MANAGEMENT OF PROCUREMENT RISKS IN FEDERAL INLAND REVENUE SERVICE BUILDING CONSTRUCTION PROJECTS IN NIGERIA

ABSTRACT

Procurement in most developing economies is seen and treated as a ‘back-office’ function, this have confronted government procuring entities with the issues of effective procuring projects within the meagre budget of the government. This subject public building projects to series of procurement risks in the form of fraud, lack of transparency, competitiveness, cost effectiveness and professionalism in the execution of procurement function. Thus, this study examined the management of procurement risks in FIRS building construction projects in Nigeria. The study utilised questionnaires, which were randomly distributed to clients, procurement officers, contractors and consultants. With a response rate of 78.256%, the gathered data were analysed using percentile, mean item score (MIS) and relative importance index (RII). The study found that the major procurement related risks in FIRS building projects are; Kick back (contractor given out money to procurement officials), Lack of cost effective tenders among the bidders, Shadow vendors (submission of inflated invoices for work not delivered), Changes in the bids made after their formal receipt, and Suspicion about conflict of interest. Kick back (contractor given out money to procurement officials), Conspiracy amongst bidders to reduce competition, In-house information leakages to bidders, Shadow vendors (submission of inflated invoices for work not delivered), and Eligibility envelopes received beyond the deadline set for submission; are the prominent procurement related risks that impact on the cost, time, quality and the parties involved in FIRS projects. Also, the most important procurement risk mitigation strategies for FIRS building projects are; Eliminating the cause of the risk, reducing the scope of the contract, adding resources or time to the contract, avoiding contractor with unproven track record, and Using a proven approach instead of a new one. It is recommended that a system of checks and balances is put in place in FIRS building project to forestall the inherent corruption going on. Also, contractors and consultants with integrity should be engaged in FIRS projects.

CHAPTER ONE

1.0    INTRODUCTION

1.1    Background to the Study

Until  the  1980s,  when  reforms  were  implemented  to  address  the  state’s  potential  for infrastructure provision due to declining oil revenue, the government had complete control over infrastructure financing in Nigeria (Animashaun, 2011). Nigeria’s recent economic downturn has necessitated the introduction of more conservative methods of project delivery. As a result, government procuring agencies are faced with the task of successfully procuring projects within  the  government’s  limited  budget  (Osanyinro  and  Aghimien,  2017).  The  African Development Fund (ADF) (2010), discovered that government agencies often rate prospective projects based on their benefit-to-cost ratio and build facilities as funds become available. Project procurement while adhering to delivery time, expense, and quality constraints has remained a challenge for the design team, contractors, and investment managers. As contractors increasingly take on the role of business organizations with the aim of making maximum profits while assuming the least amount of risk, the procurement method’s foundations are gradually shifting  from  simply meeting  clients’  needs  to  risk  allocation  (Babatunde  et  al.,  2010). According to Saruchera (2016), procurement was once regarded solely as a requirement, and in many developed economies, the profession is still regarded as a “back-office” activity. However,  according  to  the  International  Training  Centre  of  the  International  Labour Organization (ITCILO) (2012), public procurement has long been marred by inefficiency, corruption, and a disregard for basic “cash for money” considerations.

Public procurement has also had a negative effect on the pace and quality of progress toward achieving national development goals, especially in developing and transition countries. According to Russell and Meehan (2014), public procurement is a duty to provide value to the people, and it is kept accountable by following regulations, investing the public purse responsibly, and ensuring third-party delivery of contracted goods and services. The effect of procurement operation is under-researched, and certain responsibilities or the effectiveness of regulatory mechanisms are rarely questioned. Lack of business participation through procurement, weak tendering practice, low procurement competence, and lack of risk management are just some of the obstacles that Uyarra et al. (2014) identified as preventing public organizations from delivering innovation and policy outcomes. As a result, risk anticipation, risk control, and risk reduction are all part of the procurement risk management framework (Okonjo, 2014). Knowing the key categories of risk encountered in the procurement process will aid in risk evaluation and preparation, as well as devising management and organizational strategies to minimize those risks (United Nation Procurement Practitioners’ Handbook (UNPPH), 2012).

As a result, recognizing the relationship between procurement and organizational goals is essential for successful procurement risk management (Okonjo, 2014). Therefore, Murray (2013) observed that procurement related risks have not reduced and the FIRS projects are being delayed unnecessarily which Chen (2018) attributed to lack of appropriate risk management strategies by the organisations.

It is therefore important to understand that risk occur at different stages of the procurement of Federal Inland Revenue Service (FIRS) building construction projects, hence the need to undertake a study to managing the risks in procuring FIRS building projects in Nigeria.

1.2    Statement of the Research Problem

In Nigeria, the major risk in the procurement of public buildings include lack of transparency, competitiveness, corruption, problems of cost effectiveness and professionalism in the execution of procurement functions (Federal Government of Nigeria (FGN), 2007).

Procurement process is often confronted with inherent risk to include unavailability of indices for bids and costs, contractors’ delayed payments for completed work, contractors’ low managerial and technological ability, and contractors’ deliberate refusal to repay loans (Gyamfi and Boateng, 2016).

In Nigeria, the Federal government agencies are mandated to implement the provisions of the act under the supervision and guidance of the Bureau for Public Procurement (BPP) (Federal Government Nigeria (FGN), 2007). The Federal Inland Revenue Service is one of the Federal government agencies responsible for implementing the act under the supervision of the BPP, thus far, the procurement system practiced by the FIRS is constantly challenged with the problems of fraudulent practices, inefficiencies, lack of transparency, problems of professionalism, non-adherence to procurement code of ethics, and problems of cost effectiveness, and corruption.  These problems according to Osanyinro and Aghimien (2017) are serious risks which could impair the delivery objectives of any project in meeting with the time, cost and quality requirements. And these have made it difficult to achieve the objectives of the BPP act. To buttress further, Chen (2018) highlighted that most procurement risks occur as a result of little understanding or less attention given to the inheret risks and their management strategies by the parties involved in the procurement.

Unfortunately, in FIRS building projects, the strategies for management of these risks are little understood by the parties involved in the procurement process, and in most cases, the risks are given less attention and thus, most FIRS projects are delayed unnecessarily.

1.3    Research Questions

i.      What are the procurement related risks in FIRS building construction projects?

ii.      What are the effects of the identified risks on the parties involved in procurement?

iii.       What are the effects of the risks factors on FIRS project delivery (Cost, time and quality)?

iv.      What are the procurement risk mitigation strategies for FIRS building projects?

1.4    Aim and Objectives

The study is aimed at exploring the principles of managing procurement risks in FIRS building construction projects in Nigeria with a view to meeting the project delivery objectives of time, cost and quality.

To achieve this aim, the following objectives were formulated to:

i.      Examine the procurement risks in FIRS building projects

ii.      Assess the effects of procurement risks on the key parties involved in procurement

(FIRS, contractors, and consultants)

iii.       Assess the effects of procurement risks factors on FIRS building project performance iv. Assess the procurement risk mitigation strategies for FIRS building projects.

1.5    Justification for the Study

To justify the gap for this research, the contributions of the following researchers cannot be over emphasised. The major risk factors associated with building projects listed by Smith (2006) include timely project completion, keeping costs within budgets, and providing built assets that meet the service delivery requirements of agency clients. The unavailability of indices for bids and prices, the unavailability of construction materials, improper inventory management, and risks associated with operating at height were all identified as challenges to procurement by Gyamfi and Boateng (2016). Abdul-razak (2013) investigated the effect of project risk factors on the selection of public works procurement methods in Ghana, finding that financial and design risk factors had the greatest impact on works procured through Non- Competitive Tendering (NCT), with the most significant impact being the delay in retention release. Murray (2013) looked at the need for procurement management and discovered that there should be a simple distribution of procurement risk, as well as the procurement risk owner being responsible for the audit’s completion. Rezakhani (2012) conducted research on the classification of key risk factors in construction projects and proposed a hierarchical risk classification to include all of the relevant key risk factors.

Oyewobi et al. (2012) investigated the effect of risk on the contractor’s tender figure in public building projects in Northern Nigeria. The study discovered that design flaws, inflation, contractor competence, political instability, and government reforms had the greatest effect on a contractor’s tender figure.

Previous studies on procurement risk management have primarily focused on procurement issues, supply chain, creativity, and processes, according to research evidence.

However, these studies did not discuss procurement risk management in a revenue-generating agency like FIRS, which is why the research on the Management of Risks in FIRS Building Project Procurement was made.

The research work will assist stakeholder (FIRS as an institution, contractors, consultants) in playing a sensitive role aimed at improving tendering process, reducing the rate of abandoned project, improve on project delivery in terms of completion time, cost and quality, and also to improve capital budget performance.

1.6    Scope of the Study

The scope of the research covered the management of risks in procurement of FIRS building projects in Nigeria. The study focused on traditional method of procurement which is mostly practiced by the FIRS.

The geographical scope constituted the procurement units of the FIRS in Abuja. The survey includes the client (FIRS), contractors, and consultants who participated in FIRS projects in Nigeria.

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