The National Academies

NCHRP 15-71 [Final]

Contingency Factors to Account for Risk in Early Construction Cost Estimates for Transportation Infrastructure Projects

  Project Data
Funds: $250,000
Research Agency: Texas A&M Transportation Institute (TTI)
Principal Investigator: Dr. H. David Jeong
Effective Date: 7/8/2020
Completion Date: 6/30/2022

STATUS:  Research is complete. The final report and related materials are available here:  https://doi.org/10.17226/26829
Accurate early construction cost estimates of projects are important for state departments of transportation (DOTs) to effectively fund and manage the overall construction program. When cost estimates at the scoping phase of a project closely match construction costs, available funding is properly allocated within the program and that programmed projects are delivered as scheduled, thus meeting the expectations of decision makers, funding partners, and stakeholders. However, when early estimates vary significantly from construction costs, the agency must adjust the program by delaying, adding, or canceling projects and reallocating funding or identifying additional funding.
State DOTs address the uncertainties—the risks—that affect construction costs by a variety of contingency adjustment methods. Some agencies reserve a portion of the total program funding to adjust projects as needed. Other agencies use contingency factors, applying a single contingency factor to the early estimate for a project. Alternatively, specific contingency factors can be applied to a category of risk or to specific items in the estimate; for example, a factor of 10% may be applied to the item of roadway excavation while a factor of 30% may be applied to cover the category of MOT. Whatever the method, these contingency factors seek to quantify cost-related risks and adjust an early construction estimate to account for conditions that are unknown at the scoping phase. Although contingency factors represent a promising approach to improving the overall accuracy of early construction cost estimates, according to the AASHTO Practical Guide to Cost Estimating, the inconsistent application of contingency factors is a “significant reason” for the long-standing problem of developing project cost estimates that accurately address cost increases.
The objective of this project was to develop a guidebook for state DOT staff responsible for scoping projects to improve early construction cost estimates for common project types with differing levels of project complexity. The guidebook identifies project-related risks that are associated with significant cost impacts and that affect the accuracy of early cost estimates compared to actual construction costs. To account for these project-related risks, the guidebook defines contingency factor ranges for specific, identified risks. The guidebook also addresses how state DOTs can better track the costs associated with risks to refine these contingency factors as needed and to develop additional factors in the future. 

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