Construction contractors contingency and assumption of risk

Abstract

This Thesis presents the results of a study on probability of occurrence of different risk factors and perception of construction contractors in considering contingency markup allowance in Saudi Arabia. A model was developed in this study to figure out more rational contingency markup allowance to come up with maximum likely estimate. To achieve the study objectives the researcher conducted a literature review of the subject, explained importance of contingency markup allowance in estimation and importance of model for construction contractors, and designed a questionnaire related to probability of occurrence of risks and contingency markup considered in estimation of construction projects. The questionnaire was distributed to 82 construction contractors of grade 1 and higher as per the classification of the Chamber of Commerce, Eastern Province Chapter. Responses from 25 contractors were received, analyzed, summarized and reported. Analysis of the results indicated that the intuitive unsystematic approach generally used by most of the contractors has often failed to anticipate and include all the risk factors that should be considered in contingency markup allowance which necessitated the development of systematic approach in considering risks for contingency. It was found that labor and Equipment productivity has highest probability of occurrence where as Acts of God has the lowest probability of occurrence. It was also found that 41.7% of the contractors considered contingency under unfavorable conditions between 16-20% of the base estimate. 25% of the contractors consider it between 11-15%. 20.8% of the contractors consider contingency markup between 21-25% and 12.5% consider contingency between 6-10%. Based on this study, a model was developed to include all risks in systematic manner and reduce the chance of over or under estimation.