A Model for the Development of Tender Price Indices in the Ghanaian Building Industry

The pricing of construction resources has remained a critical challenge to project stakeholders for decades and the situation has exacerbated in recent times due to various economic recessions and fluctuations in both developed and developing countries. However, the quest of gaining value for money is hinged on an effective and efficient pricing regime. In Ghana, many project disputes can be attributed to ineffective pricing strategies that are not based on realistic data. Over the years, historical data have been perceived by researchers and practitioners as an effective basis for pricing of future projects. Although, historical data have been developed into various indices that are used in updating cost, cost planning, fluctuation analysis among others in developed countries such as United State of America (USA), United Kingdom (UK), Hong Kong, Finland, South Africa, developing countries such as Ghana are yet to take advantage of such a development. In addition, construction professionals in Ghana are faced with the challenge of determining the initial cost of projects at the early design stages due to lack of effective indices for such analysis. The motivation for this research is to develop a model for the development of tender price indices (TPI) that would facilitate easy and early prediction of the initial cost of building projects. Thus, the specific objectives of this study were to: determine the critical barriers to tender price indices development; key determinants that account for tender pricing; develop tender price indices; determine the effect of economic indicators on tender price indices and to develop a model for predicting the tender price indices. The research made use of mix method; both qualitative and quantitative methods. Through Principal Component Analysis (PCA), five factors were generated as critical barriers to tender price indices development; poor procurement and estimating, erratic external and project conditions, data unavailability, technological implications and weak knowledge base. The study used Partial Least Square-Structural Equation Modelling (PLS-SEM) which enabled the establishment of the relationship between tender price and tender price indices. Based on a conceptual framework, economic indicators that have effect on TPI were analysed using multiple regression analysis, which highlighted three significant indicators including Producer Price Index, Exchange Rate and Interest Rate. Further analysis which involved the use of excel spreadsheet in conjunction with the Laspeyres formulae helped in the development of Tender Price Indices and was later validated using fifteen projects. The validation of indices revealed that a margin of error (± 3%) and a deviation (5.32%) must be considered in its application. Subsequently, a model was developed using Autoregressive Integrated Moving-Average with Exogenous variables (ARIMAX) for continuous prediction. Generally, this study has shown the need to employ effective and efficient pricing systems in the Ghanaian building industry by developing an index which will facilitate the estimating of the initial cost of building projects. In addition, it has determined the barriers to TPI development and determinants that account for pricing which will contribute to construction management knowledge both in practice and theory. Furthermore, the study has therefore activated the need for policy makers and building industry professionals to take a critical look at pricing building projects due to the wider implications it has on the national economy and development. Notwithstanding the immense contribution the study makes to both practice and theory, the study is circumscribed by excluding prime cost and provisional sums. Lastly, the model will serve as a guide to practitioners in predicting prices of tenders. It is therefore recommended that further studies should be conducted to include both the prime cost and provisional sums. In addition, the study employed non-residential educational buildings in the development of the TPI. Hence, it is suggested that further studies should consider other types of buildings such as residential and commercial.

Source: KNUST