Reasons for Cost Overruns on Projects in Saudi Arabia

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Table of Contents

Introduction
Causes of Project Delay
Consequences of Project Delay
Affects policy development
Conflict
Cost
Low quality work
Abandon project
Strategies Employed to Avert Project Delay
References

Introduction

A timeline is defined as a linear order of events or activities for a project (Alsuliman 2019). It is often recommended that projects have such a chronological order of activities to anticipate outcomes and ensure the efficient delivery of the project. Thus, timelines ensure that no project overruns (delays) are recorded. This research study focuses on project overruns as recorded in construction projects in the Kingdom of Saudi Arabia. As Albogamy, Scott, and Dawood (2012) note, Saudi Arabia has had a boom in construction over the last decade. This has primarily been attributed to the steady growth and expansion of university campuses in the country. It can be argued that the country’s economic growth, coupled with individual wealth, has encouraged significant infrastructure growth in the country (Majed et al. 2018). On the same note, however, Assaf and Al-Hejji (2006) explain that 70% of these megaprojects are usually delayed. There are several reasons why projects are negatively affected by their overruns. This literature review will analyze some of the common causes of project overruns in Saudi Arabia. The information that will be presented will be collected from secondary sources made up of peer-reviewed journals. It is important to note that the study’s knowledge area will revolve around the causes of project overruns in Saudi Arabia and how this affects the success of construction projects in the country. For example, a critique of Dr. Shabbab Al Hammadi and Sadique M. Nawab’s (among others) study on construction overruns will explain both the causes and consequences of the same. Hammadi and Nawad are both senior civil engineering lecturers at Shaqra University.

Causes of Project Delay

Alsuliman (2019) notes that one of the most common reasons for project overruns is poor planning at the initial stages. It is critical to point out at this juncture that project overruns are a result of mistakes done by three parties: the owner, consultant, or contractor. The three mentioned make up the decision-making body of a construction project and offer guidance on the initial plan of action (Assaf, Al-Khalil, and Al-Hazmi 1995). Alsuliman (2019) explains that during the initial planning stages, the owner, consultant, and contractor have to decide on the appropriate timelines for the project. If this is not done well, then the probability of project overrun is high. Shrivas and Singla (2020) state that it is common to find that the owner of the project has more power, regarding the allocation of both time and resources to the project, in Saudi Arabia. Due to this, the consultant and contractor are typically limited as they are expected to deliver the project according to the owner’s terms. However, they might technically disagree with the proposed timelines. Arantes and Ferreira (2020 a) explain that the three mentioned parties have to agree on reasonable timelines from the start to make objective individual milestones based on the appropriate timelines. There are several things that Arantes and Ferreira (2020 b) explain have to be considered when making that initial plan that also denotes the time allocated for the project. The first is the complexity of the project. More complicated projects will need more time to deliver. The size of the project and the availability or accessibility of raw materials also have to be considered to make the appropriate initial timeline.

According to Mahamid, Bruland, and Dmaidi (2012), a second reason for project overruns is a lack of clarity on the project. Shrivas and Singla (2020) explain that the new construction designs in Saudi Arabia are not only more complex than ever, but also futuristic. This has been enhanced by globalization and enhanced technology. The lack of clarity comes in the form that the design that the owner of the construction prefers is not technically sound to the contractor. Again, the owner’s bargaining power can tie down the contractor to a design that is not only challenging but also not clear. Alsuliman (2019) explains that 15% of project overruns were caused by a lack of clarity on the design on the part of the contractor. Alhajri and Alshibani (2018) suggest that contractors, owners, and consultants should agree on the design before the project starts to allocate the right time for project completion. Clarity should be maintained throughout the project (Hammadi and Sadique, 2016). This is because all projects have unforeseeable complications that the decision-makers have to maneuver through in order to ensure the successful completion of the project. Elawi, Algahtany, and Kashiwagi (2016) suggest that, due to panel decision-making complications, one technical person must be assigned the role of heading the project to ensure clarity. This would mean that the person suggested (between the owner, consultant, and the contractor) can promptly make the decisions. According to Alhajri and Alshibani (2018), projects that selected the contractor as the led in regards to decision making (after the initial agreement on design, budget, and timeline) perform better in terms of overruns than those that left it to the owner, consultant or did not assign the role to anyone.

Falqi (2004) also notes that another cause of project overruns is the contractor’s technical capability. Alsuliman (2019) affirms the premise and adds that whereas the construction industry has grown, Saudi Arabia was mostly conservative in terms of infrastructure development. This can be compared to cities such as Dubai in the UAE that have heavily invested in infrastructure. It is common to find that the technical capacity of the local contractors in Saudi Arabia is lower than expected (Alsuliman 2019). These contractors have not been exposed to significant modern technology that has revolutionized the construction of complex infrastructure, which affects project timelines. Alhajri and Alshibani (2018) analyze the difference between the use of local contractors who have not been exposed to modern technological advancements in the field and international contractors. One of the critical differences in their different rates of their projects being delayed with the local contractors recording higher rates compared to the international consultants. It is easier for owners to access the local contractors makes the premise by Albogamy, Scott, and Dawood (2012) that 70% of all public construction projects experience delays sensible. On the same note, the fact that materials used in constructions have evolved also makes the local contractors’ work more difficult. Alsuliman (2019) argues that if a contractor has not used the new generation construction materials before, then the project he or she is working on at the time will prove more of a learning ground than an actual construction site. This will, in turn, lengthen the time needed to complete the project. The scholar suggests that the owner should ensure that the contractor is competent enough to ensure that the project does not overrun.

Another valid cause of project overrun is the weakness of control for the contractor. As mentioned previously, the owner of the construction has more power in decision-making than both the consultant and the contractor. Al‐Kharashi and Skitmore (2009) explain that one of the complications of such an arrangement is that the owner of the construction might not be as technical as the contractor. Therefore, whereas the contract would be best placed to decide on the material, design, and even the time needed to finish the project, he or she is limited by the weakness of control. It is also important to note that the weakness of control can also happen between the contractor and his or her workers. Alsuliman (2019) explains that many contractors do not oversee the day-to-day working at a construction site. This would mean that the foreman chosen is also tasked with the ability to improvise whenever the need arises. Alsuliman (2019) explains that if there is a weakness of control, the foreman in this situation would have to wait for permission to improvise with the contractor, who would have to ask for permission from the owner of the construction. In the case of public constructions, the permission would have to come from the right office in government, and due to government bureaucracies, the decision-making process for improvising will take longer than it ideally should have. On the same note, the inaccuracies by inexperienced contractors can also extend the life of a construction project (Almutairi 2016). This is especially so if the inaccuracies affect the suitability of the structure that is being made. In such instances, more time will be required in order to correct those inaccuracies.

Administrative and regulatory obstacles can also cause project overruns (Stumpf 2000). There are no specific construction laws and policies in Saudi Arabia (Hassanain et al. 2019). As mentioned, the country was not highly invested in infrastructure development like its neighbors. Currently, contractors and owners of infrastructures are free to adhere to any laws as long as they do not contradict Sharia Law (Hassanain et al. 2019). Since there are no clear laws guiding construction in the country, there can be confusion on how to best approach different construction challenges. This is especially prominent if the owner, consultant, and contractor do not have a clear understanding or agreement. This goes hand-in-hand with poor communication, which is an administration obstacle. The role of the consultant is to enhance smooth operations between the owner and the consultant. The consultant has to be impartial to both parties in order for their arrangement to work without overruns (Hassanain et al. 2019). Like in any project, communication is vital in construction. Shrivas and Singla (2020) emphasize that the communication process has to be as flexible as possible in construction projects to avoid overruns. It is critical to mention that communication should be both top-down and down-up at all times (Hamed et al. 2016). This allows for better and fast decision-making. It is equally essential for the decision-makers to be able to access information that the casual laborers doing the day-to-day work deem necessary for their action as it is for the laborers to understand their scope of work from their managers. Yap, Abdul-Rahman, and Chen (2017) argue that lack of communication is among the number one causes for wasting time in construction projects regardless of whether the people involved in the project are locals or internationals.

Yap, Abdul-Rahman, and Chen (2017) identify financial issues as another significant cause of why projects are overrun or delayed. When discussing finances, it is essential to note that construction projects are prone to various types of financial challenges. Alsuliman (2019) explains that the first is the lack of liquid cash flow from the public sector responsible for the construction project. The scholar explains that many government construction projects have stalled due to the slow release of public funds for the project. This is common due to the fact that bureaucracies have to be adhered to when using public funds in Saudi Arabia. Secondly, as Hammadi and Nawab (2016) denote, financial woes can also come up when the project experiences unforeseen challenges. For example, the contractor’s inaccuracies can lead to the need for more funds to finish the project. Additionally, inflation, based on how long the project takes, can affect the initial budget. Alsuliman (2019) explains that great contractors have to consider inflation in their original budgets. However, in the case that this is not done, there will be some delay due to the lack of funds. Importantly, a lack of funds can also cause delays if the laborers are not paid on time. Alsuliman (2019) explains that many casual laborers in construction in Saudi Arabia are either paid daily or weekly. If for some reason this is not done, and not communicated to the workers, they might cause a delay. If the delay is long enough, it might affect the general timelines of the project. In the development of new campuses in the country, it is common to find that the incomplete allocation of all the funds needed to complete it is the central administration concern for overrun projects.

According to Sweis et al. (2008), who did a study focusing on overrunning of construction projects in Jordan, another cause of delays in projects is the lack of integrity among any or all of the parties involved. In Saudi Arabia, integrity is denoted within Sharia Law. Therefore, it is expected, by law, that all those involved in construction projects must show integrity. However, as Alsuliman (2019) notes, problems arise due to the fact that the government currently prefers to use international or non-local consultants. This does not, in any way, suggest that non-local consultants do not value integrity. However, due to differences in cultural and religious practices, the issue of integrity is affected and can cause delays in construction. For instance, whereas Sharia Law does not encourage overly relying on profits, other religions are not as strict. To the locals, this becomes an integrity issue, whereas to the non-locals, it is capitalism. All parties involved must be aligned to the cultural expectations. It can be argued that these cultural and religious expectations also contribute significantly to project delays. The laborers’ capacity and reliability are also critical in ensuring the timely completion of new campuses in Saudi Arabia. Whereas Saudi Arabia has come a long way in allowing women, who are a significant percentage of the country’s population, there are still some cities within the country that are still conservative. Using locals to build new campuses that they believe will interfere with their daughters, wives, and sisters’ way of life can be hindered by cultural practices in such areas as well.

Lastly, the low bidding system that is common in Saudi Arabia is also a significant cause of delays in public projects in the country. Hassanain et al. (2019) confirm that projects that use public funds, such as the development of new campuses, have to go through competitive bidding for the selection of the right consultants and contractors. However, the procedure favors consultants and contractors who have the lowest bids to save money. This low bidding system can cause overruns as parties can bid low to get the assignments or offer low standards based on the low budgets that they initially offered. Aziz (2013) argues that some of the best construction companies are expensive due to both their expertise and the type of materials they use. The low biddings system locks such expertise out due to budget restrictions. In turn, it leaves parties that can acquire cheaper materials and with less experience.

Consequences of Project Delay

Delay in government services

One of the significant consequences of project overruns is that they delay government services. Alsuliman (2019) explains that many countries struggle with maintaining a healthy relationship between the government and the public due to issues such as construction project overruns. In Saudi Arabia, the responsibility of establishing more university campuses lies on the government. Therefore, project overruns are generally blamed on the government, which in this case, are the owners of the project. From the owners’ perspective, however, several things can enhance the delay of government projects. For instance, as mentioned previously, the fact that international consultants are expensive than local ones pushes the government to use local consultants who are less experienced in the sector. Arguably, this gives the government two choices. The first choice is to ensure that the selected low bidders are qualified to not only deliver on the campuses’ design but also do it in time. Secondly, the government has to provide more time than expected to ensure that the less exposed local consultants finish the project. It is important to note that a delay in government projects is more of a public relations concern than a sectoral problem. With 70% of government construction projects already stalling, the patience of the general public has already been tested. All construction must work to avoid unnecessary government bureaucracies in order for them to be delivered on time. Arguably, the delay in the construction of the new campuses also leads to delay in other government services. Specifically, there is a delay in the provision of quality and affordable higher education that the new campuses are supposed to offer. The failure to complete infrastructure projects on time, thus, has a negative trickle-down effect on many government projects and services.

Affects policy development

Policy development is also affected when construction projects are overrun. As mentioned earlier, Saudi Arabia does not have any official construction laws that contractors and consultants can use. The lack of laws to guide the sector has so far worked to the advantage of the owner. This is since the responsible department or office for the specific construction gets full autonomy in how the project will be handled (Hassanain et al. 2019). On the other hand, the consultant and the contractors do not have any official laws that they can use to keep the owner’s expectations in check. One of the dangers of such an arrangement is that the owner is free to change the initial terms based on the flexibility of the contract signed. Arguably, the rate of project overruns is so high in Saudi Arabia that it has affected policy development positively and negatively. Positively, more people are calling onto the government to have customary laws that guide the industry. The pressure to enhance policy development in the sector is from both the public and the international community that is also trying to break into the market in the construction sector. On the other hand, it is harmful as the same government does not want to lose all control of the industry, thus, has been diverting the attention for policy change to other matters (Hassanain et al. 2018). Shrivas and Singla (2020) agree that the growth of the economy and the role of globalization will eventually force the government to put the required laws and regulations in place. Its advantage is that it will also enhance the government’s ability to deliver on its promises on time.

Conflict

Hassanain et al. (2019) argue that project overruns can cause conflict, first between the owner, consultant, and contractor, and secondly, between the construction team and the public. In the first instance, the conflict between the owner, consultant, and contractor will be presented in the form of a lack of coordination and failure to deliver. Both the consultant and contractor can blame the owner (government) due to poor communication, late disbursement of funds, and general bureaucracy. On the same note, the government can blame the contractors and consultants based on inexperience and low skill levels. Hammadi and Nawab (2016) confirm that such blame games can even cause further overruns if not solved quickly. As mentioned, conflict can also arise between the construction team (owner, consultant, and contractor) and the public. Even though many of the new campuses are developed on government land, they affect and are meant to be for the benefit of the local citizens. A delay in construction can cause conflict based on the expectations of the locals. It is also important to point out, as Alsuliman (2019) observes, that many of the contractors prefer to use trusted locals as their staff. However, as Shebob et al. (2011) observe with construction works in Libya, the use of locals who are not from the specific area where the project is being done can cause conflict. Saudi Arabia has one of the lowest poverty rates in the Middle East, at 12.7%. However, cultural practices force the appreciation of locals when undertaking such projects regardless of whether the consultants are foreign or not. It is imperative to mention that the locals’ involvement from beginning to end enhances feelings of ownership. The community ownership will not only be towards the physical buildings but also towards the use of the campuses. Currently, many Saudis study abroad or in large cities. To retain their citizens on the local campuses and avert conflict, the owner must ensure that there is a significant level of feelings of ownership among the locals.

Cost

Another significant consequence of project overruns is a cost increase. From the owner’s perspective, the rise in costs is unacceptable as contractors and consultants are expected to deliver the project based on the budgets provided during the bidding process. This is important as the government will only allocate the funds based on the budgets of the successful bidders. However, looking at the consultants’ and contractors’ perspectives, changes in design, delay in disbursing funds as expected, and other bureaucracies can affect the initial budget. Regardless of who caused the initial overrun, any delay will cause significant changes in the cost of the entire project. For example, the salaries of the daily workers will have to be reconsidered as they will work more days than initially expected. Additionally, the rates of both the consultants and contractors will also have to change as they will work more days than initially agreed. Further, any tools and items that will have been rented for the construction will be more expensive due to the delay. The length of the delay will not only affect the initial costs but the economy in general. The primary purpose of developing more campuses in the country is to ensure that more Saudis quickly access quality higher education to boost the economy. Secondly, the new campuses will attract locals and lower the percentage of Saudis going abroad for studies. Not only does this ensure that Saudis are learned, but it also retains talent within the country. It is the same talent that the country will need in the future to enhance its economy. Critically, the new campuses are to offer diverse courses. This is important since the oil and gas industry supporting the country’s economy is depleting at a fast rate. New knowledge and skills are needed in the country to guide the successful transition of the economy.

Low quality work

Alzara et al. (2018) argue that one of the other implications of overruns is that they also enhance the delivery of low-quality work. The scholars argue that bidders do not give full budgets when bidding just so that they can get the task due to the low bidding system. The bidders then try to negotiate for more after getting the contracts. This can result in two things. The first is that they can get the actual budgets that they need to deliver the project. Secondly, they will work with the limited budget they gave during the bidding process and provide low-quality work. In the first case, the delay will be caused by the halting of the project in order to source additional funds for the project. This affects the owner of the project more compared to both the consultants and the contractors. Therefore, it is most likely that the government will refuse to add more funds to the project. In the second scenario, the consultant and contractors will be forced to finish the project with the limited budget they initially stated during the project bidding. This instance will lead to the delivery of low-quality work, which affects the country in several ways. As previously mentioned, the key reason why more campuses have to be built in Saudi Arabia is to retain students and talent in the country. Low-quality infrastructures will not attract students to their local universities. Some of the regular local universities have used infrastructures to attract about 60% of their local students (Hassanain et al. 2019). This statistic is essential in the realization that many students attach quality education to the school’s physical appearance. The lack of students will also be discouraging to lecturers. Thus, the low-quality work will also lead to the lack of students and failure by the government to offer quality education services.

Abandon project

The last consequence of project overruns in project abandonment. Fugar and Agyakwah-Baah (2010) explain that Ghana has a significant number of government projects that have stalled for years and can be considered abandoned. Khoshgoftar, Bakar, and Osman (2010) state that it is difficult for government projects to be abandoned entirely. However, they can be halted for a significant period. The long-term halting of government construction projects in Saudi Arabia has, in the past, been linked to financial woes and also concern over corruption and other irregularities. Due to the previously mentioned fact that the country does not have official laws and regulations of the industry, it is upon the owner of the construction to determine whether overrun projects will be halted long-term. From the owner’s perspective, therefore, projects can be abandoned if the consultant or contractor did not adhere to the guidelines offered by Sharia Law in their engagement with the government. It is arguable that lying about the amount of money needed to finish the project to get the contract, and then revising the budget, goes against Sharia Law. This should ideally lead to the cancellation of the bid and can even lead to the abandonment of the project. Arguably, the contractors and consultants can abandon the project if they do not get the agreed-upon funds at the right time. The delay in the disbursement of funds can cause extra charges for the consultants and the contractors that do not necessarily affect the owner. According to Marzouk and El-Rasas (2014), during the bidding process, consultants and contractors have to consider all the possible reasons for financing disbursement delays and compensate for those delays in the budget. It is expected that the consultants and contractors can use their money and reimburse themselves when the money from the government is disbursed.

Strategies Employed to Avert Project Delay

Hammadi and Nawab (2016), through their research, argue that one of the critical ways of averting construction project overruns and ensuring successful project completion is proper project management. As noted previously, planning is critical at the initial stages of a project. In Saudi Arabia, the planning process begins at the conceptualization phase of the project. In this case, the department in charge of the development of the new campuses has to have a clear idea of how the campus should look like physically, and the general timeline the project should take. For this to work, it has to be done in consultation with experts in the field, who at times, might not be the same contractors who will eventually get the bid to deliver the task. However, consulting with experts will ensure that technical advice is considered when doing the initial plans. When the owners of the project select a bidder, a review of the timelines has to be done with the new consultant and contractor. All these processes have to be streamlined to ensure the successful completion of construction projects in the Kingdom of Saudi Arabia. It is essential to point out that proper project planning allows for proper resource allocation. As explained previously, one of the critical reasons construction projects delay is the slow allocation of funds. Misuse of funds is also a key challenge from the owners’ point of view. Project management will ensure that the construction has an appropriate budget, but it will also ensure that the budget is well adhered to and aligned. Further, Hammadi and Nawab (2016) explain that proper project management in construction projects will also keep all the parties involved in check.

Project management goes hand-in-hand with proper monitoring and evaluation of the project. Again, Abdullah and Alshaibani (2018 a), emphasize the need of the owners of the project to think about monitoring and evaluation at the conceptualization phase of the project. It is at this stage that the milestones have to be developed and placed at different points of the timeline. The achievement of these critical milestones will measure the progress of the project. Sepasgozar et al. (2019) explain that although this has to be done at the conceptualization stage, the owners of the project have to involve the final winning bid to a review of those milestones. In Saudi Arabia, when bids are invited for projects that use public funds, such milestones are often also identified. Therefore, the winning bidder will already know the different milestones that are expected and their timelines. One of the advantages of a robust monitoring and evaluation strategy is that it helps guide all the parties involved in an attempt to complete the construction project. At each evaluation, the team can evaluate the mistakes that were made up to that point and agree on the best way forward without compromising the timelines. Secondly, monitoring and evaluation are critical in ensuring that problems are addressed as fast as possible. Alhajri and Alshibani. (2018) explain that this is due to the fact that the milestones agreed upon also act as goals that the entire team has to work on in order to ensure successful project completion. The team will, thus, have to come up with problem-solving strategies that can be implemented immediately, a problem arises in order not to record any form of delay. This suggested that teamwork will ensure that no project overruns are recorded.

The bidding process is a critical factor to consider when discussing the different ways construction projects in Saudi Arabia can be completed in time. To understand how this will work, it is essential to understand the government procurement process, as depicted by Abdullah and Alshaibani (2018 a). Once the government identifies a location for the construction of the new campus, the next step is to develop terms of reference that detail the consultant and contractor expectations. The government will also have a draft blueprint of the premises. These terms of reference are put in the public domain to attract bidders who are encouraged to state how they intend to accomplish the construction of the campus. Additionally, the bidders are encouraged to give quotations on the same. Shrivas and Singla (2020) explain that, in many instances, the government does not reveal the amount of money they have for the project. Once the bidding process is closed, the involved officers will select bidders who have passed all the qualifications required. Interestingly, the Saudi Arabia government procurement process encourages the use of the lowest bids for all government projects. Therefore, the right candidate will be one who has passed all the requirements needed and has also been given the lowest quotation. Akhtar et al. (2018) argue that this added fact that their bids have to be lowest has resulted in the halting of government projects over the decades. This is because the bidders feel the need to quote lower than the actual cost of the project. More time will then be needed to look for more funds to complete the project. Yap, Abdul-Rahman, and Chen (2017) explain that the lowest bid factor complicates the process and allows loopholes that can lead to overruns.

One of the key reasons why projects overrun that were identified earlier was poor communication. This is mainly caused by a lack of coordination between the owner, consultant, and contractors. Yap, Abdul-Rahman, and Chen (2017) argue that having a point person at each level ensures proper coordination. Kamal et al. (2019), however, go further to explain that from the perspective of the consultant and contractors, getting someone to work with seamlessly in government is the most significant cause of miscommunication, which enhances lack of coordination. This has been attributed to the bureaucracies that surround government activities. It is possible to find that any meetings with the government (owners) have to be requested officially and in good time to get the right people to make the right decisions. However, as Sepasgozar et al. (2019) observe, some of the challenges observed in construction projects need immediate solutions. Thus, the delay in getting a representative from the owners’ side can be detrimental to the timeline. To avert this, the owners must select contractors and consultants that they fully trust (Hamed et al., 2016) to make urgent decisions for the project’s benefit. Additionally, scheduled meetings to update and also clear some concerns should be scheduled to ensure that any matter that needs the approval of all parties are tabled and discussed. Abdullah and Alshaibani (2018 b) believe that proper coordination should be the most straightforward strategy to implement when trying to avert construction project overruns.

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