Cost Performance and Cost Contingency during Project Execution: Comparing Client and Contractor Perspectives

Abstract

Current literature shows that poor cost performance in projects has become routine. Research on cost performance has mostly focused on one of the involved parties, either the client or the contractor. Not many research efforts discuss the cost contingency performance of projects. This research discusses the cost performance and cost contingency of projects in the execution phase from the perspective of a client as well as a contractor. Using a case study approach, 95 projects are investigated: 44 client projects and 51 contractor projects. The results show that depending on the perspective, projects can have cost overruns or cost underruns. Comparing the total realized and estimated costs, projects experienced on average about 16% underrun from a client perspective. From a contractor perspective, projects experienced on average up to 2% overrun. The estimated cost contingency in the client's projects was on average 2.64% more than the required cost contingency. The estimated cost contingency in the contractor's projects was on average 5.41% less than the required cost contingency. These differences are explained by pessimism bias and technical reasons on the client's side. On the contractor side, optimism bias and technical and political reasons play a role, resulting in opportunistic behavior. The findings help practitioners to enhance their cost estimates by avoiding both pessimistic bias and optimism bias behavior-for example, by using historical data from earlier projects. Further investigation into the influence of market conditions on cost estimates is suggested.

A Scientometric Analysis of Studies on Risk Management in Construction Projects

“…Therefore, the findings reveal the growing interest in studies that estimate, negotiate, and manage cost contingency as part of the project budget in construction contracts. Promising research topics in this area cover the use of effective tools and approaches for cost contingency estimation during the project planning phase, negotiation of the contingency budget during project bidding, dynamic management of the cost contingency spending and its impact on the project cost and other outcomes [59,60]. Failing to identify risks in construction projects early results in poor final cost estimates [61], which may cause huge cost overruns [62].…”

Risk induced contingency cost modeling for power plant projects

“…However, since regression analysis provides a deterministic model, it requires data from a substantial number of similar previous projects [44], which, as pointed out earlier, is usually not available for complex infrastructure projects. Hoseini et al [45] study cost and cost contingency performance in the execution phases of water infrastructure projects in Netherlands and compute the contingency costs of both the clients and contractors of different projects. They analyze the projects' cost data using simple descriptive statistics and estimate the contingency cost as a percentage of the required base cost of a project.…”

Comparing data mining methods for predicting cost construction projects: A case study of cost management datasets from Thailand

“…Preceding scholarly endeavors have accentuated the correlation between effective cost administration and successful realization of construction ventures (Hoseini et al, 2020). Factors such as amendments in design schematics, lapses in site administration, deferred compensations by project proprietors, and capricious pricing of materials, wield a detrimental impact on cost efficacy (Faten Albtoush et al, 2020).…”