Effect of labor-based and conventional contract on time and cost of building projects in Jimma

Abstract

Construction contract is a document which governs the business relationship between the contracting parties for the duration of a construction project. It also specifies what is to be built, for which price, under which payment terms, how the Client is to monitor the Contractor’s performance and how contingency events are to be dealt with. Hence, the choice of construction contract types has major effect on the likelihood and the degree of project performance. Though, this study aims to assess the effects of labor-based and ad-measurement contract on building construction project time and cost performance and to establish comparison between the specified contract types for enabling the client to decide on the best contract type. Hence, the contractor is responsible party for the execution of the projects either by providing labor only which is called labor-based contract or by providing labor, material and equipment which is commonly known as ad-measurement contract. Under the conventional contract categories: unit price (ad-measurement), lump sum, cost plus, fixe price with escalation cost is included. However, in this study labor-based and unit rate (ad-measurement) contact type were selected for assessing the effect of using different contracting methods on building project’s performance. The data used for the study was obtained from questioners and desk studies. Also, the research design method used was explanatory type and the selected sampling technique was purposive sampling. Though, the gathered data was analyzed by using MS Excel and ranked through RII values. Based on RII values more than 0.75; the study ranked the following factors has highest effect on time and cost for projects which had practiced labor-based contract type from different factors. These are; poor delivery of material, poor performance of suppliers, poor material wastage management, delay of payment for executed work, and low labor productivity are the most significantly influencing factors of building project in Jimma town. Also, the most significantly influencing factors of building project in Jimma town which had practiced ad-measurement contract type. These are; financial incapability of the contractor, less experience of the contractor, delay of payment for executed work , design change, and complexity of dispute resolution mechanism occur, This indicates that, labor-based contract has less effect on building project time and cost as compared to that of ad-measurement contract type in the case of Jimma town building construction projects. Generally, the findings of this research shows that projects carried out using ad-measurement contract types are more subjected to time and cost overrun than labor-based contract type in case of Jimma town. Therefore, all stakeholders should have to give attention on contract document preparation and decision on selecting the best contract type is based on international and national standards in order to reduce critical factors affecting project performance.