Assessment of Causes of Class One Contractors Failure (The Case of Building Contractors)

Abstract

The construction industry has unique characteristics that sharply distinguish it from other sectors of the economy. It is fragmented, very sensitive to the economic cycles and political environment, and has a significantly high rate of business failure. The study is conducted to determine the causes of business failure of class one building contractors and to investigate the severity of these causes from the contractor's point of view. The objectives of this study have been achieved by means of questionnaire. The questionnaire included 51 factors which were identified through literature review and actual observations and distributed to 45 contracting companies. The number of respondents was 33 companies, out of which 3 were rejected, and 30 questionnaires were analyzed to determine the severity of each factor affecting contractor's failure. The factors were listed under the following four groups: managerial, financial, expansion and environmental. The identified factors are ranked according to their influence as assessed by the respondents. The results of analyzing 51 causes of failure showed that the top five affecting factors are: Cash flow management, Award contracts to lowest price, Lack of capital, one man rule, and Low margin profit due to competition. The results of this study recommended that Contracting companies should improve their financial and managerial abilities and practice in order to meet the challenge, Tenders must be awarded to the best respondent bid with accurate cost estimate and not necessarily to the lowest bidders, contract price should be connected with price index, Contracting companies should experience working together in joint venture to strengthen their resources, and consider risk of business environment in their estimate.