Budgeting Owner’s Construction Contingency
Publication: Journal of Construction Engineering and Management
Volume 133, Issue 7
Abstract
This paper attempts to find ways to reduce an owner’s construction contingency budget such that just enough contingency is allocated that will allow the owner to deal with uncertainties but at the same time not tie up valuable funds that can be used for other activities. It is suggested that the common practice of allocating a fixed owner contingency (e.g., 10% of the contract value) to all projects contracted out by an owner is not appropriate. Instead, a methodology is proposed whereby the owner (1) analyzes historical project data; (2) identifies the line items that are problematic; (3) takes the necessary measures at the preconstruction stage to streamline these line items with respect to site conditions, time constraints, constructability issues, and project scope; and (4) finally budgets contingency funds based on this information. A case study was conducted to analyze the contingencies budgeted and actually spent by an owner in nine parking lot projects. The findings indicated that a systematic approach such as the methodology proposed in this paper is likely to minimize the owner’s contingency budget.
Get full access to this article
View all available purchase options and get full access to this article.
References
Anderson, S. D., Fisher, D. J., and Rahman, S. P. (2000). “Integrating constructability into project development: A process approach.” J. Constr. Eng. Manage., 126(2), 81–88.
Arditi, D., Elhassan, A., and Toklu, C. (2002). “Constructability analysis in the design firm.” J. Constr. Eng. Manage., 128(2), 117–126.
Baccarini, D. (2004). “Accuracy in estimating project cost construction contingency—A statistical analysis.” The Int. Construction Research Conf. of the Royal Institution of Chartered Surveyors, Leeds Metropolitan Univ, Leeds, U.K.
Barrie, D. S., and Paulson, B. C. (1992). Professional construction management, McGraw-Hill, New York.
Construction Industry Institute (CII). (1986). “Scope definition and control.” Rep. No. RS6-2, Austin, Tex.
Construction Institute of ASCE. (2007). “Constructability Committee.” http://www.constructioninst.org/committee (Feb. 14, 2007).
Dumont, R. P., Gibson, E. G., and Fish, J. R. (1997). “Scope management using project definition rating index.” J. Manage. Eng., 13(5), 54–60.
Dunston, P. S., Gambatese, J. A., and McManus, J. F. (2005). “Assessing state transportation agency constructability implementation.” J. Constr. Eng. Manage., 131(5), 569–578.
Ford, D. (2002). “Achieving multiple project objectives through contingency management.” J. Constr. Eng. Manage., 128(1), 30–39.
Gunhan, S., and Arditi, D. (2007). “Avoiding change orders in public school construction.” J. Profl. Issues Eng. Educ. Pract., 133(1), 67–73.
Hanna, A., Russell, J., Nordheim, E., and Bruggink, M. (1999). “Impact of change orders on labor efficiency for electrical construction.” J. Constr. Eng. Manage., 125(4), 224–232.
Knight, K., and Fayek, A. R. (2002). “Use of fuzzy logic for predicting design cost overruns on building projects.” J. Constr. Eng. Manage., 128(6), 503–512.
Mak, S., and Picken, D. (2000). “Using risk analysis to determine construction project contingencies.” J. Constr. Eng. Manage., 126(2), 130–136.
Molenaar, K. (2005). “Programmatic cost risk analysis for highway megaprojects.” J. Constr. Eng. Manage., 131(3), 343–353.
Oberlender, G. (2000). Project management for engineering and construction, 2nd Ed., McGraw-Hill, New York.
Oberlender, G., and Trost, S. (2001). “Predicting accuracy of early cost estimates based on estimate quality.” J. Constr. Eng. Manage., 127(3), 173–182.
Smith, G., and Bohn, C. (1999). “Small to medium contractor contingency and assumption of risk.” J. Constr. Eng. Manage., 125(2), 101–108.
Songer, A. D., and Molenaar, K. R. (1997). “Project characteristics for successful public-sector design build.” J. Constr. Eng. Manage., 123(1), 34–40.
Touran, A. (2003). “Probabilistic model for cost contingency.” J. Constr. Eng. Manage., 129(3), 280–284.
Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 133 • Issue 7 • July 2007
Pages: 492 - 497
Copyright
© 2007 ASCE.
History
Received: Oct 11, 2006
Accepted: Jan 22, 2007
Published online: Jul 1, 2007
Published in print: Jul 2007
Authors
Metrics & Citations
Metrics
Citations
Download citation
If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Simply select your manager software from the list below and click Download.