Contingency Factors to Account for Risk in Early Construction Cost Estimates for Transportation Infrastructure Projects (2022)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

B-1   Risks for Construction Cost Contingencies Sixty-eight risk registers from FHWA and DOTs were collected to identify the preliminary list of risks that have a significant impact on early construction cost estimates. The specific information about identified risks was gathered through a literature review of state DOTs’ cost estimating manuals and research papers related to risk-based cost estimating. A P P E N D I X B No. Risk Definition 1 Utility issues • Unidentified utilities discovered during construction may result in additional cost and time to identify and relocate the utilities. Construction delays, in turn, lead to added costs for contractors’ delay claims. • Unknown utilities can cause major changes in foundation design during construction. • Significant construction delays due to utility relocation can cause changes in traffic control phasing and drainage design. • Unidentified utilities may lead to safety hazards, impacting construction costs and schedule. 2 Poor or incomplete project scope definition during the scoping phase • Project scope “encompasses the elements, characteristics, and parameters of a project and work that must be accomplished to deliver a product with the specified requirements, features, and functions” (AASHTO 2013). • Poor or incomplete project scope definition during the scoping phase can lead to inaccurate estimating assumptions in the scoping phase or changes in later phases, such as modifications in project boundaries, the number of lanes, and traffic loads, subsequently resulting in design changes and construction costs. 3 Unexpected geotechnical issues • Unsound subgrade can lead to changes in culvert systems, causing a cost increase. • Unforeseen subsurface conditions encountered at bridge structures, retaining walls, or sign structures can result in change orders for costs and schedules, such as the need to use specialized equipment or create additional shoring. • The discovery of large boulders in the existing soils may impact the excavation and reuse of materials for filling and backfilling. • Unknown soil conditions can affect structure foundations, resulting in construction cost changes. Table B-1. Twenty-three risks for construction cost contingencies. (continued on next page)

B-2 Contingency Factors to Account for Risk in Early Construction Cost Estimates for Transportation Infrastructure Projects 5 Constructability issues • Inadequate constructability reviews or the lack of an effective way of incorporating constructability review results into the planning and design process can result in significant cost changes (Diab et al. 2017). 6 Contractor availability and competition • The lack of competitive contractors may increase the construction cost to an amount higher than the owner’s estimate. • WVDOT (2019) reports that the asphalt price per ton is $90–$125 in single-bidder areas but $80–$90 in multiple-bidder areas. 7 Railroad involvement • Work needs to be done within specific working windows, affecting construction production rates. • Certain nighttime closures are not permitted for some railroads. • Ineffective negotiations with a railroad organization can result in the redesign of a grade-separated crossing. • The time needed to obtain a railroad permit may result in construction delays. 8 Market conditions • Multiple concurrent bid advertisements make contractors account for workforce resource deficiencies in their bids as a risk; contractors may adjust their bid prices upward 10% to 20%. • Multiple large projects may also (a) create workforce shortage and (b) impede adequate allocation of specialized workforces. • The higher price of crude oil tends to cause contractors to incorporate premiums to manage risks (Damnjanovic and Zhou 2009). 9 Late changes requested by stakeholders • Unexpected late requirements from contractors, material suppliers, or local governments during construction may result in substantial changes of a work plan that involves expensive equipment, considerable overhead, and significant manpower (CDOT 2019). • Schedule delays due to late changes are likely to increase the cost and the probability of disputes. 10 Project duration-related issues • Inaccurate contract time estimates, scheduling errors, and ignorance of the possibility of schedule delays are significant elements that cause the incorrect computation of project durations; these may lead to construction cost changes. • Any difficulties in achieving contract agreements (Caltrans 2012) or obtaining any approvals for project implementations (FDOT 2015) may lead to schedule extensions throughout the project. No. Risk Definition 4 Design changes • Changes in design standards and requirements may require revisions to approved schematics, affecting cost and schedule. • Design modifications to interchange or alignment can cause an increase in bridge and structure costs. Table B-1. (Continued).

Risks for Construction Cost Contingencies B-3 11 Errors in cost estimating • CDOT (2019) mentions that developing project plans and bid documents is based on maximizing the amount of work for budget determination. • Estimating needs to be implemented by recognizing risks and considering their high and low impacts on the estimated budget. • Most roadway projects are likely to identify estimation errors during construction due to the quantity error and the unit price error associated with inaccurate and unclear project scope and specifications at the scoping phase. 12 Funding availability • The available funds for successful project implementation may fluctuate as a result of inflation, adverse economic conditions, or other budget demands (ALDOT 2019). • Reducing fuel tax revenue and petroleum market revenues led to project financing issues in WYDOT- owned roadway projects (WYDOT 2020). • The lack of available funds may affect the project’s cash flow and late payments. • Late payments because of a fund deficiency may result in a contractor’s or subcontractor’s financial difficulties and slow project progress due to an inadequate supply of materials and equipment. 13 Maintenance of traffic and work zone traffic control • Resurfacing operations are usually conducted lane by lane (i.e., one lane is open to traffic while another is being resurfaced). • The contractor cannot shut down the entire road section for construction work (CDOT 2013). • High-volume traffic projects typically show lower production rates than similar projects in low-volume traffic areas since there are more construction constraints to ensure traffic mobility, more disruptions to construction, and more restricted work zones (Aoun 2013; Abdelmohsen and El-Rayes 2018; NYSDOT 2020). 14 Hazardous materials encountered during construction • The unexpected occurrences of hazardous materials or hazardous waste are risks because they incur further costs and require more time for mitigation. • The identification of (a) lead-contaminated soil, (b) asbestos-containing paint, or (c) the leak of an underground storage tank typically leads to additional construction costs and schedule extensions. 15 Unknown or change in current asset conditions • A thorough understanding of current asset conditions is required for accurate estimating of maintenance, repair, and rehabilitation projects. • Unknown or change-needed asset conditions at the cost estimating stage may significantly impact cost increase and schedule extensions during construction. • According to the Kentucky Transportation Cabinet (KYTC 2019), if deteriorated pavement conditions are not identified and are ignored in estimated costs, maintenances for sustaining asset serviceability will experience more risks due to more frequent work under traffic, increasing construction costs. No. Risk Definition Table B-1. (Continued). (continued on next page)

B-4 Contingency Factors to Account for Risk in Early Construction Cost Estimates for Transportation Infrastructure Projects 16 Coordination with government agencies • Since there are numerous regulatory agencies with permitting authorities, consultations for approvals, permits, and certifications for project implementation may lead to schedule delays and increased costs (Caltrans 2015). • Unrecognized changes in regulatory policies may require updates of project practices, resulting in cost increases. • The changes in regulatory policies (such as wetland mitigation and water or air quality regulations) can significantly alter project implementation direction (MaineDOT 2019). • The addition of further requirements may prevent project agencies from meeting expected performance targets without increases in project costs and schedule duration. 17 Unexpected archaeological or historic findings • Sudden uncovering of unexpected archaeological or historic findings may lead to temporary or prolonged suspension of projects and restricted access to the site for historical and archaeological evaluations. • Project agencies are obligated to report archaeological findings in accordance with historic preservation laws. • Until additional preservation measures are completed, all work activities must stop. 18 Surveys late or in error • Topographical surveys are needed to determine the configuration of land surface and the location of nearby natural or man-made objects (WSDOT 2005). • Pavement elevation surveys for the rehabilitation or improvement of existing transportation assets are required to develop accurate work plans and cost estimates (Caltrans 2006). • Late surveys lead to delayed project execution because projects cannot begin until the survey is completed and analyzed. • Mistakes or errors in surveys may give rise to unexpected problems (such as plan changes or a re- survey) after a project is underway. 19 Endangered or protected species encountered during construction • FHWA and DOTs require roadway projects to protect endangered or ecologically important species by preserving their habitats. • During seasonal restrictions for removing trees and shrubs under the Migratory Bird Treaty Act, a bird survey by biologists will be performed, which may result in a delay in the start of work and potential claims from contractors [Arizona Department of Transportation (ADOT) 2018]. • If species are identified where not present previously, the project team must spend time to find a good way of fully complementing these species before starting work, leading to a higher contingency. 20 Political risks • Political issues encountered during construction also pose a risk to project cost estimates (WYDOT 2020). • Demonstrations for environmental protests or by local communities are political risk items that can interrupt the execution of projects. No. Risk Definition Table B-1. (Continued).

Risks for Construction Cost Contingencies B-5 21 Issues with new materials, technologies, and methods • NJDOT (2017) mentions that a new material proposed by a contractor is likely to be an ineligible product that requires approval; this may incur additional cost. • If a newly-applied, prefabricated component is not manufactured adequately, the delivery date will be delayed and it will incur additional remanufacturing costs. • A first-of-its-kind technology, material, or method can serve as an unknown risk not yet encountered or imagined (Ashley et al. 2006). 22 Unanticipated noise impacts and noise mitigation • Unanticipated noise impacts occur when the projected highway noise levels exceed the noise abatement criteria during construction (CDOT 2015). • A high probability of unanticipated noise occurrences results in a higher construction cost that may justify contingency due to additional work for the precise identification of noise impacts and the mitigation of noise levels (such as development of sound walls). 23 Coordination with other projects • It is important to share information with concurrent projects in highly populated and congested areas in order to identify work activities that have adverse impacts on neighboring projects’ schedules (Warne 2011). • Potential conflicts between concurrent and neighboring projects due to coordination failures may disrupt determination and execution of project work sequences that could have eliminated or reduced delays causing construction cost increase. No. Risk Definition Table B-1. (Continued).