How Multinationals in Nigeria Can Achieve Cost Predictability on Construction Projects Contracted to Vendors

by / Friday, 15 September 2017 / Published in How To's
How Multinationals in Nigeria Can Achieve Cost Predictability

Multinationals in Nigeria spread across various platforms and line of production from Oil and Gas, Telecommunications, Health and Wellness, Construction, Consumables, etc. To successfully operate their businesses in Nigeria, they rely on certain human resources internally and must forge certain business relationships externally.

Part of such external business relationships they depend on are vendors to provide certain goods and services the business needs to operate. And in most cases, these vendor relationships are long-term because of the recurring nature of the products and services they provide.

We are Sapient Vendors, and just as our name implies we are a vendor to some multinationals in Nigeria like MTN and MRS, and in this post I want to share some tips on how multinationals can achieve cost predictability on construction projects contracted to vendors in Nigeria.

Enjoy!

How Multinationals in Nigeria Can Achieve Cost Predictability on Construction Projects Contracted to Vendors

Multinationals in Nigeria like predictability in cost, it helps them complete their projects on time and on budget. The moment a project begins to drag longer than estimated and cost more than budgeted, most multinationals in Nigeria won’t take it lightly with the vendor.

MTN is currently facing cost variation from their vendors except us. During my interaction with one of our contact, I had to enlighten him a bit. A few of the reasons for project cost variations are;

  • Firstly, lack of adequate market research by vendors.

 

  • Secondly, the pricing strategy of the vendor.

 

  • Thirdly, company strategy (either long term or short term).

Large discrepancies between pre-tender estimates and actual bids for construction have a serious impact on the viability of a project. Owners, vendors, architects, engineers, cost consultants, contractors and subcontractors all have a vested interest in ensuring a high degree of cost predictability. This article will provide practical advice and discuss the primary ways to improve the cost predictability of construction projects in Nigeria. The consequence of a failure is often a cancelled or abandoned project.

So they need to take heed of the following;

  • Treat Your Key Vendors Like Business Partners

Multinationals in Nigeria should begin to treat their key vendors like business partners, but at the same time manage their vendor base with cost competition in mind.

Does it matter that you have a long term relationship with a vendor who has provided a product or service that has been reliable, but have found the same product or service at a discounted price elsewhere? No. Does it make sense to switch vendors? No.

As I have experienced major cash liquidity issues during recession times, long-term vendor relationships can really pay off by extending terms and provide additional float. You, as a cash manager for a multinational in Nigeria will be thankful that your long-term vendors will be there for the company if cash becomes short.

  • Inadequate Provision for Contingencies Built into Project Costs

Multinationals in Nigeria should avoid giving their project to the lowest bidder without adequately prequalifying the vendor, especially with regards to their history with cost variation and project completion or history with lawsuit, financial management skill.

Companies with targeted profit missed, could request for variation to buffer their overhead which reflects a poor financial and project management skill. We recently had an experience with MTN, we under quoted for a fire rated door; we provided specifications for same door and still under quoted (our QS’s negligence). In the end, some contingencies built into the BOQ served as a buffer which helped to avoid cost variations on the project.

  • Always Keep Your Established Vendors Informed

Multinationals in Nigeria should keep their key vendors informed about the cost control initiatives that their company has implemented.

By so doing, you will find that your long term vendors or even vendors that want to be your long term partner will work with the business as both organizations wish to achieve the overall goal of a successful partnership.

  • Always Keep Your Established Vendors in Check

Multinationals in Nigeria should also keep their established vendors in check by continually looking for discounted pricing elsewhere, but maintaining a strong and open relationship by communicating your findings. Remember the first point; treat your vendors like business partners, it pays off on the long run.

What about beating down your key long-term vendors? Yes, but with diplomacy and effective negotiation tactics where both parties win. Don’t focus on beating down the cost to the detriment of the project.

What about vendors that provide a common service? Look for the best price and may the best vendor win.

 

Conclusion

Multinationals in Nigeria can get more value for their money, save themselves more headaches and achieve cost predictability on construction projects awarded to vendors. They only need to adopt the tips shared above and put them to work by hiring industry tested vendors like us to deliver their construction projects on time, within budget and guaranteed service quality.

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