Management of time and cost contingencies in construction projects: a contractor perspective
Abstract
The management of threats and opportunities plays a key-role in enhancing project performance. However, there is a gap in literature concerning how general contractors manage threats and opportunities in construction projects, in particular in the use of time and cost contingencies. This research partially addresses this gap through a case study of two large Spanish construction companies. The research presented two key factors determining how the contractors analyzed manage time and cost contingencies: project objectives and existing mistrust among the contractor’s team members. The research also found that managers use time and cost contingencies not only to manage threats, but also as tools for managing opportunities, thereby providing insight into a previously undescribed form of contingency: the negative contingency. The research results enable a better understanding of the actual behavior of general contractors, which contributes to paving the way for developing enhanced methods for contingencies management.
Keyword : contractor, contingency, opportunity, risk, Spain, threat, uncertainty
How to Cite
Ortiz, J. I., Pellicer, E., & Molenaar, K. R. (2018). Management of time and cost contingencies in construction projects: a contractor perspective. Journal of Civil Engineering and Management, 24(3), 254-264. https://doi.org/10.3846/jcem.2018.1643
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Laryea, S.; Hughes, W. 2011. Risk and price in the bidding process of contractors, Journal of Construction Engineering and Management 137(4): 248–258. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000293
Leach, L. 2003. Schedule and cost buffer sizing: How to account for the bias between project performance and your model, Project Management Journal 34(2): 34–47.
Lofton, W. D.; Monteith, M. D. 2004. Collaborative estimating, in AACE International Transactions, ES11.
Miles, M. B.; Huberman, A. M.; Saldaña, J. 2013. Qualitative data analysis: A methods sourcebook. New York: Sage Pub.
Molenaar, K. R.; Anderson, S. D.; Schexnayder, C. J. 2010. Guidebook on risk analysis tools and management practices to control transportation project costs. Transportation Research Board, Vol. 658, Washington D.C.
Noor, I.; Tichacek, R. L. 2009. Contingency misuse and other risk management pitfalls, Cost Engineering 51(5): 28–33.
Ortiz, J. I. 2015. Risk management during the construction phase of projects using contingencies from the perspective of construction companies: PhD Dissertation. Universitat Politècnica de València, Valencia.
Ortiz, J. I.; Pellicer, E.; Howell, G. A. 2014. Contingency management in construction projects: A survey of Spanish contractors, in Proceedings of the 22nd Annual Conference of the International Group for Lean Construction, July 2014, Oslo, Norway.
Oviedo-Haito, R. J.; Jiménez, J.; Cardoso, F. F.; Pellicer, E. 2014. Survival factors for subcontractors in economic downturns, Journal of Construction Engineering and Management 140(3): 04013056. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000811
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PMI. 2013. A guide to the project management body of knowledge (PMBOK® Guide). Newton Square, Pennsylvania: Project Management Institute.
Querns, W. R. 1989. What is contingency, anyway?, in Transactions of the American Association of Cost Engineers, B.9.1.
Russell, M. M.; Hsiang, S. M.; Liu, M.; Wambeke, B. 2012. Causes of time buffer in construction project task durations, in Proceedings of the 20th Annual Conference of the International Group for Lean Construction, July 2012, San Diego, CA.
Seung, H.; Hyung, K. 2004. Categorical relationship approach as an alternative risk analysis for predicting cost contingency, KSCE Journal of Civil Engineering 8(2): 173–180. https://doi.org/10.1007/BF02829117
Smith, G. R.; Bohn, C. M. 1999. Small to medium contractor contingency and assumption of risk, Journal of Construction Engineering and Management 125(2): 101–108. https://doi.org/10.1061/(ASCE)0733-9364(1999)125:2(101)
Solomon, R. C.; Flores, F. 2001. Building trust in business, politics, relationships, and life. London: Oxford University Press.
Taroun, A. 2014. Towards a better modelling and assessment of construction risk: Insights from a literature review, International Journal of Project Management 32(1): 101–115. https://doi.org/10.1016/j.ijproman.2013.03.0
Taylor, J. E.; Dossick, C. S.; Garvin, M. 2011. Meeting the burden of proof with case-study research, Journal of Construction Engineering and Management 137(4): 303–311. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000283
Teddlie, C.; Tashakkori, A. 2009. Foundations of mixed methods research: Integrating quantitative and qualitative approaches in the social and behavioral sciences. Thousand Oaks: Sage.
Thompson, P.; Perry, J. G. 1992. Engineering construction risks: A guide to project risk analysis and assessment implications for project clients and project managers. London: Thomas Telford.
Woodside, A. G. 2010. Case study research: Theory, methods, practice. Bingley, UK: Emerald Group Pub.
Yeo, K. T. 1990. Risks, classification of estimates, and contingency management, Journal of Management in Engineering 6(4): 458–470. https://doi.org/10.1061/(ASCE)9742-597X(1990)6:4(458)
Yin, R. K. 2009. Case study research: Design and methods. New York: Sage Pub.
Baccarini, D. 2004. Accuracy in estimating project cost construction contingency – A statistical analysis, in The International Construction Research Conference of the Royal Institution of Chartered Surveyors, 2004, Leeds Metropolitan University, Leeds, UK.
Ballard, G. 2005. Construction: one type of project production system, in The 13th Annual Conference of the International Group for Lean Construction, July 2005, Sydney, Australia, 29–35.
Ballesteros-Pérez, P.; González-Cruz, M. C.; Fernández-Diego, M.; Pellicer, E. 2014. Estimating future bidding performance of competitor bidders in capped tenders, Journal of Civil Engineering and Management 20(5): 702–713. https://doi.org/10.3846/13923730.2014.914096
Ballesteros-Pérez, P.; Skitmore, M.; Pellicer, E.; Zhang, X. 2016. Scoring rules and competitive behavior in best-value construction auctions, Journal of Construction Engineering and Management 142(9): 04016035. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001144
Barraza, G. A. 2010. Probabilistic estimation and allocation of project time contingency, Journal of Construction Engineering and Management 137(4): 259–265. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000280
Bhargava, A.; Labi, S.; Chen, S.; Saeed, T. U.; Sinha, K. C. 2017. Predicting cost escalation pathways and deviation severities of infrastructure projects using risk-based econometric models and Monte Carlo simulation, Computer-Aided Civil and Infrastructure Engineering 32: 620–640. https://doi.org/10.1111/mice.12279
Chan, E. H.; Au, M. C. 2009. Factors influencing building contractors’ pricing for time-related risks in tenders, Journal of Construction Engineering and Management 135(3): 135–145. https://doi.org/10.1061/(ASCE)0733-9364(2009)135:3(135)
Chapman, C.; Ward, S. 2003. Transforming project risk management into project uncertainty management, International Journal of Project Management 21(2): 97–105. https://doi.org/10.1016/S0263-7863(01)00080-1
Dake, K. 1992. Myths of nature: Culture and the social construction of risk, Journal of Social Issues 48(4): 21–37. https://doi.org/10.1111/j.1540-4560.1992.tb01943.x
de la Cruz, M. P.; Del Caño, A.; de la Cruz, E. 2006. Downside risks in construction projects developed by the civil service: the case of Spain, Journal of Construction Engineering and Management 132(8): 844–852. https://doi.org/10.1061/(ASCE)0733-9364(2006)132:8(844)
Diab, M. F.; Varma, A.; Panthi, K. 2017. Modeling the construction risk ratings to estimate the contingency in highway projects, Journal of Construction Engineering and Management 143(8): 04017041. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001334
Eldosouky, I. A.; Ibrahim, A. H.; Mohammed, H. E. D. 2014. Management of construction cost contingency covering upside and downside risks, Alexandria Engineering Journal 53(4): 863–881. https://doi.org/10.1016/j.aej.2014.09.008
EU. 2003. The new SME definition. User guide and model declaration. Luxembourg: Office for Official Publications of the European Communities.
Ford, D. N. 2002. Achieving multiple project objectives through contingency management, Journal of Construction Engineering and Management 128(1): 30–39. https://doi.org/10.1061/(ASCE)0733-9364(2002)128:1(30)
Godfrey, P. S. 2004. Control of risk a guide to the systematic management of risk from construction. London: Construction Industry Research & Information Association (CIRIA).
Goldratt, E. M. 1997. Critical chain. Great Barrington, MA: North River Press.
Guest, G.; Bunce, A.; Johnson, L. 2006. How many interviews are enough? An experiment with data saturation and variability, Field Methods 18(1): 59–82. https://doi.org/10.1177/1525822X05279903
Günhan, S.; Arditi, D. 2007. Budgeting owner’s construction contingency, Journal of Construction Engineering and Management 133(7): 492–497. https://doi.org/10.1061/(ASCE)0733-9364(2007)133:7(492)
Hillson, D. 2002. Extending the risk process to manage opportunities, International Journal of Project Management 20(3): 235–240. https://doi.org/10.1016/S0263-7863(01)00074-6
Howell, G. A. 2012. Uncertainty and contingency: implications for managing projects, in Proceedings of the 20th Annual Conference of the International Group for Lean Construction, July 2012, San Diego, CA.
Howell, G. A.; Laufer, A.; Ballard, G. 1993. Uncertainty and project objectives, Project Appraisal 8(1): 37–43. https://doi.org/10.1080/02688867.1993.9726884
Idrus, A.; Nuruddin, M. F.; Rohman, M. A. 2011. Development of project cost contingency estimation model using risk analysis and fuzzy expert system, Expert Systems with Applications 38(3): 1501–1508. https://doi.org/10.1016/j.eswa.2010.07.061
Laryea, S.; Hughes, W. 2011. Risk and price in the bidding process of contractors, Journal of Construction Engineering and Management 137(4): 248–258. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000293
Leach, L. 2003. Schedule and cost buffer sizing: How to account for the bias between project performance and your model, Project Management Journal 34(2): 34–47.
Lofton, W. D.; Monteith, M. D. 2004. Collaborative estimating, in AACE International Transactions, ES11.
Miles, M. B.; Huberman, A. M.; Saldaña, J. 2013. Qualitative data analysis: A methods sourcebook. New York: Sage Pub.
Molenaar, K. R.; Anderson, S. D.; Schexnayder, C. J. 2010. Guidebook on risk analysis tools and management practices to control transportation project costs. Transportation Research Board, Vol. 658, Washington D.C.
Noor, I.; Tichacek, R. L. 2009. Contingency misuse and other risk management pitfalls, Cost Engineering 51(5): 28–33.
Ortiz, J. I. 2015. Risk management during the construction phase of projects using contingencies from the perspective of construction companies: PhD Dissertation. Universitat Politècnica de València, Valencia.
Ortiz, J. I.; Pellicer, E.; Howell, G. A. 2014. Contingency management in construction projects: A survey of Spanish contractors, in Proceedings of the 22nd Annual Conference of the International Group for Lean Construction, July 2014, Oslo, Norway.
Oviedo-Haito, R. J.; Jiménez, J.; Cardoso, F. F.; Pellicer, E. 2014. Survival factors for subcontractors in economic downturns, Journal of Construction Engineering and Management 140(3): 04013056. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000811
Pellicer, E.; Sanz, M. A.; Esmaeili, B.; Molenaar, K. R. 2016. Exploration of team integration in Spanish multi-family residential building construction, Journal of Management in Engineering 32: 05016012. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000438
Pellicer, E.; Victory, R. 2006. Implementation of project management principles in Spanish residential developments, International Journal of Strategic Property Management 10: 233–248.
PMI. 2013. A guide to the project management body of knowledge (PMBOK® Guide). Newton Square, Pennsylvania: Project Management Institute.
Querns, W. R. 1989. What is contingency, anyway?, in Transactions of the American Association of Cost Engineers, B.9.1.
Russell, M. M.; Hsiang, S. M.; Liu, M.; Wambeke, B. 2012. Causes of time buffer in construction project task durations, in Proceedings of the 20th Annual Conference of the International Group for Lean Construction, July 2012, San Diego, CA.
Seung, H.; Hyung, K. 2004. Categorical relationship approach as an alternative risk analysis for predicting cost contingency, KSCE Journal of Civil Engineering 8(2): 173–180. https://doi.org/10.1007/BF02829117
Smith, G. R.; Bohn, C. M. 1999. Small to medium contractor contingency and assumption of risk, Journal of Construction Engineering and Management 125(2): 101–108. https://doi.org/10.1061/(ASCE)0733-9364(1999)125:2(101)
Solomon, R. C.; Flores, F. 2001. Building trust in business, politics, relationships, and life. London: Oxford University Press.
Taroun, A. 2014. Towards a better modelling and assessment of construction risk: Insights from a literature review, International Journal of Project Management 32(1): 101–115. https://doi.org/10.1016/j.ijproman.2013.03.0
Taylor, J. E.; Dossick, C. S.; Garvin, M. 2011. Meeting the burden of proof with case-study research, Journal of Construction Engineering and Management 137(4): 303–311. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000283
Teddlie, C.; Tashakkori, A. 2009. Foundations of mixed methods research: Integrating quantitative and qualitative approaches in the social and behavioral sciences. Thousand Oaks: Sage.
Thompson, P.; Perry, J. G. 1992. Engineering construction risks: A guide to project risk analysis and assessment implications for project clients and project managers. London: Thomas Telford.
Woodside, A. G. 2010. Case study research: Theory, methods, practice. Bingley, UK: Emerald Group Pub.
Yeo, K. T. 1990. Risks, classification of estimates, and contingency management, Journal of Management in Engineering 6(4): 458–470. https://doi.org/10.1061/(ASCE)9742-597X(1990)6:4(458)
Yin, R. K. 2009. Case study research: Design and methods. New York: Sage Pub.