An Analysis for the Degree of Accuracy in Construction Project Indirect Costs

Abstract

Construction project indirect costs refer to the costs of providing the site-based services and facilities by the contractor, for example site management and security, plant, etc. The importance of accurate indirect costs estimation is well explained by many authors. However, previous studies in western countries found that most contractors estimated project indirect cost items based on their estimators' professional judgement and experience. The aims of this study were to explore the estimation method for project indirect costs practiced by the large contractors in Hong Kong and measure the likelihood of over or underestimation. A survey was conducted with 40 large contractors in Hong Kong. The data collected was analysed by descriptive statistics which revealed that under-estimation was more common than over-estimation. The items of protecting finished works and cleaning and removal of rubbish were found to be most difficult to estimate accurately, possessing the highest likelihood of both under-estimation and over-estimation. Around 40% of the respondents felt that their project indirect cost estimates were not accurate and that a shortfall was not easy to recover when there was under-estimation. More investigation into the estimation of project indirect costs was recommended to improve the overall bid quality (both the accuracy and the effectiveness). The results in this paper provide the foundation for the improvement of estimation models, especially in the competitive market of South East Asia.

Key Words:

• estimating
• project indirect costs
• risk management