Structural equation modelling of construction bond administration

Abstract

Purpose

The purpose of this paper is to examine construction bonds, which is a risk management tool for ensuring that projects are delivered successfully, with emphasis on the influence of stakeholders, project characteristics and bonding decision factors.

Design/methodology/approach

Using case study of completed public building projects, questionnaires were administered on stakeholders that participated in the projects to solicit information on identified issues. Structural equation modelling (SEM) was used to examine relationship among identified factors, and various model selection and validation tests were carried out to arrive at the best-fit model.

Findings

The final model revealed that type of bond, stakeholders’ influence, project characteristics, risks of bonded projects and bonding decision factors have significant effect on success of bonded construction projects. Of the stakeholders, guarantors and contractors have greater influence on effective administration of bonds.

Research limitations/implications

The study was limited to Lagos and Ondo states, Nigeria. Data were gathered from clients of public projects, banks and insurance companies (guarantors), as well as contracting, quantity surveying and architectural firms registered with the state governments. This is because of the fact that only such firms can be engaged on projects emanating from the governments.

Practical implications

To enhance project success, there is a need to adopt construction bond for both public and private projects as against the current practice where it is only mandated for public projects.

Originality/value

Using SEM, this research examined administration of construction bonds with a view to ascertaining their effects on projects success, thereby providing relevant empirical information for stakeholders for effective administration of construction bond.

Citation

Oke, A.E. and Ogunsemi, D.R. (2016), "Structural equation modelling of construction bond administration", Journal of Financial Management of Property and Construction, Vol. 21 No. 3, pp. 192-211. https://doi.org/10.1108/JFMPC-02-2016-0008