Sliding Scale Contingencies for the Highway Construction Project Development Process

Abstract

In the Highway construction project development process, State Highway Agencies (SHA) prepare cost estimates for effective communication to stakeholders and for project cost control. Cost estimates prepared in the planning phase of project development typically in a time range of 10 to 20 years from project letting are characterized by a great deal of uncertainty due to low scope definition. SHAs typically include an amount as contingency in the project cost estimate to cover costs due to unidentified or unquantified risks during project development. However, most of the methods used by SHAs to apply contingency to projects lack consistency in definition and application. This leads to poor communication to stakeholders, project cost escalation and other project control issues due to inaccuracy of baseline cost estimates. This study developed a set of sliding scale contingencies for estimating contingency on highway projects taking into consideration the effect of major factors, such as project complexity that impacts contingency application. Expert opinion was sought through the use of the Delphi technique. Experimental techniques were not suitable for this study due to the exploratory nature of the problem and the lack of data to analyze using empirical methods. The Delphi method typically consists of a series of rounds called questionnaires. Twenty-three professionals with experience in risk assessment and cost estimating agreed to participate in the study. Email was the means of communication using an excel spreadsheet. The assessment was completed in three iterative rounds with controlled feedback to the participants on the panel at the end of each round. Sliding scale contingencies were developed for three levels of project complexity: noncomplex (minor), moderately complex, and most complex (major) projects. The sliding scale contingencies are presented as a final output of this study. This method of estimating contingency provides consistent rationale for estimating contingency. Risks are an inextricable part of the contingency estimating process. Estimators are encouraged to identify and document risks as justification for contingency values applied to a project.