Methods used by clients to determine contingency sums for construction projects in the Middle East

Contingency sums are vital to any project’s cost budgeting, estimation and management of risk events. This study investigates the methods used by clients to determine contingency sums in project budgets and the key factors influencing the selection of a methodology for setting contingency. Questionnaire survey data collected from 53 respondents in client organisations were analysed using descriptive statistics. The findings show that there are two prevailing methods used by clients for setting project contingency sums in the Middle East, namely deterministic bottom-line percentage norms and quantitative statistical risk analysis (Monte Carlo simulation). These two methods, which were mostly used in oil and gas, energy and mining projects tend to be very process-driven and control-oriented due to the complexity and severity of risks associated with projects in these sectors. The primary factor influencing client selection of a contingency setting methodology was familiarity with the approach, followed by simplicity, accuracy, time availability and organisational mandate structure. This was the main reason the bottom-line percentage method approach is more widely used in practice, although the respondents recommended the statistical risk analysis approach over percentage norms as this provides a more tailored scientific approach that considers a project’s bespoke risk profile.