A cost overrun is when the final cost of a construction project exceeds the budget. It is a cost addition.
Let us say you had a budget of KES 4,000,000 but along the way some events make you end up spending KES 4,500,000. Now that is a cost overrun / addition.
And these overruns have made many projects to stall / stop as most client don’t have the extra cash to splash on unforeseen costs.
Now, here are some of the reasons projects have cost overruns and eventually stall;
Failure to Engage Professionals
I have seen most residential house developers ignore professionals and go directly for experienced fundis.
The fundis, are most of them, “know it all” types who don’t see the need of an architect, Qs or even an engineer.
I have seen this happen so many times in my home area. So, you start building without even a house plan.
The fundi keep adding some features to the design, some unnecessary and by the time your money runs out, your house is an incomplete ugly inhabitable shell.
My own dad had to demolish and rebuild the house roof after the fundi messed up the design and even we noticed some leakages.
Design Changes
Some clients will engage the professionals, but will keep on changing the original design.
This has happened to me a lot of times. I remember a client at Kikuyu who despite the architect designing very well his office block, the guy would go to other offices, see another design and demand it be implemented on his site.
There was this time he went to a popular office, saw a wooden floor finish of KES 12,500 /SM and demanded we install it despite the original design indicating a carpets floor finish of KES 3,500 / SM.
Now imagine the cost implication given that his office had a floor area of 250SM. A whooping KES 2,250,000 that was not originally in the budget.
Poor Design / errors by Professionals
I am not implying that our professionals are incompetent. On the contrary, they are some of the best on the continent.
But picture this. A project we had at Limuru, of a popular estate of urban residential units. I won’t mention which but you can easily guess.
Now the civil engineer who is quite popular in Nairobi made an error when calculating the earthworks and the budget allocated by the Qs was lower that what the contractor executed on site.
The client ended up paying an extra KES 3,000,000 for the extra earthworks.
However, this particular client was compensated by the said engineer as more often than not, most professionals take an insurance commonly known as professional indemnity to cover for these kind of mistakes.
Sometimes the quantity surveyor may not be keen while coming up with a Bills of Quantities and may miss some items which definitely will emerge as variations (extra works) during the construction phase.
But as mentioned earlier, in most cases when a professional makes mistakes, they are covered by insurance called professional indemnity.
Acts of God (force majeure)
There may be proper planning by both clients and professionals as well as involve a good contractor.
But then an act of God such as an earthquake or a cyclone or even a heavy rains happens during construction.
This may destroy parts of the works in progress, like blow away a roof structure or cause parts of earthworks to be destroyed leading to need for repeat works.
A such, the client might have to incur costs for the repeat works as it was not a fault of the contractor.
Changes in Legislations
I vividly remember a project which the government changed the VAT from 14% which was in place when we tendered (Covid times) and reverted it back to 16%.
All of a sudden the cost of every material shot upwards. 2% might seem very minute but what is 2% of a project worth KES 50,000,000? That is a cost addition of KES 1,000,000.
Unforeseen Circumstances.
I have separated this from the acts of God as some unforeseen circumstances are caused by human beings.
Take the Ukraine war. Importation of materials was heavily impacted and the price of steel shot from 140 per Kg to 180 per Kg.
Look at the Corona virus which people also call China virus. The importation of materials was also heavily impacted and everything shot up thus leading to heavy cost overruns.
These are the major reasons projects in Kenya tend to have a cost overrun or cost addition. Of course other factors come into play such changes in the site factors, changes in construction methodologies, amongst many others.
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