Estimating Construction Contingency: Accommodating the Potential for Cost Overruns in Road Construction Projects
Publication: Journal of Infrastructure Systems
Volume 21, Issue 2
Abstract
The determination of a project’s cost contingency is a pervasive problem as the amount that is incorporated into an estimate is invariably insufficient to accommodate a project’s actual cost overrun. The cost overruns experienced in 49 road construction projects procured using traditional lump contracts are analyzed. The theoretical probability distributions are fitted to cost overrun data derived from the sampled projects whose contract values ranged from AU $0.5 and AU $97 million. Goodness of fit tests are used in conjunction with probability-probability (P-P) plots to compare the sample distribution from the known theoretical distribution. A log logistic probability density function (PDF) was found to best describe the behavior of cost overruns. The cumulative distribution function is then used to determine a realistic probability of a cost overrun being experienced from the point at which a contract is awarded. This is required so that public sector clients can determine an appropriate contingency at contract award, which takes into account the nuances that contribute to increasing project costs. The research findings and methodology adopted to determine the best fit probability distribution provides a more robust approach for governing a construction contingency for road construction projects so that they can be procured successfully.
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Acknowledgments
The authors would like to acknowledge the contributions of Associate Professor Monty Sutrisna, Dr. Oluwole Olatunji, Professor Jim Smith, and Professor Michael Regan as they form part of an international team examining project performance and have contributed to the ideas produced in this paper. This work was supported by the National Research Foundation of Korea (NRF) grant funded by the Korea government (MSIP) (No. 2008-0061908).
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Published In
Journal of Infrastructure Systems
Volume 21 • Issue 2 • June 2015
Copyright
© 2014 American Society of Civil Engineers.
History
Received: Jul 11, 2013
Accepted: Mar 14, 2014
Published online: Jun 16, 2014
Discussion open until: Nov 16, 2014
Published in print: Jun 1, 2015
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