Modeling Cost Contingency Allocation in the Gaza Strip Building Projects Using Multiple Regression Analysis

Abstract

Construction projects in the Gaza Strip are facing many risks and uncertainties that lead to cost overrun. However, in practice, the contractors may be unable to make appropriate pricing allowances for risk. Estimating cost contingency allocation accurately in a bidding process is one of the key success factors of project risks management. However, there may be no flexible and rational method in estimating cost contingency has been developed. This research aims to develop a mathematical model based on multiple linear regression to be used by the contractors as a guideline for estimating cost contingency of building projects in the Gaza Strip during bid submission phase. The literature review and semi-structured interviews was used at the preliminary stage to identify 6 main risk factors associated with 74 sub-factors affecting cost contingency estimation. A questionnaire was developed and used as a research tool to obtain the opinions of 87 contractors on the most important factors affecting cost contingency. The opinions of 29 owners were also investigated to support the study. Factor analysis technique has been applied to identify the most significant independent variables for regressing analysis. The results yielded 36 independent variables categorized into 6 main risk factors affecting cost contingency estimation. The best proposed model of cost contingency estimation was developed by using Fully Modified Least Squares (FM-OLS) multiple regression analysis. The proposed model was applied on the cases of three implemented projects. Then, the model has been adjusted to increase its performance. The results of applying the adjusted model on the same three case studies indicated that the adjusted model could predict the cost contingency amount with high accuracy. The modified model has been able to measure the cost contingency successfully up to 90% of the real cost. The study recommended that the contractors have to use the adjusted proposed model as a tool to allocate the cost contingency for building projects, to develop overall risk management system to decrease the cost contingency amount. The study recommended the owners to share the contractors in risks and compensate them for risk costs beyond their control.