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

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17   Major Risks for Construction Contingency Consideration 4.1 Major Risks of Construction Contingencies The identification and prioritization of potential construction risks associated with a project is the starting point for a project’s risk-specific contingency estimation. The analysis of available DOT risk checklists and risk registers of historical projects from FHWA and several DOTs, as well as intensive discussions with DOT cost estimators, yielded a list of 23 construction risks of priority interest (see Figure 6). Appendix B provides the entire list of those 23 risks and their definitions. This list can serve as a broad risk checklist specific to identifying, estimating, and monitoring construction con- tingencies. The list is particularly beneficial to early construction cost estimators because the current practice of most DOTs is to maintain only a generic list of project risks that may or may not be relevant to construction costs. Table 6 shows the top 12 construction risks (filtered and prioritized from the list of 23 risks) based upon an assessment of their high likelihood of occurrence and on the magnitude of their impact on construction costs (as determined through questionnaire surveys of DOT cost estimators). These risks typically occur in common project types as defined by FHWA (2009), such as new construction, reconstruction, bridge new construction, and bridge replacement. However, an individual project’s risk profile might be unique; if so, an individual project-level risk assessment must be performed. Some of the risks are most significant for smaller or repetitive projects— such as resurfacing, restoration, and rehabilitation projects. For example, utility and unexpected geotechnical issues are not likely to occur in resurfacing projects, since earthwork is not typically involved. Appendix C provides (a) relationships between the top risks and common project types and (b) prioritized risks for each project type based on DOT practitioners’ responses to a national survey conducted as part of this project. 4.2 Top 12 Risks Each of the 12 high-priority risks is defined here. Rank 1: Utility Issues Unexpected utility issues can occur for various reasons, such as missing or incorrect description of utilities on as-built drawings, variable and uncertain nature of subsurface utilities, lack of action by utility companies, ongoing utility development, and incomplete C H A P T E R 4

18 Contingency Factors to Account for Risk in Early Construction Cost Estimates for Transportation Infrastructure Projects information in survey files. The following examples illustrate the effects of utility issues on construction cost. • Unidentified utilities discovered during construction may result in additional cost to identify and relocate the utilities. Resulting construction delays can lead to added costs for contractors’ delay claims. • Unidentified utilities can cause major changes in the foundation design during construction. • Significant construction delays caused by utility relocation can cause changes in traffic control phasing and drainage design. • Unidentified utilities may lead to safety hazards, affecting construction costs. Rank 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, Ranking Risk 1 Utility issues (e.g., utility conflicts and relocation of identified utilities) 2 Poor or incomplete project scope definition during the scoping phase 3 Unexpected geotechnical issues (e.g., inadequate geotechnical investigation results, poor soil conditions, unsound subgrade conditions, large boulders contained in existing soils, or adverse groundwater conditions) 4 Design changes (e.g., changes in a bridge foundation type or redesign of a drainage facility, changes in design standards, exceptions to design standards, or inaccurate design assumptions) 5 Constructability issues (e.g., problems with construction sequencing, staging, or phasing) 6 Contractor availability and competition (e.g., lack of competition due to project size) 7 Railroad involvement (additional requirements because of proximity to a railroad) 8 Market conditions (e.g., a shortage of local contractors, labor, or material) 9 Late changes requested by stakeholders 10 Project duration-related issues (e.g., scheduling errors, inaccurate contract time estimates, restricted working windows for some activities, or issues with aggressive schedules) 11 Errors in cost estimating 12 Funding availability Figure 6. Major risk determination process. Table 6. Top 12 risks for construction cost contingencies.

Major Risks for Construction Contingency Consideration 19 and functions” (AASHTO 2013). Poor or incomplete project scope definition during the scoping phase can lead to inaccurate estimating assumptions in that phase or can lead to changes in later phases, such as modifications in project boundaries, number of lanes, and traffic loads, sub- sequently resulting in design changes (AASHTO 2013) and construction costs. Some examples are as follows: • An incomplete traffic study can lead to changes in the traffic control plan, resulting in cost increase. • Unclear purpose and requirements can result in change orders and claims, which increase project costs. Rank 3: Unexpected Geotechnical Issues In early estimates, assumptions about soil conditions are made but eventually may prove to be incorrect as more geotechnical data become available as a project progresses. Unexpected geotechnical issues (e.g., poor soil conditions, unsound subgrade conditions, large boulders contained in existing soils, or adverse groundwater conditions) may significantly affect con- struction costs. Some examples are as follows: • 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 cost changes because of a need to use specialized equipment or to create additional shoring. • The discovery of large boulders in 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. • Slope instability or failure is significant to the design of retaining walls; this can affect ROW and project costs. Rank 4: Design Changes Design changes (e.g., changes in the bridge foundation type or redesign of the drainage facility, changes in design standards, exceptions to design standards, and inaccurate design assumptions) can cause significant changes in construction costs. Following are some examples: • If further hydraulic analyses in later phases show that previously allocated funds for additional culvert work are not needed, construction costs may decrease. • Additional costs can occur if a project has been programmed using jointed plain concrete pavement for lane replacement but later needs to use continuously reinforced concrete pavement—a more expensive alternative—as a result of further investigation in the next phase. • Changes in design standards or requirements may require revisions to approved schematics; this will have an impact on cost. • Design modifications to interchange or alignment can cause an increase in bridge and struc- ture costs (AASHTO 2013). • Bridge foundation types may be changed as new information becomes available in later phases (Molenaar 2005), which may have an impact on construction costs. Rank 5: Constructability Issues Constructability issues affect construction costs. To mitigate their impacts, a constructability review process is typically conducted during the project development process to ensure that project plans, specifications, and estimates are clear, complete, and feasible such that designs

20 Contingency Factors to Account for Risk in Early Construction Cost Estimates for Transportation Infrastructure Projects can be built by a competent contractor [CDOT n.d.(b); California Department of Transporta- tion (Caltrans) 2013]. The goal of a constructability review process is to involve experienced construction personnel in the early phases of a project (NJDOT 2020). Some DOTs, including CDOT, the Virginia Department of Transportation (VDOT), and the New Jersey Department of Transportation (NJDOT), have endorsed the application of constructability reviews in all phases of project planning and design in order to enhance early scoping, minimize scope changes, reduce design-related change orders, and improve contractors’ productivity [CDOT n.d.(b); VDOT 2007; NJDOT 2020]. However, constructability review items vary with project phases. For example, while detailed specification conformance is typically reviewed at the final design phase, access and construction limits are considered in the early phases. According to CDOT [n.d.(b)] and a presentation by the Ohio Department of Transportation, some practical questions to be asked during early construction reviews are the following: • Do the construction limits encompass all work? • Is there adequate access to the construction? • Is access to businesses and residences provided? • Will construction be impacted by existing horizontal and vertical clearances? A good practice is to develop a team of various stakeholders (e.g., DOTs, utilities, contractors, and suppliers) and disciplines (e.g., structures, construction, environment, traffic, project manage- ment, and hydraulic) to review constructability issues [INDOT 2014; Tennessee Department of Transportation (TDOT) 2016]. However, inadequate constructability reviews or the lack of an effective way to incorporate constructability review results into the planning and design process can result in significant cost changes (Diab et al. 2017). Rank 6: Contractor Availability and Competition A large number of bidders typically reduces bid prices because contractors are more likely to submit a low bid price in order to win the project, allowing them to maintain business continuity and keep their workforce employed (WSDOT 2018). However, a lack of competitive contractors may increase the construction cost to an amount greater than the owner’s estimate. For example, the West Virginia Department of Transportation (WVDOT 2019) reported that the asphalt price per ton was 10% to 35% higher in single-bidder areas than in multiple-bidder areas. Early information about contractor availability and competition is useful to understanding potential construction costs. Rank 7: Railroad Involvement According to the Massachusetts Department of Transportation (MassDOT 2014), “all railroads have strict rules for working along and over their right-of-way,” and “most of them require that no construction operations progress when there is any potential of fouling the track.” Railroad involvement may cause delays or additional costs. The following are some examples: • Some work needs to be performed within required work time windows. This restriction affects construction production rates. • Certain nighttime closures are not permitted for some railroads. • Ineffective negotiations with the railroad organization can cause the redesign of a grade- separated crossing. • The time needed to obtain a railroad permit may result in construction delays. The identification of the railroad in the planning stage and communication with the railroad owner will help identify potential construction cost issues.

Major Risks for Construction Contingency Consideration 21 Rank 8: Market Conditions Market conditions are the consequences of supply and demand and the determination of material prices and quantities based on resource availability (WSDOT 2018). Multiple con- current bid advertisements require contractors to account for workforce resource deficiencies in their bids as a risk; contractors may adjust their bid prices upward by 10% to 20% as a result (AASHTO 2013). Not only that, multiple large projects may also (a) create a workforce shortage and (b) impede adequate allocation of specialized workforces. IDOT (2019) notes that workforce shortage also results in the unavoidable supply of unskilled labor, leading to poor construction and overall project delays or cost overrun. The crude oil price is another significant factor affect- ing project cost estimates. A higher price of crude oil tends to cause contractors to incorporate premiums in order to manage risks (Damnjanovic and Zhou 2009). Rank 9: Late Changes Requested by Stakeholders Project stakeholders’ requirements for changes at a late date can be regarded as a real issue. Sudden unexpected late requirements from contractors, material suppliers, or local govern- ments after the scoping phase (design and construction) may result in substantial changes to the work plan involving expensive equipment, considerable overhead, and significant manpower (CDOT 2019). Such changes may also necessitate altering the planned work sequence and schedule (Caltrans 2019). Schedule delays due to late changes are likely to increase the cost as well as the probability of disputes. Therefore, stakeholders’ late changes are a risk factor that project owners must consider when estimating contingencies. Even though the identification of specific items required by stakeholders may be challenging at the early stage because of incomplete project development, it is important that cost estimators keep in mind the possibility of late change occurrences at the scoping phase. Rank 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, which may lead to construction cost changes. Any difficulties in achieving contract agreements (Caltrans 2012) or obtaining approvals for project implementations (FDOT 2015) may lead to schedule extensions affecting the entire project. Given that prolonged project durations typically force project owners to put in extra effort and funds to address deadline extensions, project duration-related issues are a risk item that may affect construction costs. Projects similar to those that have previously experienced substantial schedule extensions need to be given higher attention in estimating construction contingency. Rank 11: Errors in Cost Estimating Errors in cost estimating are among the most frequent causes of increased construction costs over initial estimates. CDOT (2019) notes that project plans and bid documents should estimate the maximum amount of work likely to be needed when determining a project’s budget. It is also important that estimating be implemented by recognizing risks and considering their high and low impacts on the estimated budget. Most roadway projects are likely to have 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. The high probability of errors in estimating is therefore a risk item for determining construction contingency. In addition to project complexity, factors that can contribute to poor quality of cost estimates include the capability of cost estimators, their experiences in carrying out projects in a nearby site, and a lack of reliable historical unit prices.

22 Contingency Factors to Account for Risk in Early Construction Cost Estimates for Transportation Infrastructure Projects Rank 12: Funding Availability The funds available for successful project implementation may fluctuate because of inflation, adverse economic conditions, or other budget demands [Alabama Department of Transpor- tation (ALDOT) 2019]. For example, reductions in fuel tax and petroleum market revenues led to project financing issues in Wyoming Department of Transportation (WYDOT)-owned roadway projects (WYDOT 2020). The lack of available funds may affect a project’s cash flow and cause late payments. The suspension of projects may also occur. For reasons such as these, a deficiency of available funds has the potential to increase construction costs.