EVALUATION OF THE ADMINISTRATION OF CONSTRUCTION BONDS IN LAGOS AND ONDO STATES, NIGERIA

Abstract

Construction works are plagued by diverse risks and problems such as project abandonment, building collapse, contractor insolvency, projects failure, among others. One of the risk management practices in combating these issues in construction projects is the use of construction bonds. This research therefore examined the administration of these bonds with a view to ascertaining their effects on overall construction projects success, thereby providing relevant empirical information for stakeholders for effective administration of construction bond. Primary data were collected through administration of questionnaires on identified construction bond stakeholders namely: clients of public projects: quantity surveying and architectural firms; contracting firms; and guarantors of construction bonds (banks and insurance companies). Interviews were also conducted on experienced respondents and it was ensured that each of the group of stakeholders were represented. In addition, historical quantitative data of completed bonded public/government projects were also obtained. Mean item score was used for ranking the identified factors while Pearson's moment of correlation, Kruskal-Wallis and Mann-Whitney tests were employed to examine relationship and differences in sample means of different groups of respondents respectively. Iteration of regression equation was used to examine relationship between construction bond administration and project delivery indices while structural equation model was applied in developing framework for administration of construction bonds. The study revealed that despite the high importance attached to usage of construction bonds, some of the stakeholders were not fully aware of it and its level of usage for construction projects was on the average. It was also observed that identified problems of construction projects were more inherent in projects that are not bonded. Construction bond guarantors have the greatest effect on bond administration compared to other stakeholders and only about two-third of the contractors have the character, capacity and capital to be part of construction bond agreement. It was also discovered that construction bond administration contributed about 78% to success of construction projects. The study therefore recommended the need to adopt the use of construction bonds for all forms of projects either public or private as against the current practice where it is only mandated for public projects. In addition, in an open circumstance where insurance and bank bonds are acceptable, it is expedient to encourage contracting firms, clients and other construction bond stakeholders to see insurance companies as their first point of call while seeking for bond guarantor as a result of their low interest rate.