Reforming overhead cost estimation in Nepal's public construction: A data-driven framework

Overhead cost estimation remains a critical challenge in public construction management, particularly in developing economies like Nepal, where rigid, standardized percentage allocations often fail to reflect actual project needs and local contextual complexities. This empirical study rigorously evaluates Nepal's mandated 15% overhead standard through a comprehensive mixed-methods analysis of six completed public construction projects within the Special Economic Zone (SEZ) in Bara District. Utilizing stakeholder surveys (n=42), semi-structured interviews (n=15), and detailed financial audit analyses, findings reveal a stark and statistically significant discrepancy: actual project-level overhead costs averaged merely 2.76% (ranging from 0.88% to 4.48%), presenting a difference of 12.24 percentage points from the mandated 15% standard (t (5) =18.95, p<0.001, Cohen's d=12.7). Multiple regression analysis (R²=0.847) identified project complexity (β=0.68, p=0.021), site accessibility (β=-0.45, p=0.034), and project duration (β=-0.23, p=0.067) as the most significant predictors of actual overhead costs. Stakeholder insights further indicated notable awareness disparities, with clients (80%) being more informed than contractors (55%), often leading to contractors underestimating their bids due to competitive pressures. To address these systemic inefficiencies and enhance transparency, the study proposes a novel Contextual Overhead Estimation Framework (COEF). This framework integrates project-specific risk factors, local contextual variables (including those beyond direct site costs, like nuanced head office allocations), and stakeholder information to offer a data-driven, tailored alternative to the current fixed-percentage model. The findings hold substantial implications for revising Nepal's Public Procurement Monitoring Office (PPMO) guidelines and demonstrate the broader applicability of COEF for improving cost estimation accuracy and fostering sustainable practices in public construction across similar developing contexts.