Quantitative Analysis on Schedule, Cost, and Contingency: Performance Implications of Innovative Contracting Strategies

Abstract

Current plans to invest over $1.7 trillion on U.S. infrastructure will result in rehabilitation of one-fifth of the U.S. highway systems over the next ten years. Consequently, alternative project delivery and contracting strategies are seen as major interventions to address increasing pressure on project acceleration for minimizing public inconvenience due to extensive rehabilitation. Critics, however, highlight several impediments to project acceleration. First, the impact of project changes on project schedule and cost performance in terms of their occurrence timing is unknown. Second, the effectiveness of alternative contracting strategies on the aspect of project performance has not been fully evaluated. Lastly, the way project contingency plans are executed by state transportation agencies is ad-hoc, and has led to many misapplications that fail to mirror project risks into project planning and budgeting. To circumvent these challenges, this study aimed to develop models for quantifying the effects of alternative delivery method (design-build) and contracting strategies (A+B, no excuse bonus, incentive/disincentive, and lump sum) on project performance. Particular emphases were given to (1) quantification of change order occurrence timing impacts on project performance under the design-build delivery method; (2) development of performance models with consideration of the simultaneity in schedule and cost under alternative contracting strategies; and (3) establishment of a comprehensive contingency adjustment framework that considers the performance impacts of alternative contracting strategies. The research objectives were accomplished by analyzing the large real-world dataset consisted of 1,103 rehabilitation, reconstruction, and resurfacing (3R) projects that were completed between 2002 and 2011 in Florida.

For the first objective, the results from the t-test and multiple linear regression indicated that design-build was more effective in restraining schedule and cost growths than the traditional design-bid-build. With respect to the occurrence timing of change order, it influenced significantly on schedule but negligibly on cost of the project. Contrary to the previous findings, the later occurrence of change order caused less schedule delays. The second objective was obtained by conducting the three-stage least squares, which can reflect the simultaneity in schedule and cost. The analysis results provided significant evidences of not only the simultaneity existence between schedule and cost but also accuracy and efficiency improvements in model estimation. In regard to the performance impacts of alternative contracting strategies, A+B (cost-plus-time bidding) was the most undesirable on aspects of both schedule and cost. Meanwhile, no excuse bonus and incentive/disincentive were effective in constraining schedule growths. Although lump sum is considered to have low project risks, it showed high degree of cost overruns. Finally, this study developed a comprehensive contingency adjustment framework based on sequential impacts of factors on needs for contingency adjustment. The framework using the path analysis implied that projects with long duration, owner’s high initial estimate, lump sum contracting strategy, and a major contractor may need more contingency, while no excuse bonus contracting strategy and economic environments under recession may alleviate required contingency allocation. This study provides the quantitative insights into the performance impacts of alternative project delivery method and contracting strategies, and the first holistic view to anticipate project factors’ sequential impacts on contingency adjustment, which are applicable in project planning and budgeting.