Managing the risk of contractor failure

Abstract

The topic of contractor failure has become a major research domain since the beginning of the 1980s. Construction is a risky business with many features like long period of time, complicated process, financial intensity, environment and dynamic organizational structure. The aim of this thesis is to find out the factors effecting contractor failure. In the first phase contractor failure ratio for public procurement is found by investigating the data of the Turkish Ministry of Public Works and Settlement between the years 1999 and 2006. It is found that 10.5% of the public projects end in construction default. The second phase of the study involves a questionnaire survey to find out why construction companies fail in Turkey. The first part of the questionnaire includes the determinants used by Dun and Bradstreet as the causes of failure classified as organizational, environmental, and performance factors. The second part of the questionnaire includes questions about the organizational structure of the company. It is found that the most effective causes of contractor failure are receivable difficulties, insufficient capital, lack of managerial experience, lack of business knowledge, and family problems. It is observed that ego problems, removing performance barriers, monitoring of performance, adaptation to modern work models, and clarified directions are found as major problem areas for the organizational structure of the company. Key Words: Risk Management, Construction Industry, Contractor, Failures.