Examining Contingency and Inflation Practices Within Several Departments of Transportation in the United States

Abstract

Transportation projects are notorious, among both the public and transportation professionals, for missing their intended cost and schedule targets as a result of project complexity and uncertainties. The significant discrepancy between cost estimates and final project costs remains a major concern for state Departments of Transportation (DOTs). Several risk factors, including estimation errors and price fluctuations, contribute to these discrepancies and are typically managed by adding a contingency to project estimates. Cost escalation can also result from inadequate adjustment for inflation in estimates, given the current economic environment and the lengthy duration of major transportation projects. This paper summarizes how several state DOTs apply contingencies to mitigate the impact of certain risks and adjust their State Transportation Improvement Program (STIP) revenues and costs to account for inflation. The study surveyed 13 state DOTs to understand how contingencies are applied to the three major components of transportation projects (construction, right of way, and utilities). Additionally, interviews were conducted with 15 state DOTs to understand how they address inflation, particularly as it pertains to the STIP process. The results indicate that most DOTs apply contingency allowances to their project estimates during the early project development and maintain some level of contingency allowance at the plans, specifications, and estimate (PS&E) stage. As for addressing inflation, most state DOTs include inflation of the project cost in the project estimates to the time of bid letting or year of expenditure. The findings of this study can benefit state DOTs that are reassessing their strategies for implementing contingency and inflation within their STIP.