Evaluation of the Adequacy and Utilization of Contingency Fund in Building Projects in Nigeria

Abstract

Contingency fund is allowed in the cost estimate to cater for risks which always lead to additional cost. The study used archival data to assess the accuracy of contingency sum and utilization among various types of claims. Data collected were analysed using percentile and Pearson's coefficient of correlation. The study reveals that the current allowance as contingency is 5% of the base line estimates while additional cost is 18% which implies a shortfall of 13%. Furthermore, the study shows that the relationship among contingencies, base line estimates and final cost is statistically significant at 0.01. The study concludes that using percentage in allocating contingency based on subjective approach or at the discretion of the consultants is grossly inadequate. The study recommends that allocation of contingency sum should be based on cost analysis of similar completed projects and that a realistic contingency sum should be about 20% of the base line estimate.

Contingency Management in Indian Construction Projects

“…The results are aligned with those of previous findings by Aibinu et al (2002) which found that there was no well-placed strategy for forecasting contingency in Indian construction companies. The same could be a dampener for contingency objectives in addressing undefined project risk and cost overrun problems in Indian construction companies.…”

“…The study recommends the application of quantitative risks to improve the accuracy of cost contingency allowance. This observation was further endorsed by Aibinu et al, (2002) during the study on the impacts of delays on project delivery in the Nigerian construction industry. The study inferred that the distribution of contingency allowance based on assumption and perception of risks seems to be insufficient and impractical in most cases.…”

“…The study has assessed the relationship between contingency sum and client objectives related to budget, schedule, scope, and quality for delivering committed project performance in the study undertaken for the renovation of public school facilities in Abuja. Akinradewo et al, (2016) have studied 53 projects completed in Ondo State, Nigeria, reveals that average contingency was about 5% while average spending was 18% higher than estimated cost which shows that contingency was insufficient by 13%. The study further observed that contingency estimated using the traditional percentage method was insufficient, and it further proposed that the distribution of contingency provision should be based on cost examination of related finished projects.…”

Predicting Cost Contingency Using Analytical Hierarchy Process and Multi Attribute Utility Theory

“…The method is deemed to be arbitrary and undefendable (Thompson and Perry, 1992), unscientific (Chen and Hartman, 2000), and implies a degree of certainty that is not justified (Mak et al, 1998). Multiple studies have demonstrated that subjective judgments and arbitrary decisions on the amount of cost contingency are inefficient and imprecise (Akinradewo and Awodele, 2016). Despite the weaknesses of this approach, it is the most famous and used method in practice (Baccarini, 2005;Asamoah et al, 2013).…”