Project Cost Reduction-The Role Of Political Leadership (2) | Independent Newspapers Limited
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Agenda, Opinion

Project Cost Reduction-The Role Of Political Leadership (2)

Posted: May 6, 2015 at 2:15 am   /   by   /   comments (0)


Sir Freddy Ogugua Esenwa, a fellow of the Nigerian Institute of quantity Surveyors, In this concluding part of the paper he delivered at the 2015 National Project Cost Reduction Summit titled,  “Value for Money Imperatives for Project Costing in Nigeria”, made some recommendations on the need to improve budgetary funding and timely release of those funds to the Ministry of works and other MDAs for road projects. 

Implementation Of Due Process Principles

If the above guidelines on procurement of go 0ods and services in the construction industry were judiciously observed, project planning and procurement in Nigeria will not experience the inordinate high cost observed on similar projects within the West African sub-region and the international community. These guidelines exist in our statute books but the implementation and the enforcement of the procedures have left much to be desired. One fundamental fault is predicted on the nation’s budgetary practice of revenue and arbitrary allocation and expenditure the sectors.

The project procurement management cognitive field includes processes that are used to identify what to procure and when to procure it.
This is the process of identifying which project needs can be best met by procuring products or services outside the project organization. It involves knowing what to procure, whether to procure, when to procure and how much to procure.

Importance of Project Management

Projects have always needed to be managed. No project can be successful without people being motivated to work to achieve its objectives. Project Managers are important here. In order to bring a project to fruition, project managers:

Evolving a Holistic Procurement Method and Procedure

Undoubtedly, projects are building blocks of development process. Project activities are interlocked with substantive planning and budgeting processes. Plan implementation entails the execution of development projects but the allocation resources to various projects are undertaken through budgets.  This is why project management is in tandem with the planning and budgetary activities.

Nigeria’s fluctuating economic fortunes and not so impressive development record over the years runs counter to the tenets of plans, budgets and project management. Inherent defects and aberrations in the processes have individually and collectively whittled the benefits fromthe exercises.

There is tendency for projects that were not planned for to find their way into the implantation schedule at the expense of those that were in the plan.

Budget Monitoring and Price Intelligence Unit (BMPIU)

The Obasanjo government established in the Office of the President, the office of the Senior Special Assistant, aimed at formulating and implementing appropriate policies on procurement and award of contract.  The unit is guided by its goals, objectives and a set of implementation strategies.

Strategic Planning 

The term ‘strategy’ (which is derived from the Greek word ‘strategos’, meaning ‘general’) has been used in different ways. Authors differ in at least one major aspect, some, such as Kenneth Andrews, Alfred D. Chandler, George A. Sterner/John B. Miner, and Richard Vancil, focus on both the end points (purpose, mission, goals, objectives) and the means of achieving them (policies and plans). But other writers such as Igor H. Ansoff and Charles W. Hofer/Dan Schendel emphasize the means to the ends in the strategic process rather than the ends per se.  The great variety of meanings of the word ‘strategies’ is illustrated in the glossary of one book:[Strategies are] general programs of action and deployment of emphasis and resources to attain comprehensive objectives; the program of objectives of an organization and their changes, resources used to attain these objectives, and policies governing the acquisition, use, and disposition of these resources; tile determination of the basic long-term objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve these goals.

The National Profile 

The way a nation has operated in the past is usually a starting point to determine where it will go and where it should go. In other words, top political leadership wrestle with such fundamental questions as:

Role of Political Leadership

The political Leadership at all levels are expected to play key roles to ensure that the nation gets value for money on development project, alas the reverse is the case in Nigeria as scandalous and unbelievable statistics are highlighted hereunder.

China built the world’s largest hydroelectric plant -22,000 megawatts for $25 billion and Nigeria spent $35.4 billion for 2,500 megawatts.

The project in China was built with less than 83% of the Nigerian counterpart but the Nigeria plant can only produces 11% of that of China. This is with the oversight functions of the National Assembly and Budget Monitoring And Price Intelligence Unit (BMPIU) in this regard. The question here is where is the economic benefit for this overpriced development project? Self-interest of the operators and common good of the citizen is thrown overboard.

In Nigeria, roads are considered the most expensive in Africa; the report states that it’s between N400m to N1bn per kilometre. The combined effect of poor planning, sloppy budgeting process, corruption and lack of absorptive capacity in the Ministry of Works has pushed up the cost of road construction and maintenance in Nigeria, making it the most expensive in Africa.

A report on Road Infrastructure Development in Nigeria (2009-2013), which benchmarked the cost of road construction in Nigeria against what obtained in some African countries showed a remarkable difference that suggests an abnormality in Nigeria.

The report, published by the Centre for Social Justice (CSJ), Abuja, was based on an earlier study, insists on state creation and benchmarking conducted by the World Bank in 2000. In Nigeria, the CSJ report said a kilometre of road costs between N400 million and over N1 billion, an amount the report described as outrageous.
According to the report, a 9.52 kilometre Ibadan Township road in Oyo State was awarded at the cost of N5.8 billion, which is approximately N609.24 million per kilometre. Similarly, the contract sum for the Abuja/Abaji/ Lokoja road, a 196-kilometre project being handled by the Federal Government was awarded at an estimated cost of N42 billion in 2006. It was, however, reviewed upward to N116 billion in 2011, an increase of 176.2 per cent. This was in spite of the declining rate of inflation at an average of 2.52 per cent within the five-year period.

With the total cost of the Abuja/Abaji/Lokoja road project, the cost of the project per kilometre is approximately N591 million, which exceeds the upper bound benchmark cost of $1,374,429.60 per kilometre recommended by the World Bank as cost of constructing a kilometre of paved road.

In the earlier study by the World Bank, a set of indicators were constructed to perform comparative assessments of the contract procurement and implementation processes in the road sector across 13 countries in Sub- Saharan Africa. The countries used in the study were Congo, Democratic Republic of Congo, Ethiopia, Ghana, Kenya, Malawi, Mozambique, Madagascar, Nigeria, Tanzania, Uganda and Zambia.

The research generated a specialised data set for 109 road and bridge works contracts and 76 supervision consultancy contracts in projects financed by the World Bank and “the highest cost overruns” were observed in Nigeria, where the contracts increased their original value by an average of 39.7 per cent during implementation.

On the other hand, the average cost overrun in Ghana was 34 per cent; about 18 per cent in Mozambique and Tanzania while there were no cost overruns in Ethiopia, Uganda and Kenya. In the Limpopo Province of South Africa, the average cost of constructing a kilometre of road falls within the World Bank road construction benchmark.
The CSJ report attributed the abnormal cost of road construction in Nigeria to insufficient budgetary allocation and other associated problems. “There are too many road projects and resources are so thinly spread. There is a great differential between insufficient budgetary allocations to road infrastructure and the releases and cash -backing necessary for MDAs to utilise the funds. This is not good for road infrastructure development in Nigeria.

The delays lead to variations at sometimes about twice the value of the original award. This creates enormous challenges to the fiscal system, especially with the huge amounts posted for augmentation of road contracts,” the report stated. It recommended the need for enhanced investments and a fresh thinking to get new funds for the road sector while existing laws and policies such as those governing the Public Private Partnership (PPP) arrangement and the Infrastructure Action Plan needed to be implemented immediately.

Besides, it recommended that budgetary funding for the road sector should be progressively improved. Beyond appropriations, the Ministry of Finance should ensure full and timely release and cash backing of budgeted funds to the Ministry of Works and other MDAs involved in the road sector. It also called for the reduction in the cost of road project implementation through benchmarking with African and international prices. According to the report, the cost of building roads in other countries such as Ghana, which has nearly the same soil environment as Nigeria, will put extant cost in its proper context.

Monitoring capital projects as a member of the National Monitoring Committee I & II charged with ensuring the optimum utilization of N20m and N25m special grant to each Federal Universities in 1990 and 1992 and Head of Quantity Surveying Division of the National Universities Commission (NUC) has afforded one the opportunity to observe the following short comings in the Nigerian University system and in the nation in particular, on why projects fail.

Procedure for efficient planning and execution of capital projects exist in the Nigerian University system but the implementation of these procedures is the problem. Many Universities do not properly ascertain the scope of work and where they do; they identify the main line scope and never the back up or fail safe nodes.