Correlation between Contingency Allowance and Change Orders
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With escalating demand for improvement of construction project performance, alternative project delivery methods and innovative project contracting methods are implemented depending on various work types and project sizes. Contingency generally refers to initial contingency amount estimated before bidding and will be included in original contract. Premium cost also will be issued to pay non-value additional works. As a result, additional works, which also refers to change orders, are paid mainly by initial contingency, supplemental agreements and premium cost. This paper mainly aims to compare initial amount of contingency to later investment paid for change orders by means of supplemental agreements or premium cost. If estimation of initial contingency is rather precise, even the initial contingency is high and will increases the original contract amount, it might still be beneficial to projects because it eliminates the cost-related influence caused by unforeseen additional works paid by fund prepared as contingency in advance. This paper is designed to testify correlation between initial contingency and cost overrun, moreover, to compare this correlation to the ones between supplemental agreement amount, premium cost and cost overrun, with which it could demonstrates whether initial contingency is less costly than amount issued by supplemental agreements or premium cost. Based on the results of correlation analysis, initial contingency is proved to be less expensive than paying change orders by supplemental agreements and premium cost.
Li, Lishan (2014). Correlation between Contingency Allowance and Change Orders. Master's thesis, Texas A & M University. Available electronically from