Sliding-Scale Contingency for Project Development Process

Initial cost estimates for construction projects can be prepared in the planning phase of project development and are revised through the programming and design phases of project development as more project information becomes available. These estimates are characterized by uncertainty, especially early in project development, because of the developing definition of the project's scope. If uncertainties are not estimated and managed appropriately, the result is most often a reduction in the accuracy of cost estimates. Potential project risks should be identified early in project development. The risks represent uncertain events or conditions that, if they occur, have a negative effect on a project's objectives. A total project cost estimate is composed of a base estimate of known costs and a contingency estimate of risk costs. A recent NCHRP study reviewed current practice and discovered that state highway agencies (SHAs) estimate contingency by using a range of methods from traditional top-down percentages to detailed bottom-up risk analyses. The project also found that a majority of the SHAs’ methods lack structure, consistency, or both in applications across projects. This study developed a top-down sliding-scale contingency estimation technique that takes into account factors of project complexity and phases of project development. Sliding-scale contingency graphs were developed for three levels of project complexity by using the Delphi method to elicit the expert opinions in the application of contingency on highway projects, with the primary aim of providing a consistent rationale for setting contingency on highway projects.