the pe-
riod as has been the case with the provision of students’ accommodation in pub-
P. A. Ofori et al.
lic universities. These BOOT system of financing has been a success in the stu-
dent hostel projects. On the other hand, institutions such as Building and Road
Research Institution of the Council for Scientific and Industrial Research (CSIR-
BRRI) and Construction Industry Development Institute (CIDI) has been estab-
lished to research and offer strategic leadership respectively to the built envi-
ronment. Clearly all these attempts need to be well coordinated by an apex body
to provide funding, and regulate activities of this sector of the economy and re-
lieve the Ministry of Water, Resources, Works and Housing (MWRWH) from its
numerous functions. Examples elsewhere, of such apex bodies are as stated by
Ofori [4], as follows: Ministries of Construction in China and Vietnam, the Na-
tional Construction Council in Tanzania, the Construction Industry Develop-
ment Board in Singapore and the Construction Industry Development Council
of India. These agencies manage and fund construction firms and organsations
dedicated to the continuous development of the industry.
3. Methodology
3.1. Study Area
The study was conducted within the Kumasi Metropolitan area which is one of
the thirty (35) districts in Ashanti Region, Ghana. It is located between Latitude
6.35˚N and 6.40˚S and Longitude 1.30˚W and 1.35˚E and elevated 250 to 300
meters above sea level. It is approximately 270 km north of the national capital,
Accra. Kumasi, the second largest city, in Ghana and is the administrative capital
of the Ashanti region of Ghana. It is a centrally located nodal city with high
concentration of economic activities and an annual population growth rate of
5.4% (KMA, 2017). The respondents for the study are located in suburbs in-
cluding Adum, Ahodwo, Asafo, Ashanti New Town, Asokwa, Ayigya, Dichemso,
Kwadaso, Patasi, Suame among others.
3.2. Methods
This study employs a mixed approach to ascertain the extent to which contrac-
tors’ challenges in acquiring funds to execute public sector projects have been
solved. Data was collected using a combined research approach which includes
the review of pertinent literature, interviews and administering of survey ques-
tionnaires [35]. The questionnaires are grouped under three sub-headings. The
first sub heading inquired as to the contractors’ classification and sources of
funding. The second sub-heading asked questions about the management chal-
lenges the contractors face in financing public sector projects while the third
sub-heading asked questions about some financial challenges. The questionnaire
used a three-point Likert scale (where 1 represents strongly disagree, 2, neutral
and 3 represent strongly agree) to ascertain whether these issues still persist as a
challenge to contractors. The level of agreement by a respondent indicates un-
derstanding as to the extent to which the challenges have been solved. The re-
sults obtained are analyzed using frequency clustered charts and bars [36]. Pur-
posive sampling technique was used to select fifty four contractors within the
P. A. Ofori et al.
Kumasi Metropolis. 54 contractors were considered for the study but 49 firms
representing 90.7% responded. Data was collected for a period of 20 days. Enu-
merators targeted owners or management members of the firms making use of
drop-off and pick-up method [37]. This allowed respondents the options to ei-
ther self-complete the questionnaire or interviewed in order to obtain high re-
sponse rate.
4. Findings and Discussions
4.1. Source of Funding Public Sector Projects
The survey indicated (Table 1) that, 43% of the construction firms were classi-
fied under K1D1 with 39% and 18% remaining classified under K2D2 and K3D3
respectively. This shows that a total majority of 57% firms were small-scaled and
this is evident in the current situation of the construction industry in Ghana as it
is dominated by small-scaled firms.
4.2. Source of Funding
Table 2 represents the summary of the responses on the Source of fundingfor
execution of public projects. The highest ranked factor was the difficulty to ob-
tain funds from bank to finance public projects with an average response value
of 2.4, followed by pre-financing through internally generated funds (2.3).
However, these two highly ranked factors were within the neutral response rate
Table 1. Classification of contractors.
Classification Frequency
Percentage (%)
K1D1 21 43
K2D2 19 39
K3D3 9 18
TOTAL 49 100
Table 2. Source of funding.
1 2 3 Sum
(N) ΣW Mean Rank
Projects are pre-
financed through
Internally generated fund 14 5 30 49 114 2.3 2
Use of bank credit facilities to
finance public projects 35 3 11 49 74 1.5 3
It is difficult to obtain funds from
bank to finance public projects 12 4 33 49 119 2.4 1
Interest on loans for public
projects is low
(Bank Lending Rate)
44 1 4 49 58 1.2 4
Source: Authors’ Field Survey, (2017).
P. A. Ofori et al.
and therefore did not agree. Two other factors including pre-financing through
the use of bank credit facilities and low interest rate were not agreed upon with
average values of 1.5 and 1.2 respectively.
It is obvious from Table 2 that obtaining funds to finance public sector
projects is a challenge which goes a long way to delay the projects and affect
performance. This confirms a study by Ofori-Kuragu
et al
. [6] in which they
mention among others, difficulty in accessing credit facilities by contractors. The
results show a continuous trend of funding challenges as state earlier by Badu
. [18]. Internally generated fund (IGF) as a solution to financing public project
seems very critical to the respondents. An interview with some of them indicated
that investment which could help secure IGF is low due to high operation cost.
Moreover, high bank lending (interest) rate as emphasised by Ugochukwu, [32]
makes it difficult to generate IGF in the sense that a larger part of their profit is
used to service loans if a company manages to obtain one. Lending rate is rela-
tively high at an average 28.11% per annum making it difficult to access loans
from banks in Ghana by the respondents.
4.3. Managerial Challenges
Managerial challenges have been spelt out in Table 3. Respondents did not agree
on any of the factors with 1.6, 1.9 and 1.9 mean values for qualified personnel
sections”, “functional management structure” and “difficulty in documentation
for funding” respectively. Only one factor (difficulty in obtaining records) had a
mean value of 2.6. The study reveals four factors that make up the managerial
challenges including “functional management structure”, “qualified personnel
handling various sections of the company”, “records keeping and documenta-
tion”. Every credible organization needs a well-structured management system
in place to progress. The firm must be able to have a well-defined and organized
management structure in place. Respondents, in an interview, agreed that, their
management structures are non-existent and therefore encounter challenge in
financing public sector projects, claiming that the most companies (D2/K2,
Table 3. Managerial challenges.
1 2 3 Sum
(N) ΣW Mean Rank
Your company has a
functional management
23 6 20 49 95 1.9 2
Records on projects are
difficult to obtain 9 3 37 49 126 2.6 1
Every section is headed by a
qualified personnel 31 6 12 49 79 1.6 4
Preparing documents for
funding is difficult 21 10 18 49 95 1.9 2
Source: Authors’ field survey, (2017).
P. A. Ofori et al.
D3/K3) are managed by the Chief executive officer without permanent adminis-
trators and accountants. Respondents claimed that lack of proper documenta-
tion is a challenge to the firms’ acquisition of funds for public projects. This con-
firms studies by Ahadzie and Amoah-Mensah [7] that most contractors fail to
obtain financial assistance due to poor managerial practices. Local contractors
require technical training as well as assistance in business management and con-
tracting procedures in order to strengthen capacity of small scale firms in the
construction industry Deelen and Bonsu [15]. Moreover, this confirms Laryea
[20] study which highlighted difficulty in obtaining qualified personnel by con-
tractors. It is therefore not surprising to realize the establishment of the National
Artisan Training Centre in Kumasi by the Building and Road Research Institute
to train personnel for contractors.
4.4. Financial Challenges
Summary of the responses on the financial challengesfor execution of public
projects is shown in Table 4. The highest ranked factor was the delays in ho-
nouring certificateswith an average response value of 2.7, followed by difficulty
to meet collateral requirements for loans with a mean value of 2.6 and savings
with more than one bank (2.0). Continuous cash flow for projects was the lowest
ranked with an average of 1.8 which indicates respondents’ disagreement with
this factor. Similarly, the three highly ranked factors were within the neutral re-
sponse rate and therefore not agreed upon. Respondents agreed that, delayed
payments (honouring of certificates) on the part of Government (The Employer)
is a significant hindrance to financing public sector projects even though some
contract documents available indicate up to 90 days for employers to honour
certificates. The study revealed some reasons for delayed payments to include
poor planning and bureaucracy on the part of the employer. This confirms ear-
lier studies by Fugah and Agyarkwa [2] and Badu
et al
. [18] about untimely
payment of certificate by clients. The survey indicated that cash flow is a major
challenge based on the contractors experience in an interview. Table 4 shows
Table 4. Financial challenges.
1 2 3 Sum
(N) ∑W Mean Rank
There are delays in honouring
of certificates 4 5 40 49 134 2.7 1
Cash flow for public projects
is continuous 24 9 16 49 90 1.8 4
It is prudent to save with
more than one bank 24 3 22 49 96 2.0 3
It is difficult to meet collateral
requirements for loans 7 4 38 49 129 2.6 2
Source: Authors’ field survey, (2017).
P. A. Ofori et al.
that respondents agreed that poor cash flow from contractors is a challenge fac-
ing contractors financing public sector projects. As stated by Kibodyo, [30] some
of the most common internal problems attributed to liquidity in construction
firms is poor cash flow. Akomah and Jackson [24] reiterated that major factors
affecting contractor performance is cash flow. Furthermore, savings habits (sav-
ings with more than one bank) with the aim of taking advantage of different fi-
nancial products simultaneously as revealed in an interview is seemingly, not
prudent. This survey again brings to light inadequate collateral security as a ma-
jor challenge in obtaining funds from financial institutions for public sector
projects. An interview with respondents indicated that it is difficult to procure
equipment to serve as collateral due to high import levies and taxes.
5. Conclusions and Recommendations
Majority of the sampled public sector contractors were small-scaled in nature.
Contractors in Ghana continue to experience financial and managerial chal-
lenges and not much has been done to solve these challenges. At the design stage
of a public project, an assessment has to be made for possible ways to finance the
public sector projects contractors. Negotiations with private partner institutions
have to start at an early stage to allow the institutions enough time to peruse the
legal and financial details. Government and her agencies (Employers) must en-
sure prompt honoring of certificates as enshrined in the contract conditions.
Regular and timely payment will eventually help contractors to service loans ob-
tained from financial institutions and ultimately boost contractorscredit wor-
The study recommends that credit worthiness of contractors, in terms of ma-
terials and equipment procurement, could be enhanced if they are allowed to
import with a tax waiver to help maintain and increase good equipment stand-
ing of contractors. Qualified construction professionals should be employed by
construction companies to aid in carrying out proper planning towards a suc-
cessful project. Employees already employed need further training to ensure
better management of the firms. Government should also ensure timely honor-
ing of certificates for contractors to complete projects on time; adequate finan-
cial standing of government for construction works is significant in honoring
certificates to contractors to maintain constant cash flow throughout the entire
duration of the construction. Private Sector should continue to partner govern-
ment in order to generate adequate funds for timely completion of projects
through PPPs. Ultimately, this paper recommends the formation of a Construc-
tion Development Authority (CDA), within the Ministry of Works and Housing
to develop financial plans for public projects, policies and laws to improve this
important sector of the economy.
Authors are particularly grateful to Emmanuel Ampofo Twumasi, and Sampson
Kusi, National Service Personnel for their assistance in the data collection exercise.
P. A. Ofori et al.
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... This has however been a problem in both developed and developing countries, as the lack of funds and access to finance have hindered industry players from contributing meaningfully to the construction sector and the economy at large [4]; [5]; [6]. Ofori et al. [7] also confirmed that contractors' performances are negatively impacted by financing, especially in public projects. ...
... Matara [14] reported that construction firms face serious drawbacks in securing finance and these hurdles come majorly from high-interest rates and the small size of the majority of the firms that operate in the construction market. Ofori et al. [7] reported that the delays in honouring payment certificates and meeting collateral requirements are a major drawback to the financing of projects. However, keeping good records of financial transactions, excellent capital base and improved revenue generation; have been highlighted as important to construction firms getting finances. ...
Full-text available
Financing is critical to the success of every construction project. Construction projects are capital intensive and require a sustainable flow of financial resources for project targets and objectives to be met. The purpose of this study was to examine the major finance sources in construction project delivery and their impacts on the construction sector. A well-structured quantitative questionnaire was administered to construction experts in client, consultants and contractors organisations for gathering data via electronic means using the snowball sampling technique in Nigeria. The collected data were analysed using appropriate descriptive statistical tools and the Kruskal- Wallis test. The study found that finance is critical to the success of every construction project and the frequency of need ranges from high to very high. The impact of financing equally ranges from high to very high as financing affects different aspects of the functioning of the construction organisations and their projects. The major sources of Finance for Construction Projects in Nigeria are Credit from suppliers, Bank loans, Bank overdrafts, Personal savings, and Retained profit. Financing impacts the construction organisations and projects, particularly in areas such as improved investment in technology, enabling early mobilisation of work on-site, improved managerial capacity, better competitive strength, and high quality of the project. Clients, as well as contractors, should establish a good relationship with suppliers of building materials and equipment to ensure that needed materials are obtained on credit for the smooth running of construction projects. Project managers would leverage the various financing sources for financing investment in modern construction technologies and equipment
... The Ministry of Water Resources Works and Housing (MWRWH) and the Ministry of Transport (MoT) are responsible for contractor classification after companies have been incorporated to do business Lake Volta by the Registrar General's Department in the country. Classification for building works (D) and civil engineering works (K) ranges from D1K1, D2K2, D3K3 and D4K4 with D1/K1 being large-scale contractors and D4/K4 representing smalland medium-scale contractors (Ofori et al., 2017). The numbers 1-4 fixed against the letters D and K indicate highest to lowest financial capacity, plant and equipment holdings, as well as the technical and managerial expertise of staff (Laryea & Mensah, 2010;Ofori et al., 2017;Sena, 2012). ...
... Classification for building works (D) and civil engineering works (K) ranges from D1K1, D2K2, D3K3 and D4K4 with D1/K1 being large-scale contractors and D4/K4 representing smalland medium-scale contractors (Ofori et al., 2017). The numbers 1-4 fixed against the letters D and K indicate highest to lowest financial capacity, plant and equipment holdings, as well as the technical and managerial expertise of staff (Laryea & Mensah, 2010;Ofori et al., 2017;Sena, 2012). These classifications are to ensure that contractors can execute specific volumes of work in line with the operational and financial ceiling of classes of companies (Sena, 2012). ...
... The Ministry of Water Resources Works and Housing (MWRWH) and the Ministry of Transport (MoT) are responsible for contractor classification after companies have been incorporated to do business Lake Volta by the Registrar General's Department in the country. Classification for building works (D) and civil engineering works (K) ranges from D1K1, D2K2, D3K3 and D4K4 with D1/K1 being large-scale contractors and D4/K4 representing smalland medium-scale contractors (Ofori et al., 2017). The numbers 1-4 fixed against the letters D and K indicate highest to lowest financial capacity, plant and equipment holdings, as well as the technical and managerial expertise of staff (Laryea & Mensah, 2010;Ofori et al., 2017;Sena, 2012). ...
... Classification for building works (D) and civil engineering works (K) ranges from D1K1, D2K2, D3K3 and D4K4 with D1/K1 being large-scale contractors and D4/K4 representing smalland medium-scale contractors (Ofori et al., 2017). The numbers 1-4 fixed against the letters D and K indicate highest to lowest financial capacity, plant and equipment holdings, as well as the technical and managerial expertise of staff (Laryea & Mensah, 2010;Ofori et al., 2017;Sena, 2012). These classifications are to ensure that contractors can execute specific volumes of work in line with the operational and financial ceiling of classes of companies (Sena, 2012). ...
... The Ministry of Water Resources Works and Housing (MWRWH) and the Ministry of Transport (MoT) are responsible for contractor classification after companies have been incorporated to do business Lake Volta by the Registrar General's Department in the country. Classification for building works (D) and civil engineering works (K) ranges from D1K1, D2K2, D3K3 and D4K4 with D1/K1 being large-scale contractors and D4/K4 representing smalland medium-scale contractors (Ofori et al., 2017). The numbers 1-4 fixed against the letters D and K indicate highest to lowest financial capacity, plant and equipment holdings, as well as the technical and managerial expertise of staff (Laryea & Mensah, 2010;Ofori et al., 2017;Sena, 2012). ...
... Classification for building works (D) and civil engineering works (K) ranges from D1K1, D2K2, D3K3 and D4K4 with D1/K1 being large-scale contractors and D4/K4 representing smalland medium-scale contractors (Ofori et al., 2017). The numbers 1-4 fixed against the letters D and K indicate highest to lowest financial capacity, plant and equipment holdings, as well as the technical and managerial expertise of staff (Laryea & Mensah, 2010;Ofori et al., 2017;Sena, 2012). These classifications are to ensure that contractors can execute specific volumes of work in line with the operational and financial ceiling of classes of companies (Sena, 2012). ...
... 6.14 Lack of creditworthiness Financing public sector projects continue to play a dominant role in the delivery of infrastructure projects of any economy. Ofori et al. (2017) opined that contractors will want to know how to be viewed as the best candidate for a loan or credit to further expand their business and these are usually assessed based on cash at hand, fixed assets, receivables and payables ratio and under and overbilling. Creditworthiness is how a lender determines if the contractor will default on debt obligations, or how worthy to receive new credit (Brewer and Rivoli, 1990). ...
Purpose The purpose of the study is to elicit risk factors that are peculiar to public-private partnership (PPP)-procured mass housing in Nigeria from the expert perspectives in ensuring the success of the scheme thereby reducing housing deficit in the country. Design/methodology/approach The risk inherent in construction projects had been established through literature in general. The risk in PPP projects is emerging because of the recent acceptance of the procurement option by governments all over the globe. The Nigerian Government has also adopted the procurement option in bridging the housing deficit in the country. This study, therefore, conducts a Delphi survey on the probability of risk occurrence peculiar to PPP mass housing projects (MHPs) in Nigeria. Pragmatic research approach through the mixed method of both quantitative and qualitative methods was adopted for this study. The quantitative method adopts the administration of questionnaires through the Delphi survey, whereas the qualitative method used interviews with the respondents. A two-stage Delphi questionnaire was administered to construction practitioners that cut across academics, the public and the private sectors by adopting convenient sampling techniques and following the Delphi principles and procedures. A total of 63 risk factors were submitted to the expert to rank on a Likert scale of 7 and any risk factors that the mean item score (MIS) falls below the grading scale of the five-point benchmark is deemed not necessary a risk factor associated with PPP MHPs and thereby expunged from the second round of the Delphi Survey. The interview was subsequently applied to the respondents to substantiate the risk factors that are peculiar to PPP-procured mass housing in the study area. Findings The findings show that risk factors such as maintenance frequent than expected, life of facility shorter than anticipated and maintenance cost higher than expected fall below 5.0 benchmark with MIS of 4.64 and 4.55 indicating that the risk factors are not peculiar to PPP mass housing in Nigeria. Research limitations/implications The implication for practise of this research is that these risk factors provide the PPP stakeholders with the comprehensive checklists that can aid in developing PPP risk assessment guidelines in the sector though both partners should be aware of the dynamic nature of risk because new ones might be emerging. Originality/value The authors hereby declare that the research findings are a product of a thorough research conducted in the study area and have not to be submitted or published by another person or publisher and due acknowledgement was made where necessary.
... Financing government-sponsored construction projects to play a dominant role in the delivery of infrastructure development (Ofori et al., 2017) in Ghana. Concomitant to this is the fact that the methods used in sponsoring construction are delicate and risky and this makes it different from much more certain and stable financing methods obtainable in manufacturing (Ssegawa, 2001). ...
Full-text available
The Ghanaian construction industry predominated by family-owned construction firms has established its dominant impact on economic development, albeit unstructured. This literature review is to dissect extant literature bringing out the uniqueness of the sector and attempt a classification for family-owned construction firms in Ghana. Anchored in a value-free axiological tradition in which the classification criteria of family-owned construction firms can be obtained by objective means set out in the framework, this study was undertaken by an extensive literature review from journals databases, textbooks, and relevant reports and citations. The review began with searches using “AND” and “OR” operators to search abstracts, titles, and a keyword with no restriction placed on the article's date of publication. Content analysis was done of the articles and with lots of information on family-owned businesses, very few on family-owned construction firms. Existing frameworks on the classification of family-owned businesses formed the basis of this framework. The key findings indicate that small and medium-sized family firms predominate the construction industry. The physiognomies of family-owned construction firms also contribute to their proliferation and overarching importance within the sector. The novelty of this study is that it merges information from the general business and construction industry and carves criteria for which family-owned construction firms can be identified and classified. For academia, the paper contributes to the stream of knowledge on what constitutes family-owned construction firms whilst exposing the lack of research in this constituency. It also serves as the foundation upon which future research can be conducted in the field of family-owned construction firms. For practitioners and policymakers, the paper offers insights into how to identify family-owned construction firms to be able to distinguish them for targeted support to grow the economy. Future research should be targeted at examining the growth and sustainability of family-owned construction firms. Article visualizations: </p
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Funding Infrastructure for Ghana Via Public-Private Partnerships (PPP) And Private Finance Initiatives (PFI)
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Over the years, indigenous contractors in Nigeria have recorded a low level of participation and have often been sidelined in large scale construction activities. This has been attributed to, amongst a number of factors, mismanagement of funds and working capital which makes them prone to bankruptcy, with poor project execution and abandonment the likely outcome. The paper thus focused on studying the extent of participation of indigenous contractors in Nigerian construction projects, identifying and examining the most severe factors that hinder effective and efficient working capital management and affect the level or amount of working capital requirement of indigenous contractors. Literature studies, field survey and oral interviews were carried out to determine the major challenges faced by contractors in managing working capital and the extent of indigenous participation in public projects respectively, while questionnaires were distributed to a selected sample of contractors in Imo state to obtain the severity weight of each factor. Findings revealed that evidently, the common challenges facing Nigerian indigenous contractors in Nigeria in the area of working capital management are low awareness of the need for working capital management, one-man business setbacks, under-capitalization, poor funding and cash flow problems, high cost of construction finance, economic recession, reckless spending and diversion of funds, poor project planning and control. Factors affecting the level of working capital requirements comprises: inflation, delays in interim payments, taxation at source and deduction of retention funds. Indigenous contractors also recorded a low level of participation on major public contracts. Results of the severity ranking exercise indicated that the problems of the one-man business set up is the most severe of the factors hindering proper working capital management, while deduction of retention fund and inflation respectively, ranked highest in factors affecting the level or amount of the contractors' working capital requirement. It was thus recommended that in order to enable indigenous contractors realize construction projects within pre-planned cost, time and quality, reduce the incidences of project abandonment and improve their overall participation, there is need for concerted efforts on the part of the contractors to take appropriate steps in maximizing their awareness on the gains of proper working management and minimize incidences that will lead to cost escalation of his working capital requirement and on the part of the Government, a focused, political will to devise policies and create the enabling environment for improving indigenous content in the construction industry.
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Construction projects do not require a large capital outlay but a large working capital to start up the project. Unfortunately, for small contractors there are very limited options available from the banks or other lending institutions to cover this large working capital requirement in the absence of sufficient collateral. The “Project Finance” method presented in this paper is recommended as the most effective method for small contractors in the United States. The problems of small and start up contractors in funding their projects have been little addressed in the literature. The current financing practices were observed through both the literature review and interviews with contractors and bankers in the western Michigan area and subsequently a system has been proposed which could help a small start-up company seeking higher growth. The growth rates that can be achieved using the project finance system in contrast to the traditional “line of credit” arrangements as illustrated in this paper show that the project finance model is beneficial.
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Time overruns are common occurrences in the Ghanaian Construction Industry (GCI), inevitably resulting in budget overruns and eventual project abandonment. This paper presents the findings of a survey which aimed at exploring the severity, frequency and significant Critical Failure Factors (CFF) engendering time overruns in public building projects in Ghana. Thirty CFF were identified based on a two-tier strategy - extensive review of extant literature and exploratory interviews. A total of 240 structured questionnaires were administered to the three key stakeholders within the GCI - clients, consultants and contractors. Based on a response rate of 55%, the five most important factors that engender time overruns have been identified - recurrent default of interim payment by government, government’s refusal to pay local for interest on delayed payments, lengthy payment processes resulting in delays, difficulty in arranging for extra funds when projects exceed their initial budget and interference, bribery and conflict of interest in the selection of contractors. The results of a Spearman’s rank correlation test showed no difference in the viewpoints of the key respondents. The results of this paper have highlighted the widely held belief that most government contracts are poorly planned in the mist of government’s fiscal constraints. It is expected that the findings will provide deeper insight into the underlying factors influencing time overruns and provide pointers towards averting project delays. © 2015 Korean Society of Civil Engineers and Springer-Verlag Berlin Heidelberg
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The purpose of this study was to identify various implementation bottlenecks to the Ghana Public Procurement Law 2003 (Act 663). The study adopted multiple research approaches, including; review of relevant literature, interviews and questionnaire survey of 49 District Assemblies and Metropolitan and Municipal Assemblies in the Ashanti and Brong Ahafo Regions of Ghana. The study identified low capacity of procurement professionals, low interaction between procurement entities and Public Procurement Authority (PPA), deliberate controlling of competition, non-compliance with provisions of the law, splitting of contracts into smaller lots, lack of funds and non-cooperativeness of suppliers, as the major challenges militating against the implementation of the Public Procurement Law.
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The main aim of this study was to ascertain and discuss the current challenges and opportunities facing construction contractors in Ghana. This involved a review of the economic, legal and political environments in which contractors in Ghana operate; a review of published studies on construction in developing countries generally and Ghana specifically; and in-depth interviews and discussions with seven building and civil engineering contractors in Ghana in 2009 and 2010. Six road contractors were also interviewed. The findings indicate significant challenges relating mainly to financing for projects and a harsh business environment. However, most contractors interviewed admitted to significant problems in their own organisations. It is clear that the contracting environment in Ghana is harsh particularly for local contractors who are often not paid on time and without compensation for late payment. However, local construction firms in Ghana who want to breakthrough ought to formulate the right strategic plans, develop innovative business strategies, develop professionalism, and merge with local firms with similar organisational values and characteristics. In short, local or indigenous Ghanaian contractors ought to face up to the reality of competition and the dynamics of modern business in order to survive, grow and become major players in the construction industry in Ghana.
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Aim of Study: This study has focused on investigating procurement strategies adopted in MARA large construction projects. It also identified various factor affecting construction cost performance of MARA large construction projects. Need of Study: Very rarely MARA projects are finished within estimated project cost. For improving cost performance, it is very important to identify the reasons affecting cost performance of MARA projects. Hence, there is a need of study in understanding the reasons and factors affecting project cost performance of construction projects. Research Approach: The project was carried out through interviews and survey using the questionnaire among the personnel involved in handling MARA large projects. Gathered data was analyzed statistically using SPSS software package. Research Findings: This study revealed that fluctuation in price of the material, cash flow and financial difficulties faced by contractors, shortage of site workers, lack of communication between parties, incorrect planning and scheduling by contractors are most severe factors while frequent design changes and owner interference are least affecting factors on construction cost performance in MARA large projects. Limitations: This study was limited to large construction projects administrated by Majlis Amanah Rakyat (MARA) Malaysia. Importance and Contribution: This study has highlighted various issues causing poor project performance in MARA large projects. Ranking of the factors will enable the MARA engineers for taking appropriate actions in improving the performance of cost in construction projects.
This article provides information for Extension professionals on the correct analysis of Likert data. The analyses of Likert-type and Likert scale data require unique data analysis procedures, and as a result, misuses and/or mistakes often occur. This article discusses the differences between Likert-type and Likert scale data and provides recommendations for descriptive statistics to be used during the analysis. Once a researcher understands the difference between Likert-type and Likert scale data, the decision on appropriate statistical procedures will be apparent.