This project was undertaken to investigate potential improvements and additions to the current risk assessment efforts of the NCDOT, with a focus on assessing contingency percentages for construction, right-of-way (ROW), and utility relocations. Specifically, this research project aims to assess contingency allowances to be potentially used in the project planning process for construction, ROW, and utility relocation cost estimations. In addition, methods that other state DOTs use to address inflation were investigated, particularly as they pertain to the State Transportation Improvement Program (STIP) process. The methodology includes a literature review, survey of state DOTs regarding their contingency and reserve allowances and inflation practices, review of the NCDOT’s estimating process, validation of current contingency allowances, and recommendations. The literature review and survey results indicate that most DOTs apply contingency allowances to their project estimates during the early project development stage and maintain some level of contingency allowance at the plans, specifications, and estimate (PS&E) stage. Most DOTs include management reserve as part of contingency or do not consider it at all. Also, most state DOTs include inflation of the project cost in the project estimates to the time of bid letting or year of expenditure. The NCDOT accounts for inflation in a unique way compared to the other state agencies who responded to the survey; the NCDOT reserves a portion of available funds for programming the STIP to account for inflation. This approach reflects a ‘funding side’ approach as opposed to a ‘project cost side’ approach to managing project portfolios. With a project cost approach, inflation is included in each cost estimate. The survey results indicate that inflation needs to be considered carefully in the estimating process. The current estimating process at the NCDOT applies different contingency allowances to each of the three major project components, i.e., construction, ROW, and utility relocations. Project cost data, including estimates, bid amounts, and actual costs, were used in this study to validate the current contingency allowances. The results show that the current contingency allowances appear to be reasonable, as contingency is concerned, as they cover known risks with uncertain outcomes, also referred to as ‘known-unknowns’ (e.g., actual utility relocation cost and schedule). These risk items typically are identified in a risk register, such as the NCDOT’s Risk Assessment Worksheet. If the NCDOT were to adopt a project cost model, then a management reserve allowance would be recommended as an addition to each estimate. According to the Association for the Advancement of Cost Engineering, management reserve is “an amount added to an estimate to allow for discretionary management purposes outside the defined scope of the project, or otherwise estimated. May include amounts that are within the defined scope, but for which management does not want to fund as contingency or that cannot be effectively managed using contingency.” Essentially, management reserve covers unknown-unknown events (e.g., making a significant scope change during the design phase). For this research project, the NCSU research team developed reserve allowances for construction, ROW, and utility relocation. Because more data were provided for construction (compared to ROW and utility relocation), the reserve allowances could be determined by project type for each estimate stage and for the bid amount. Reserve allowances were determined for only Stage I ROW and utility relocation costs due to data unavailability for the other stages. Recommendations are provided to assist the NCDOT in modifying its current estimating process (if a project cost model is of interest) that would include adding costs for both inflation and management reserve to the NCDOT’s current project estimates. This effort also would include investigating ways to improve data accuracy and facilitate the tracking of planned and actual project costs.
