CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

It is a fact that the cost of construction, especially that of construction resources (materials and labour), has accelerated rapidly since the
introduction of the Structural Adjustment Programme (SAP) in 1986Onabule, (1991). Continuing, Onabule (1991) maintained that the exchange
rate depreciation resulted in an inflationary impact on construction activities because of the short-term import inelasticity of building materials
production. This escalated cost of construction contributes significantly to enlarging the average mortgage loan size demanded with serious
implications for repayments and effectively marginalizing most Nigerians in the home ownership market.
The increase in the project cost has led to high level of economic fluctuation and conflict between parties in the project contract. It is essential
therefore, to identify the main dominating factors leading to high construction cost so that efforts can be concentrated on those factors in
order to reduce construction cost in Nigeria. When evaluating the success of any building project, cost is one out of the three variables that must be considered. The others being time and quality. However, there are several factors affecting the construction cost of building projects, both positively and negatively. According to American Institute of Architects (AIA) (2007), Building costs are influenced by
several factors such as location, design, performance requirements, construction, and time greatly affect the building cost.
Again, Li (2009) observed that construction cost which is out of control adds to investment pressure, increase construction cost, reduces investment profit, affects investment and decision-making, and to a great extent, wastes the national finance, so it is likely to result in corruption or offence. If compared with the huge capital outlay involved in building project coupled with its proportion in the fixed capital formation of every
economy in the world, the cost of building projects requires greater attention.

Oftentimes, clients are dissatisfied and do not have value for their money in terms of the type of projects being delivered by the contractors. In
this case, the success of the project is in question. As the effects of cost overrun is far reaching in any project, Obiegbu (2002) opined that
identifying the factors and causes of cost overruns is a key step towards helping construction managers to either prevent a cost overrun or apply the proper corrective actions to the problem. Majid (1998) cited in Obiegbu (2002) claimed that there must be a systematic approach used by construction managers for identifying these factors in order to reduce their impacts. Also, Obiegbu (2002) noted that factors affecting cost of construction have different effects on an activity or a project, ranging from an increase in resource consumption, a stoppage of work, a delay in work, rework, or all of the above.
It is based on these unprecedented effects of cost on building projects that the factors affecting construction cost are being analyzed so as to
provide the most appropriate approach for dealing with them.

1.2 STATEMENT OF THE PROBLEM
The construction industry in Nigeria has gone through very dramatic price fluctuations stages since the late 80’s due to both the near completion of huge infrastructure projects and to a steep decline in the price of oil. Moreover, the demand for more construction of all types, coupled with a tight monetary supply, provide the construction industry with a bigger challenge to cut costs. The problem of high costs of contracts in all aspects of construction is becoming obvious. However, little has been done to minimize the problem. Consequently, substantial increases are observed in project cost. Furthermore, due to high level of construction cost increments, economic fluctuation, conflict between parties, construction demand and boom period, there is a need for a properly documented study and project survey on the factors affecting construction costs. It is important to identify the main dominating factors leading to high construction cost so that efforts can be concentrated on those factors in order to reduce construction cost in Nigeria.

Furthermore, the effect of high cost of construction cost may lead to project abandonment, delaying project which can equally affect the
economic status of that country. Finally, this is what prompted the researcher to study the nature of the factors affecting construction costs in Enugu State.

1.3 AIMS/OBJECTIVES OF THE STUDY
The broad aim of this research work is to investigate the factors affecting construction cost. To achieve this, the following specific
objectives are considered.

1. To identify the most significant factors that affect construction costs .
2. To analyse these factors that affect construction costs
3. To find out the effect of these factors (1-4) on construction costs
4. To examine ways in which these factors (1-4) can be mitigated.

1.4 RESEARCH QUESTIONS
The research questions asked in the course of this research are:
1. Does environmental factor affect construction costs?
2. Does construction management factors affect construction costs
3. Does contract arrangement factors affect construction costs
4. Does project resources factors affect construction costs
5. What are the effects of these factors (1-4) on the construction cost?
6. In what ways can these effect be mitigated?

1.5 RESEARCH HYPOTHESES
For the purpose of this study, the following hypotheses are to be
tested: