CONSTRUCTION INDUSTRY IN KUWAIT: AN ANALYSIS ON CAUSES OF PROECT DELAYS WITH RESPECT TO MATERIAL SUPPLIERS

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1 CONSTRUCTION INDUSTRY IN KUWAIT: AN ANALYSIS ON CAUSES OF PROECT DELAYS WITH RESPECT TO MATERIAL SUPPLIERS Dr.T.Baladhandayutham, Material Control Manager, Kharafi National KSC, Kuwait Abstract In the recent decade, there has been a tremendous development in Construction sector across the globe as a result of evolvement of numerous strategies which allows construction companies to enhance their Construction Planning in collaboration with their supply chain partners having global optimization. The two common concerns in today s construction Management is to optimise the Time and cost required to complete a construction project. Every construction project is a cross functional effort of Owner, Client, Designer, Consultant, Main contractors, Subcontractors and Material suppliers. Typically more than 60% of the value of the construction cost is contributed by the material suppliers and any delay in material supplies could have an immense effect on the construction planning in terms of cost and time overrun. This study is specifically undertaken to analyse and rank the causes of construction project delays related to material suppliers in Kuwait Commercial Building Construction Industry. A set of 48 questionnaires were issued to conduct the survey among the construction companies in Kuwait, which intended to rank the causes of material supply delays in terms of Relative Importance Index, Frequency of Occurrence Index, Severity Index and Overall Importance Index. This study was undertaken with a hope that the findings will be a guidance to mitigate the supply chain risk and will enhance the performance of the construction Industry in Kuwait. Key words: Causes of delay, construction projects, Material Suppliers, Kuwait. Introduction to Supply Chain Management in Construction The concept of research in construction supply chain is an innovative field that emerged in 1990s. As per Stukhart (1995), Construction materials contribute most of the cost component of construction activity. The total value of installed materials may be 60% or more on the total project value, the efficient purchasing and material control represent a key role in the successful execution of any Construction project. Vrijhoef, R., (2000) and 93

2 Koskela (2000) have identified four important roles of Procurement in construction projects, the mutually in-exclusive roles includes the impact on site activities, supply chain itself, goal of cost reduction, transferring activities from the site to earliest supply chain stage and integrated management of site execution to reduce overall cost of project. Introduction to Procurement Bell and Stukhart (1995) defined procurement as a co-ordinated activity of the material management system, which includes materials take off, procurement, follow-up or expediting, material receiving, and material storage. It has been inferred from findings of Min and Galle (1999) that in major organizations, purchasing activities get complicated when variety of materials and services are required for different sections of the organization. As per the findings of Kalakota and Robinson (1999), Procurement has an elaborate meaning and it includes every activity right from material sourcing to management of material inflow into the production system. From 1960s to 1980s, the role of procurement has received more attention and in past three decades, it has started attract immense visibility around the globe. According to a survey conducted at Michigan State University importance of procurement in organizations significantly increased in early 1990s (Trent, et al., 1998). Procurement in Construction Industry Today the construction industry is facing lots of challenges to improve existing work practices and to become more owner or client oriented. This has impacted significant factors, which includes higher expectations by clients, globalization, and increased competitions, work restructuring, improved industrial relations, and need for the industry s to implement ICT. However, the construction industry is facing delays in project progress due to inaccurate and untimely communications between project teams, which results in losing of vital information. Purchasing is seen as a great opportunity for savings since it takes quite a large part in the turnover. At all junctions of construction project there has 94

3 been continuous encouragement to consolidate, innovate, improve quality, improve safety, make partnerships, reduce wastages, deliver on time, meet / save the budget. Every construction Project generally requires two types of materials namely Direct Material (also called as Permanent Materials ) which will form part of Project Permanent installation and In-Direct Materials/Services which are supporting items requires for the day to day site execution of the Projects. Construction materials constitute a major cost component on any construction project. The total cost of materials is 60% or more of the total project value (Stukhart 1995, Bernold and Treseler 1991). By reviewing the process of procurement in the construction projects and other businesses, several typical features make procurement in the construction project different from other standard industrial procurement. De-Centralized Procurement Process Traditionally construction companies are adopting De-Centralized Procurement Process in which Project procurement begins with the award of the Project and issuance of RFQ to the suppliers. In De-centralized process, Procurement Department will play only a meagre role of Processing the Purchase Orders based on the Request received from the Project Offices, where the core Procurement activity is handled by the site Project Team. This type of De-centralized Purchase leads to maverick purchasing even the Procurement Departments ensures checks& balances. Centralized Procurement Process In the centralized Procurement Process, Procurement Department plays a pivotal role in the sourcing and negotiations. The modified process flow of Centralized Procurement process is indicated Figure-1. According to the modified process flow, Procurement Department will issue Request for Quotations (RFQ) to suppliers and commercial evaluation / negotiations with suppliers will be conducted by Procurement Department. Projects will be notified upon finalization of the successful supplier for obtaining the Client / Consultant approval. The Centralized Procurement results in Better prices due to discounts obtained on 95

4 high volumes and better bargaining power with suppliers, it avoids price discrepancies and improve competition for commodities and helps to standardize the procurement procedures. NO Yes Nominate Project Team & Project Budget Re-take off to identify Bill of Quantity (BOQ) Bid Won? Submit Techno Commercial Bid Estimate for Bidding Award of Project Procurement Kick off Meeting & Procurement plan) Prepare Request For Quotation (RFQ) Issue RFQ To Suppliers Receive Quotations (Priced & Un priced) N Quotation Evaluation Revise Submittal Make Technical Submittal to Client Initiate Client Approval for Selected Supplier Negotiation (With Technically qualified suppliers) Un-Priced Bid (Technical evaluation) Price Bid (Commercial evaluation) Submittal Rejected NO Client Approved? N Quote Rejected NO Technically Approved? Yes Yes In-House Approval PO to Supplier Material Expediting & Logistics Supplier (Manufacturing, Inspection, & Dispatch Transportation & Shipping Material Receipt at Project Store Material Issue from Store to Site Construction Figure 1 Centralized Procurement Process In Construction Project Background on the Kuwait Construction Industry Kuwait s already buoyant economy is the third largest in the Gulf Cooperation Council (GCC) countries, after Saudi Arabia and the United Arab Emirates, with its real gross domestic product (GDP) standing at US$32.92 billion in 2002 (UNESCWA, 2003), which is powered by 96

5 its 7% of world s proven oil reserves. Oil and gas related industries are driving economy of Kuwait. Kuwait s real estate sector mainly comprises of the three core segments: residential, investment, and commercial properties. As estimated by MEED.com the Value of Construction Projects in GCC stands at US$2.29 trillion. Top 100 projects in GCC region contribute US$ 1.3 trillion and contribution of Kuwait is over 35% value of construction within Middle East. As the material value contributes more than 60% of the construction project cost, there is a huge scope for efficient procurement practices in Kuwait. Also, at the same time, the delays from Material suppliers will have sizable impact on the project profitability. The following are the types of materials procured by the Construction Material Buyers in Kuwait. Engineered Materials: Materials with a unique assigned number (or tag) such that they can be uniquely identified throughout the entire life of the Project. They are further divided into following: Engineered Major Equipment: Items that are engineered and fabricated specifically for the Project (e.g., tanks, heat exchangers, pumps, etc.) Engineered Minor Equipment: Items that are manufactured to an industry specification and often stocked by the manufacturer or distributor, but for control purpose are uniquely tagged and identified (e.g., control valves, instrumentation items, etc.) Bulk Materials: Bulk items that are manufactured to industry standards and purchased in bulk quantity. (e.g., pipes, cables, fittings, conduits, etc.) Pre-Fabricated Materials: Items that are typically fabricated as per engineered specifications at a fabrication shop or shop site separate from the Project site. Depending on the Project, these items are quantified, procured and delivered by the subcontractor. (e.g., process modules, pre-assemblies, pipes spools, control stations, equipment skids, etc.) 97

6 Minor Materials: Materials such as Tools, Consumables, Safety, MRO Items, Stationery and office supplies that are required for day to day operations. Delays due to Material Suppliers in Construction Projects As the construction is project-orientated, Materials are purchased in accordance with project specification in each project with different types, qualities, functions and prices. According to Abbas (2006), a delay is defined as the time overrun on the completion of a construction project against the completion as per planned contract schedule. The delays are the results of fall in project progress behind planned schedule. The contract delay has severe effect on the owner as well as the contractor as both of them will lose revenues and incur additional expenses. According to Chan and Kumaraswamy (1997), there are three distinct phases of construction process, i.e. project conception, project design and project construction. Most of the project delays occur during the construction phase which involves unforeseen factors. The delays due to material supplies results in time overrun, which needs to be compensated with alternate source with additional cost or with possible time extension from client with delay penalties. As such, the time overrun in construction projects results in cost overrun. According to Al-Khalil et al., (2004), the material procurement process for construction projects has limitations which includes Inaccurate Planning / Purchasing, Wrong Selection of Suppliers, Requirement of Substitute items, Late Negotiation, Miscommunication between Departments in Project, Delays in the Exchange of Design Information, Change in Schedule, Selection of Wrong Materials, Inaccuracy in estimation Quantity of materials, Delays in Manufacture, Delays in Materials deliveries, Inappropriate Contracting, Unskilled Staff in Procurement. Assaf et al (1995) has conducted a detailed study on the causes of construction project delays in Saudi Arabia. The delays resulting from Material Suppliers contributed most important causes of delay including Shortage of construction materials in market, Changes in material types and specifications during, construction, Delay in material delivery, Damage of sorted material when they are needed, urgently Delay in manufacturing special building materials, Late procurement of materials, Delay in selection of finishing materials due to 98

7 availability of many types in market. The delays due to materials suppliers for construction projects as noted from the existing literature are summarized below (Table-1). Table 1 Summary of Literature on causes of Delays due to materials suppliers for construction projects Delay Factors related Material Suppliers Literature Reference 1 Unreliable sources of materials on the local market Kouskili and Kartan (2004) 2 Payment Delays to Suppliers / subcontractors El-Razek, Bassioni and 3 Project Delays related to rework required for the wrong Alinaitwe, Mwakali and materials supplied. Hansson (2007) 4 Delays due to Poor supplier communication, e.g., slow Berechman and Wu (2006) responses to site queries, late receipt of drawings, etc. 5 Poor schedule management Avots (1983) 6 Disputes among the parties involved in the project Bubshait and Al-Juwait 7 Economic slowdown, high inflation, insurance and interest rates Samset (1998); Kaliba, Muya and Mumba (2008) 7 Complexity of construction projects Ghoddosi, Husseinalipour and Jalal (2008) 8 Suppliers / Subcontractor's excessive work load Bubshait and Al-Juwait (2002) The following critical causes of construction project delays related to material suppliers have been observed from the detailed study on existing literature. 1. Lack of communication - Supplier & contractor 2. Inadequate facilities at Supplier factory 3. Mistakes and discrepancies in supplier design documents 4. Delay to provide material related data from Supplier 5. Long Lead time to accept the award of Purchase Orders 6. Complexity of Construction Materials 7. Unqualified Suppliers 8. Shortage of Qualified Suppliers in market 99

8 9. Poor procurement Planning of materials 10. Poor Supplier performance 11. Materials Shortage in market 12. Delay in delivery of materials by Supplier 13. Rework due to poor quality of materials 14. Poor coordination from suppliers 15. Financial Payment delays Research Gaps Identified It has been noted from the literature review that number of studies on the delays in construction projects have been conducted around the globe. Also, it was noted from different empirical studies that project overruns and cost overruns occur mostly during the construction phase and the delays in material supplies has been a major cause of construction project delays, which motivates to under take further studies to identify the critical factors in Material supplies to mitigate construction project delay. It has been noted that limited or no research has been undertaken in Middle East in general and specific to Kuwait analysing the construction projects addressing the delays focussing on the material suppliers. Also, it has been noted that the aforementioned studies conducted mostly in developed countries, which may not adequately address the factors that affect the construction sector in GCC/Middle East. Objectives of the Study The identified research gaps have lead to the following objectives of the study: a) To conduct an empirical analysis on the critical causes of delays due to Material Supplies in Construction Projects in Kuwait b) To Rank the factors in terms of their perceived Importance, Frequency of Occurrence and perceived severity

9 c) To examine the importance of the causes of construction project delays due to material suppliers as combined result of frequency of occurrence and severity in Construction Projects undertaken in Kuwait. Scope & Limitations of the Study Scope of this research is limited to the investigation of causes of material supplier delays for construction projects related to the Commercial and Industrial buildings in Kuwait. The study is limited to its applicability to Kuwait and can be extended only to markets having similar dimensional perspectives in construction segment. The research applies convenience sampling method of data collection, and the limits that apply to convenience sampling methods of data collection hold good for this study also. The findings of the study can be extended for further researches on varied perspectives related to construction supply chain. Methodology & Data Collection Considering the nature of research and based on the various literatures, Quantitative methods of research have been extensively adopted in this research. The following is a brief methodology of the proposed research: Area : Kuwait Industry : Construction Industry (Commercial/ Industrial buildings) Sampling Method: Convenience Sampling Sample Size: Number of Respondents = 30 Instrument used: Interview Questionnaire It has been noted from the literature that questionnaire survey method has been widely adopted and the responses were collected on the basis of pilot surveys. Chan and Kumaraswamy (1997) used a Questionnaire survey with 8 delay factors related to materials, Odeh and Battaineh (2002) conducted survey using 7 factors and Assaf & Al-Hejji (2006) conducted questionnaire surveys comprising 6 factors related to material suppliers among the contractors in Saudi Arabia

10 In line with the methodologies adopted for similar previous studies, a field survey through questionnaire was carried out to conduct the descriptive study on the Construction Contractors in Kuwait in such a way that they belong to an entity with turnover of more than 10 Million USD. The survey questionnaire with 15 critical factors identified from the literatures related to the causes of construction project delays with respect material suppliers was distributed to the representatives of 48 construction companies and responses were received from 30 representatives as per the respondent distribution indicated in Table-2. Table 2 Summary of Distribution of Respondents Average Type of No of Survey No of % Experience respondent Questionnaire Respondents Responded (Years) Top Management % 19 Middle Management % 24 Lower Management % 20 Grand Total % 21 The framework of scaling adopted in the survey questionnaire is summarized below Table-3: Table 3 Framework for Scaling adopted in Survey Quesionnaire Concept Level of Agreement for the Causes of Delay related to Material Supplier Dimension Scale Perception Interval; Likert variable (1 to 5) 102

11 Level of agreement for frequency of occurrence of the delay due to material supplier Level of agreement for severity of the delay due to material supplier on construction project. Perception variable Perception variable Interval; Likert (1 to 4) Interval; Likert (1 to 4) The data collected was subjected to detailed statistical analysis on the basis of Ranking Index approach (as summarized in Table-4), which was predominantly used by the researchers in identifying the critical cause of delays in construction projects. Table 4 Ranking Indices used in Data Analysis Data Analysis Formula Parameters Reference Relative Where, W is the weighting Chan & Importance Index (RII) RII= ΣW*N/(A) given to each factor by the Kumaraswam respondents (ranging from 1 y to 5), A is the highest weight (2002) Frequency Index FI (%) Σ a (n/n)* 100/4 Where, a is the constant Assaf and Hejji expressing weighting given (2006) to each response (ranges from 1 for rarely up to 4 for Severity IndexΣ a (n/n)* 100/4 SI (%) Where, a is the constant expressing weighting given to each response (ranges from 1 for rarely up to 4 for Assaf and Hejji (2006) Importance The importance index of Le-Hoai et al. Index [F.I.(%)* S.I. each cause is calculated as a (2008) IMP.I (%) (%)]/100 function of both frequency Data Analysis Reliability Test for Internal Consistency of Project Delays due to Material Suppliers 103

12 Reliability test to verify the internal consistency of the causes related to material suppliers for construction project delays has been conducted using SPSS 17 and it has been noted that Cronbach's Alpha is > 0.70 for all the variables, which indicates high overall internal consistency among the 15 variables representing the perceived causes related to material suppliers for construction project delays in Kuwait (Table-5). Table 5 Reliability Test Variable Set Cronbach's Alpha Level of Agreement for the Causes of Construction Delay related to Material Suppliers Level of agreement for frequency of occurrence of the delay due to material suppliers Level of agreement for severity of the delay due to material suppliers on construction project Scatter Plot and Correlation Analysis To test the assumptions of linearity and homoscedasticity, a scatter plot was obtained from the Scores of Relative Importance Index, Frequency of occurrence Index, Severity Index and Overall Importance scores. As can be seen from Figure 2, that there is a linear relationship between the variables of Relative Importance, Frequency of occurrence, Severity and Importance scores, such that as the Relative Importance increases, so does Frequency of occurrence, Severity and Importance scores. The scatter plot also shows that the homoscedasticity assumption is met, because the variability of the Frequency of occurrence, Severity and Importance scores remains relatively constant from one Relative Importance score to the next. Figure-2 Scatter Plot - linearity and homoscedasticity 104

13 The Pearson and Spearman s correlation (Table-6 & 7) between Relative Importance and Frequency of occurrence is positive and statistically significant (r = 0.874, p<.001). This means that as the Relative Importance scores increase, so do their Frequency of Occurrence scores. The significant relationship merely indicates that the two variables covary. Similar correlation also exists between Relative Importance of project delays due to material suppliers against the severity of the delays from material suppliers. Also it is interesting to note that the Relative Importance scores positively correlate with the Overall Importance Index scores

14 Table 6 Pearson Correlation Analysis. Correlations RII Score Pearson Correlation SAMZODHANA Journal of Management Research RII Score FI Score SI Score IMP Score **.870 **.925 ** Sig. (2-tailed) N FI Score Pearson Correlation.874 ** **.952 ** Sig. (2-tailed) N SI Score Pearson Correlation.870 **.753 ** ** Sig. (2-tailed) N IMP Score Pearson Correlation.925 **.952 **.914 ** 1 Sig. (2-tailed) N **. Correlation is significant at the 0.01 level (2-tailed). Table 7 Spearman s Correlation Analysis Correlations Spearman's rho RII Score Correlation Coefficient FI Score Correlation Coefficient SI Score Correlation Coefficient RII Score FI Score SI Score IMP Score **.848 **.933 ** Sig. (2-tailed) N ** **.928 ** Sig. (2-tailed) N **.751 ** ** Sig. (2-tailed)

15 IMP Score Correlation Coefficient SAMZODHANA Journal of Management Research N **.928 **.912 ** Sig. (2-tailed) **. Correlation is significant at the 0.01 level (2-tailed). N Analysis of Ranking Indices Based on the Relative Importance Index (RII), as indicated in Table 6, the five most frequent causes of construction projects delays in Kuwait related to material suppliers were identified as Shortage of Qualified Suppliers in market, Mistakes and discrepancies in design documents, Poor Supplier performance, Poor procurement Planning of materials, Long Lead time to award Purchase Orders. Also, it is highlighted from the analysis that causes related to Poor coordination from suppliers, Delay in delivery of materials by Supplier and Unqualified Suppliers are most closely rated with Top Five Causes Delays from Material Suppliers. Based on the Frequency Index (FI), the five most frequent causes of construction project delays related to Material Suppliers were identified as Shortage of Qualified Suppliers in market, Long Lead time to award Purchase Orders, Poor Supplier performance, Delay in delivery of materials by Supplier and Poor coordination from suppliers. Based on the Severity Index (SI), the five factors that were ranked the highest in terms of their Severity on construction project delays due to material suppliers were Poor procurement planning of materials, Shortage of Qualified Suppliers in market, Unqualified Suppliers, Poor Supplier performance and Mistakes & discrepancies in design documents. The rationale for the Importance Index (IMP-I) is that the importance of a cause of a construction project delay is the combined result of the frequency of its occurrence and severity of the factor on the overall project. It has been noted from the analysis that the combined result of the Frequency of occurrence of a cause and its severity on overall project coincides with the Relative Importance Index (RII) indicated above except the changes in the order of ranking of Top Five causes i.e. Shortage of Qualified Suppliers in 107

16 market, Poor Supplier performance, Poor procurement Planning of materials, Long Lead time to award Purchase Orders and Mistakes and discrepancies in design documents. It has been noted from the data analysis that the findings are consistent with those obtained by Chan & Kumaraswamy (2002) in their study of causes of the construction project delays in Malaysia and those obtained by Assaf and Hejji (2006) in their study related to causes of construction delays in Saudi Arabia Table 8 Results of the Ranking Indices S.No F8 F3 F10 F9 F5 F14 F12 F7 F4 F1 F13 Causes of Project Delays related to Material Suppliers Shortage of Qualified Suppliers in market Mistakes and discrepancies in design documents Poor Supplier performance Poor procurement Planning of materials Long Lead time to award Purchase Orders Poor coordination from suppliers Delay in delivery of materials by Supplier Unqualified Suppliers Delay to provide material related data from Supplier Lack of communication - Supplier & contractor Rework due to poor quality of materials Relative Importance Index (RII) Frequency Index (FI) Severity Index (SI) Importance Index (IMP-I) Rating Rank Rating Rank Rating Rank Rating Rank

17 F6 F15 F11 F2 Complexity of Construction Materials Financial Payment delays Materials Shortage in market Inadequate facilities at Supplier factory Conclusions Through this study unique results have been derived from the collected responses. Various indices like Importance Index (IMP-I), Relative Importance Index (RII), Frequency Index (FI) and Severity Index (SI) have been determined to assess the impact of the Factors related to the material suppliers of construction projects in Kuwait. By analyzing the data collected from the survey conducted among the Construction Companies in Kuwait, this study has identified critical causes of construction project delays due to causes related to material suppliers and then ranked them based on three types of indices. In overall context, Shortage of Qualified Suppliers in market (Rank-1), Mistakes and discrepancies in design documents (Rank-2), Poor Supplier performance (Rank-3), Poor procurement Planning of materials (Rank-4), Long Lead time to award Purchase Orders are (Rank-5) five most important causes. In terms of Severity; the Top five factors related to material suppliers impacting the construction delays have been identified as Poor procurement planning of materials (Rank- 1), Shortage of Qualified Suppliers in market (Rank-2), Unqualified Suppliers (Rank-3), Poor Supplier performance (Rank-4) and Mistakes & discrepancies in design documents (Rank-5). In terms of Frequency of occurrence; the Top five factors related to material suppliers impacting the construction delays have been identified as, Shortage of Qualified Suppliers in market (Rank-1), Long Lead time to award Purchase Orders (Rank-2), Poor Supplier performance (Rank-3), Delay in delivery of materials by Supplier (Rank-4) and Poor coordination from suppliers (Rank-5)

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