Risk-Managed Lifecycle Costing for Asphalt Road Construction and Maintenance Projects under Performance-Based Contracts: Fid-Bau Portal

Risk-Managed Lifecycle Costing for Asphalt Road Construction and Maintenance Projects under Performance-Based Contracts

Mehany, Mohammed S. Hashem M. / Guggemos, Angela Acree

To date, few contractors have been involved in performance-based contracts (PBCs) for road construction and maintenance projects where they have to use lifecycle cost (LCC). The main drawback for using the LCC approach is the LCC assumptions used to address projects under high risk for contractors such as PBCs where the contractors are more than likely to be responsible for both the construction and maintenance of the road for a certain warranty period. This research was conducted to enhance LCC assumptions by introducing a risk management tool. Hence, the LCC will be based on more accurate and probable assumptions, and accordingly the results of the LCC estimate will be more reliable in the future for such risky projects. The research adopted a five step methodology through (1) identification of the risks, (2) quantification of the hot mix asphalt (HMA) costs through a cost breakdown structure (CBS), (3) comparative LCC calculations, (4) Monte Carlo scenario analysis, and (5) a demonstrative case study. The results of the analysis indicated that the introduction of a risk management tool can provide contractors with a better understanding of the most probable sensitive risks that they may encounter during the construction and maintenance phases with the emphasis on the ranges of risks they can take or the contingencies they need. A sample project in Colorado was estimated comparing traditional LCC estimation methods to risk-managed LCC. The risk-managed LCC showed about 2.5–6.5% increase in cost, which could be quite significant on large projects that traditionally have low profit margins, which could expose the contractors and the project to unforeseen cost overruns.