Causes of Contractors’ Failure in Construction Industry in Rwanda

Abstract

Even though the construction industry in Rwanda is growing at an increasing rate due to the enabling political environment that promotes doing business and a booming private sector driven economy, most construction contractors companies in the country remain at same level of survival and growth in business for quite a long period of time due to a number of hindering factors. This situation is not good for it implies low and/or under developing contracting capacity in the country. The aim of this study is to find out the challenges which cause failure experienced by the contractors in the execution of roads and bridges construction contracts and to develop a strategy to mitigate the failure. In order to achieve the objectives and aim of the study, an online questionnaire survey of 80 construction contractors, 58 consultancy firms and 32 clients was conducted. The researcher surveyed 30 causes of contractor’s failure that had been categorized, from review of the related literature, into four groups: (i) managerial causes; (ii) financial causes; (iii) expansion causes; and (iv) external causes. The respondents rated the factors on a 5 point scale, indicating the relative level of impact on the contracting firm to cause failure. In the data analysis, the causes were ranked according to their severity index as had been assessed by the respondents. Thereafter, the researcher evaluated differences in perceptions of different parties regarding the challenges which cause failure of construction contractors during the execution of construction contracts, using Analysis of Variance combined with multiple comparisons using the Scheffe and Bonferroni methods. The data analysis results showed that out of the thirty identified causes of contractor’s failure, the top five causes as ranked by consultants are: (1) lack of capital; (2) lack of using project management techniques; (3) adopting unsuitable procurement practices;(4) fraud; and (5) award contracts to lower price. Additionally, the top five causes as ranked by clients are: (1) lack of using project management techniques; (2) lack of capital; (3) adopting unsuitable procurement practices; (4) fraud; and (5) award contracts to lowest price. Also, ranking by the contractors themselves revealed the top five causes of their failure to be: (1) adopting unsuitable procurement practices; (1) lack of capital; (3) inefficient deployment of resources; (4) award contracts to lower price, and lack of controlling equipment cost usage. Finally, it was observed that there is a statistically significant difference between perceptions of different party’s consultants, clients and contractors regarding the managerial, financial, expansion and external causes of contractor’s failure in implementation of their construction projects and also their businesses at the corporate level. From these findings, it was concluded that strategic measures should be taken in order to mitigate the contractor’s failures during execution of construction contracts. From the study findings, it is recommended that the contractors should: (i) adopt the more suitable procurement practices; (ii) find ways to increase their working capital;(iii) be aware of risks involved in contracting to the lowest price and endeavor contract to the suitable price; (iv) adopt skillful construction project management techniques in their construction projects. Further research in this area should investigate more causes of failure of the contractors in general.