EFFECTS OF ADVANCE PAYMENT ON COST AND TIME PERFORMANCE OF CONSTRUCTION PROJECTS IN ONDO STATE, NIGERIA

Abstract

The construction industry in Ondo State has experienced frequent changes in the percentage (of the contract sum) used as advance payment with four different percentages of 60%, 50%, 30% and 15% operational in the last ten years. In spite of this, there has not been commensurate improvement in the success rates of construction projects. The purpose of this research was to evaluate the effects of advance payment on cost and time performance of projects with a view to establishing its impact on project execution and delivery. The research employed the survey and case study research approaches. Data for the research were collected through the use of questionnaire and case study. The list of the 80 completed building projects executed under advance payment from years 2004 to 2014 obtained from the Ministries, Departments and Agencies as well as Public Tertiary Institutions in Ondo State served as first sampling frame and the sample size respectively. A total of 194 respondents, namely: clients and contractors as well as professionals who participated in the execution of the sampled projects served as primary source of data. The list of the contractors was obtained from the State Ministry of Works while that of the professionals was obtained from the respective state offices of the professional bodies. The total figure of 194 respondents was scientifically reduced using sample size formula to a generalizable representative sample size of 127 respondents. A total of 65 completed questionnaires out of the 127 administered, representing 51.18%, were the data collected. Historical/archival data on the-said 80 completed building projects executed under AP were also consulted; out which data on 51, representing 63.75% were found usable. The data collected were analysed on Statistical Package for Social Science (SPSS, Version 17) using different statistical methods. Mean item score was used for ranking of identified reasons for the use of advance payment as well as its impact on cost and time performance of construction projects. Iteration of regression equation was used to examine relationship between advance payment and cost and time performance of construction projects. Pearson’s moment of correlation was employed to test the relationship between advance payment and cost and time performance of construction projects; and between advance repayment and the contractor’s cash flow. Cash flow analysis and bar charts were used to assess the effects of advance payment on the contractor’s cash flow. The study revealed that despite non-availability of list of uses backing advance payment in the State, majority of the stakeholders identified the major reasons for the use of advance payment as prevention of delay of works, assisting contractors in stock-piling relevant materials and in solving their financial problems in that order. It was further revealed that cost performance of projects under AP was about 87 percent while time performance was about 300% of the initial contract duration. This shows that advance payment has significant positive effect on cost performance of construction projects while there is no such effect on the time performance. It was also discovered that advance payment impacted on the contractor’s cash flow as 69 percent of the 51 sampled building projects had positive cash flow while the remaining 31 percent had negative cash flow. The study therefore recommended that construction stakeholders should apply the discovered uses in the implementation of advance payment policy in construction projects in the state. It was also recommended that clients and consultants should make advance repayment more convenient for contractors so that the contractor’s financial problem can be reduced. In addition, construction stakeholders were encouraged to utilize the developed cost and time prediction models in construction projects during planning and construction process as much as possible for effective cost control and monitoring.