Effectiveness evaluation of contingency sum as a risk management tool for construction projects in Niger Delta, Nigeria

Abstract

Construction managers in a bid to effectively manage risks prone projects have adopted several methods, one of which is contingency sum. This study aims at evaluating the effectiveness of contingency sum as a risk management tool for construction projects in Niger Delta region of Nigeria. The objectives are to establish the level of awareness and utilization of contingency estimating methods among construction stakeholders, evaluate their perceptions of the percentage allowed for contingency in construction projects and determine whether there is a relationship between initial project cost, cost overrun and percentage allowed for contingency. Structured questionnaire served as the research instrument and the data were analysed using simple percentage, mean score and correlation. The findings of the study show that the most used contingency estimating method in the region is traditional percentage and that the three most important factors that affect the sum or percentage allowed as contingency for projects are complexity of the project, experience of the estimator and location of the project. The percentage allowed for projects as contingency by consultants and contractors in this study ranges between 5- 20 while the average contingency allowed is 10.4 (%). Furthermore, there is no relationship between initial project cost and the percentage allowed for contingency(p=0.294> 0.05).It was concluded that the contingencies allowed for projects in Niger Delta are based on the discretions of the consultants and contractors and not a function of the estimated contract value and it is not adequate. The study therefore recommends that contingency sum or percentage allowed should not be limited to complexity of the project , experience of the estimator, location of the project or the total contract sum but should be based on a comprehensive assessment of all factors that generate risk in each particular project.

Key Words: Construction project, Contingency sum, Evaluation, Management tool, Risk