International Journal of Construction Management

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Factors affecting cost contingency in the

construction industry – Contractors' perspective

Adnan Enshassi & Abed Ayyash

To cite this article: Adnan Enshassi & Abed Ayyash (2014) Factors affecting cost contingency
in the construction industry – Contractors' perspective, International Journal of Construction
Management, 14:3, 191-208, DOI: 10.1080/15623599.2014.922729

To link to this article: https://doi.org/10.1080/15623599.2014.922729

Published online: 13 Jun 2014.

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International Journal of Construction Management, 2014
Vol. 14, No. 3, 191
208, http://dx.doi.org/10.1080/15623599.2014.922729

Factors affecting cost contingency in the construction industry
Contractors’ perspective

Adnan Enshassi* and Abed Ayyash

Department of Civil Engineering, Islamic University of Gaza, Gaza Strip, Palestine

The main objectives of this paper are to identify the major factors affecting cost contingency amount, evaluate their impact
on cost contingency and their degree of consideration in bid estimates by construction contractors in the Gaza Strip. A
questionnaire was developed to identify contractors’ viewpoints regarding the impact of the identified 61 factors on cost
contingency amount and their degree of consideration in bid estimation. These factors were categorized into 12 groups.
Border and tunnels closure was ranked as the most important factor that impacts the cost contingency amount; it was also
ranked by the respondents in the first position that is considered by local contractor in bid estimation process. The findings
of this research will help the contractors in pricing cost contingency more efficiently by realizing the top most factors that
impact the cost contingency amount. It will also help the donors and clients in identifying the base reasons of increasing
contractor bid estimate and taking the required procedures to avoid it. Contractors should identify and evaluate the reasons
for using cost contingency amount during the estimate process. Contractors are advised to prepare a method statement and
work plan for each project taking into consideration its reality, complexity and type. Project resources such as materials
and equipment should be assessed and planned throughout estimate preparation process.
Keywords: cost; contingency; construction industry; contractors; Gaza Strip

Introduction
Construction industry is one of the major economic sectors that has a high contribution towards the growth and develop-
ment of the local economy of Gaza Strip. It provides significant improvement in the overall GDP of the local economy,
and contributes to the improvement of the quality of life by providing the required infrastructure such as schools, hospitals,
roads and other basic facilities. Therefore, stability, development and growth of the construction industry are critical for
the local economy (Chileshe & Yirenkyi-Fianko 2011; Enshassi et al. 2008; Le-Hoai 2008; Rahman et al. 2013a; Ugwoeri
2012). Building construction is one of the pioneer sectors that has achieved high growth rates during late 1994s and early
2014s and has played a crucial role in absorbing gradual injections into the Palestinian labour force (Enshassi et al. 2007,
2009). As per the Palestinian Central Bureau of Statistics (PCBS), 15.6% of the employed persons in the West Bank and
Gaza Strip (WBGS) work in the construction industry. In 2013, the construction industry contributed 14.1% of the Palesti-
nians GDP (PCBS 2014). The Palestinian business sector depends on Israel for energy, communications, raw materials
and exports. The closure of border crossings imposed by Israel on the Gaza Strip since the uprising of Al Aqsa Intifada in
the year 2000 has left grave impacts on the Palestinian economic, social, cultural, civil and political rights and obviously
on the construction industry (PCHR 2007). Construction projects have completely stopped due to the ban on the entry of
raw materials, especially cement, aggregate and steel, into the Gaza Strip. Construction contracting is considered the hub
for construction sector in Palestine. Hence, Palestinian contractors have proved their national role and outstanding ability
in construction and reconstruction during Israeli incursions, when they have worked hard to maintain and reconstruct the
infrastructure and buildings damaged by Israeli armed forces (PCU 2003).
Cost is the most important aspect of construction projects and one of the toughest challenges facing project management
throughout the project life cycle; it is one of the most important drivers of project success (Durdyev et al. 2012; Memon
et al. 2011; Rahman et al. 2013b). Dealing with unforeseen costs is usually a problem for construction project parties and is
the basic reason of the failure of many projects. Risks and uncertainty are the main causes of unforeseen costs in construction
projects because these may cause cost overrun and losses for construction parties. As in other economical sectors and devel-
oping countries, construction industry in Gaza Strip is facing several risks and problems related to cost of projects. Identifica-
tion, analysis and assessment of risks associated with local construction industry are one of its major challenges (Laryea &
Hughes 2011; Lhee et al. 2012; Thal Jr et al. 2010; Xie et al. 2012). Although several methods and techniques have been
developed to deal with risks in construction projects, cost contingency is one of the most used methods to deal with project
risks (Barraza & Bueno 2007; Lhee et al. 2012).
Generally, contractors include a reasonable allowance in their bid estimation to protect themselves from failure due to
potential risks hidden in the projects. Despite the importance of cost contingency, most contractors neglect it in the final

*
Corresponding author. Email: enshassi@iugaza.edu.ps

Ó 2014 Taylor & Francis

192 A. Enshassi and A. Ayyash

bid price due to competition and also to increase their chance to get the project (Kim et al. 2008). Identifying the optimum
cost contingency for a project is an essential part of the contractor’s bid preparation. In practice, contingency amount is
allocated either as a lump sum or as a simple percentage to account for possible cost overrun (Laryea & Hughes 2009).
Realizing the major likelihood risk factors and causes of cost overrun in a construction project besides its level of impor-
tance helps in estimating the accurate amount of cost contingency.
Gaza Strip is a conflict region subjected to many problems, and cost contingency can be considered as one technique to
deal with risks emerged from these problems. Cost contingency is a non-visible cost in construction projects and greatly
affects the tender price as well as may lead to loss if the contractor had not considered it before bidding. This research is
an attempt to discuss what could affect the value of cost contingency and establishes a mechanism for local contractors to
deal with it. Future research can use the results of this study to specify the effect value on cost contingency of each of these
factors to be taken accurately by local contractors in their bid price.
The aim of this paper is to identify and evaluate the impact of the factors affecting cost contingency amount and inves-
tigate the degree of their consideration in local construction.
The objectives of this research are as follows:

 To investigate the impact of the factors affecting cost contingency amount on contingency estimate in local con-
struction projects from the perspective of local construction contractors.
 To evaluate the degree of consideration of the factors affecting cost contingency amount in bid estimation from the
viewpoint of local construction contractors.

Literature review
Construction participants, including owners and contractors, have been including cost contingencies as an element of cost
items in the base estimate to compensate for uncertainties and thus mitigate risks resulting from underestimating project
costs. Because contingency is included within the base estimate prepared before the start of the project, it is directly related
to the accuracy of the base estimates (Lhee et al. 2012). Traditionally, extra fund, budget or time is included to the project
estimate before the project begins. This is done to cover unforeseen changes during project execution and is known as proj-
ect contingency (Xie et al. 2012). PMI (2009) defines contingency as ‘the amount of funds, budget or time needed above
the estimate to reduce the risk of overruns of project objectives to a level acceptable to the organization’.
In the practice of project management, cost contingencies have the objective of covering the expected risks of cost
increases above baseline estimates (Barraza & Bueno 2007). Contingency has been defined as a reserve budget for coping with
risks and uncertainties and to help keep the projects within budget (Bakhshi & Touran 2009). Generally, contractors add cost
contingency as an allowance to bid estimate in order to cover the potential risks hidden in the bid (Sonmez et al. 2007). To
achieve accurate cost performance, the amount of cost contingency should be determined accurately to ensure proper level of
profit and good chance of winning the contract (Kim et al. 2008). While allocation of low amounts of contingency for projects
with high risks may result in significant losses, allocation of high amounts of contingency may as well decrease the chances of
a contractor to win a contract (Polat & Duzcan 2010; Sonmez et al. 2007). Enshassi et al. (2008) have recommended the con-
tracting companies to compute and consider risk factors by adding cost contingency to quotation to be able to overcome risk.
Accurate contingency amount determination helps the contractor in achieving project objectives as well as obtaining the con-
tract Buertey et al. (2012a), Buertey et al. (2012b). Typically, the contingency amount is determined as a percentage of the
base project cost that does not include overhead and profit (Kim et al. 2008). Expert judgment, predetermined guidelines, simu-
lation analysis and parametric modelling are the common methods used to estimate risk cost/time contingencies (Hollmann
2008).
Sonmez et al. (2007) studied 51 risk factors impacting cost contingency during the bidding stages of international con-
struction projects. Among these, country risk rating, material availability in the host country, type of contract and advance
payment amount were the major factors impacting contingency decisions of the contractors. Poor site management and
supervision, poor project management assistance, financial difficulties of owner and financial difficulties of contractor
were ranked as the first factors affecting project cost in Vietnam construction industry (Le-Hoai et al. 2008). Enshassi
et al. (2009) studied and ranked 42 risk factors causing cost overrun in Gaza Strip from the viewpoint of the contractors,
the consultant and the owner. Shane et al. (2009) classified 18 factors affecting the cost estimate and contributing to cost
escalation into internal and external factors. Internal factors, e.g., bias, scope change, poor estimate, etc., are controllable
by agency/owner. External factors, e.g., unforeseen conditions, inflation effect, and market condition, are outside the direct
control of the agency/owner.
Laryea and Hughes (2009) asserted that the main determinants of contingency amount appeared to be the actual direct
costs, level of competition, delivery time of the project, promptness of payment and clarity of tender documents. Polat and
 International Journal of Construction Management 193

Duzcan (2010) classified 59 risk factors that may affect cost contingency amount in international construction projects into
six groups. The study found that country-related factors in the host country such as bureaucratic difficulties and unavail-
ability of qualified workforce are the highest important factors affecting the amount of cost contingency in construction
projects in host countries. Ehsan et al. (2010) categorized risks associated with the construction industry into eight groups.
The study revealed that major construction companies deal with risks on the basis of their experience, judgment and intui-
tion. Cash flow and financial difficulties faced by contractors, contractor’s poor site management and supervision, inade-
quate contractor experience, shortage of site workers, and incorrect planning and scheduling by contractors were found to
be the most severe factors.
Oyewobi et al. (2012) found that defects in design, inflation, contractor’s competence and political uncertainty had
greatest extent of occurrence and impact on contractor’s tender figure in Nigeria. The study indicated 59 factors as com-
mon and significant factors causing cost overrun from among causative factors comprising 78 factors causing cost overrun
where investigated and ranked (Memon et al. 2011). The study results also showed that poor design and delays in design,
unrealistic contract duration and requirements imposed, lack of experience, late delivery of materials and equipment and
relationship between management and labour are the most significant and common factors affecting construction cost. Dik-
men et al. (2011) have illustrated that incomplete design, errors in drawing, sudden and frequent revisions, accessibility of
construction areas and adverse site conditions are the main sources of cost overrun. Kasimu (2012) identified the signifi-
cant impact level of the 41 factors that cause cost overruns in building construction projects according to experts’ views in
the construction industry. The results obtained from the ranking of the studied factors indicate that market condition, per-
sonal experience in the contract works, insufficient time, materials fluctuation and political situation are the major signifi-
cant factors that cause the cost overruns in building construction projects in Nigeria. Chileshe and Yirenkyi-Fianko (2011)
listed 25 risk factors that affected the likelihood of occurrence and severity of risk on construction projects in Ghana.
The environmental layers approach concept has been considered in the classification of the major risk sources influenc-
ing construction project. In this concept, Baloi (2012) subdivided the environment surrounding a project or organization
into three distinct layers: (1) outer layer or general environment, (2) operational environment and (3) inner layer or internal
environment. Based on the environmental layers concept and risk primary source, the project risks are classified into three
groups: organization-specific risk factors, global risk factors and acts of God. Buertey et al. (2012c) stated that most factors
affecting cost contingency are as a result of poor design and scope definition. These factors include differing site condi-
tions, design completeness and status, change in scope, incomplete scope definition and change in specifications. Natural
and environmental risks have the highest difficulty to be predicted and detected but their impact when occurs is significant
and drives the cost contingency. Durdyev et al. (2012) categorized the 40 factors that affect the project cost into five
groups: macroeconomic, workforce, project finance, project management and other external factors. The most significant
factors that cause excessive projects cost overruns are improper planning, inaccurate project cost estimation, high cost of
needed resources, lack of skilled workforce, price of construction materials and high land prices. Mehmood and Shah
(2012) grouped risk factors under three major categories: input factors (labour, material and equipment), internal environ-
ment (contractors, consultants and project execution staff) and exogenous forces (weather, government regulations and
project specific external problems).
Ugwoeri (2012) identified 44 critical work factors and categorized those into nine groups: physical, environmental,
design, logistics, financial, legal, management, political and construction. Design-related risks, e.g., awarding the design
to unqualified designers and defective design, have the highest severity as stated by contractors, clients and consultants.
Rahman et al. (2013b) focused on the importance of resource management in conceptual and planning phases of construc-
tion projects and its effect on project cost. Another study conducted by Rahman et al. (2013a) identified 35 common risk
factors that cause cost overrun and categorized those in seven groups. The study found that the top three most significant
factors of cost overrun in Malaysia’s construction are (1) fluctuation in cost of material, (2) cash flow and financial difficul-
ties faced by contractors and (3) poor site management and supervision.

Research methodology
Research population
The population of this research included construction contracting companies that have valid registration as per the Palesti-
nian Contractors Union (PCU) records. According to the PCU, the contracting companies are classified into five classes
according to their performance in several fields: experience, company size, capital, assets and qualifications of the techni-
cal staff. These classes range from first class to fifth class in five different fields: buildings, roads, water and sewage, elec-
tromechanics and public works. We considered contracting companies from classes 1, 2 and 3, and neglected the other
two classes because of their nominal size and little experience in the construction industry and also because the number of
the contracting companies from these two classes was very small according to the PCU classification and their impact on
194 A. Enshassi and A. Ayyash

Table 1. Valid contracting companies.

Class

Class 1 Class 2 Class C Total

Registered number 92 81 45 218

Percentage 42% 37% 21% 100%

Table 2. Questionnaires distributed based on stratified sampling method.

Class

Class 1 Class 2 Class 3 Total

Number of distributed questionnaires 21 19 10 50

Fraction 42% 37% 21% 100%

construction industry in Gaza Strip is insignificant. Table 1 lists the number and percentages of the valid contracting com-
panies from classes 1, 2, and 3, which form the population of this research.

Sample size
A list of valid contractors was obtained from the PCU and the samples were selected from the stratum of target population
of the three classes of the contracting companies. Fifty questionnaires were distributed to the contracting companies work-
ing in Gaza Strip based on fraction of each class with respect to of the three classes considered in this research. Table 2
shows the number of questionnaire distributed according to the fractions. A total of 36 questionnaires were returned yield-
ing 72% response (Table 3).

Research location
The research was carried out in Gaza Strip. The contracting companies selected to fill the questionnaire were from five
governorates of Gaza Strip including the North, Gaza, the Middle, Khan-Younus and Rafah governorate. These five areas
are considered the southern territories of Palestinian National Authority (PNA).

Questionnaire design
A review of previous literature (Buertey et al. 2012b; Cha & Shin 2011; Durdyev et al. 2012; Ehsan et al. 2010; Enshassi
et al. 2008, 2009; Kasimu 2012; Memon et al. 2010, 2011; Oyewobi et al. 2012; Polat & Duzcan 2010; Rahman et al.
2013a, 2013b; Ugwoeri 2012) resulted in identifying 272 factors that may affect cost contingency amount. To better suit
and reflect the local construction industry in Gaza Strip, a preliminary list of collected factors was reviewed by three
experts with experience in construction industry (one academician and two construction project managers, one from con-
sultancy organization and the other from contracting company). The three experts’ review of the preliminary questionnaire
resulted in new suggestions and modifications:

Table 3. Number and percentages of returned questionnaires.

Class

Class 1 Class 2 Class 3 Total

Number of returned questionnaires 17 12 7 36

Fraction 34% 24% 14% 72%
 International Journal of Construction Management 195

 Modifications to general questionnaire format, text type and size.

 Rearrangement of the order of the factors, beginning with bidding stage factors.
 Addition of a new question, related to the number of projects executed by the contractor in the last 5 years, in the
first part.
 Modifications to the respondents’ experience range in some questions of the first part.
 Shifting three factors between the different categories according to their description.
 Modifications in the wording of the paragraphs.

In total, 61 factors to 60 factors. The semi-final questionnaire was prepared taking into account the preceding
modifications.
In total, 61 factors were generated and categorized into 12 categories according to the factor characteristics and source:

1. Bidding-related factors
2. Project-related factors
3. Design-related factors
4. Construction-related factors
5. Contractor-related factors
6. Owner-/consultant-related factors
7. Resources-related factors
8. Environmental factors
9. Legal factors
10. Economic factors
11. Technical/managerial factors
12. Political factors

The questionnaire survey was conducted to determine the opinion of the contractors regarding the impact of the factors
affecting cost contingency estimation and the degree of consideration of these factors in bid estimation from their view-
point. The respondent were asked to rate the impact of any factor on contingency amount and the degree of consideration
in bid estimate from the viewpoint of the contractors, using ordinal scale of 1 to 5. Rating the factor with ‘1’ representing
the least condition and ‘5’ represent the highest condition.

Statistical validity of the questionnaire

Singh (2006) and Kothari (2004) define validity as the degree to which an instrument measures what it is supposed to be mea-
sure. Validity has a number of different aspects and assessment approaches. Content validity and statistical validity are the
major two ways to evaluate instrument validity. Statistical validity includes criterion-related validity and constructs validity.

Content validity
The preliminary questionnaire was reviewed by six experts. All comments and suggestions were taken into consideration
to achieve the content validity of the questionnaire. The reviewers asserted that the questionnaire is clear and provides ade-
quate coverage for major issues to achieve study objectives. Table 4 shows the characteristics of the interviewed experts,
which indicates that they have extensive experience in construction industry to verify the questionnaire content.

Table 4. Profile of experts interviewed for content validity.

Number Organization Position Experience

1 University Professor 29
2 Consultant Project manager 13
3 Contracting company Project manager 11
4 Contracting company Contracting company owner 19
5 Contracting company Site engineer 6
6 Contracting company Site engineer 8
196 A. Enshassi and A. Ayyash

Statistical validity
Two types of statistical validity can be conducted on the study data: criterion-related validity and construct validity. Pear-
son correlation coefficient and p-value are used to test criterion-related validity correlations. The results of the test indi-
cated that the p- values are less than 0.05 or 0.01 and the correlation coefficients of each factor under any category are
significant at a D 0.01 or a D 0.05; therefore, it can be said that the factors under each field are consistent and valid to
measure what it was proposed for. Structure validity is used to test the validity of the questionnaire structure by testing the
validity of each category and the validity of the entire questionnaire. It measures the correlation coefficient between one
category and all the categories of the questionnaire that have the same level of Likert scale. The results of correlation test
indicated that all categories in the questionnaire are less than 0.05 or 0.01, and so the categories are valid and can measure
what they are proposed to measure.

Reliability of the research

Reliability refers to the ability of the instrument to produce the same results when repeated under the same conditions
(Field 2009). Repeating the questionnaire of this study is very difficult because of many constraints mainly those
related to time. To overcome this problem, Cronbach alpha coefficient and half-split method were used. Coefficient
above 0.7 is considered satisfactory. Half-split method depends on finding Pearson correlation coefficient between the
means of odd rank questions and even rank questions of each field of the questionnaire. Then, the Pearson correlation
coefficients can be corrected by using Spearman Brown correlation coefficient of correction. Consistency coefficient
is between 0.0 and + 1.0 (as shown in Table 5), the general reliability of all groups for (impact on cost contingency
amount) equals 0.893 and the general reliability of all groups for (degree of consideration in bid estimate) equals
0.884, and the significant (a) is less than 0.05, and therefore all the corrected correlation coefficients are significant at
a D 0.05. It can be said that according to the half-split method, all categories of factors affecting cost contingency are
reliable.
Cronbach alpha coefficient method is used to measure the reliability of the questionnaire between each category and the
mean of the whole categories of the questionnaire. The normal range of Cronbach alpha coefficient values is between 0.0
and + 1.0 and higher values reflect a higher degree of internal consistency. As shown in Table 6, the Cronbach Alpha coeffi-
cient was calculated and the general reliability of all categories (for impact on cost contingency amount) equals 0.881 and
the general reliability of all categories (for degree of consideration in bid estimate) equals 0.893. According to Memon et al.
(2010) and Rahman et al. (2013a), the reliability of the questionnaire is assured because the resulting Cronbach alpha coeffi-
cient values were high and larger than 0.7.

Table 5. Questionnaire reliability test by half split method.

Impact on cost Degree of consideration

contingency amount in bid estimate

Pearson Spearman-Brown Pearson Spearman-Brown

Category correlation coefficient correlation Coefficient

Bidding-related factors 0.818 0.900 0.793 0.884

Project-related factors 0.838 0.912 0.824 0.903
Design-related factors 0.783 0.878 0.753 0.859
Construction-related factors 0.770 0.870 0.773 0.872
Contractor-related factors 0.793 0.884 0.838 0.912
Owner-/consultant-related factors 0.779 0.875 0.740 0.851
Resources-related factors 0.837 0.911 0.843 0.915
Environmental factors 0.757 0.862 0.829 0.907
Legal factors 0.689 0.816 0.765 0.867
Economic factors 0.657 0.793 0.737 0.848
Technical/managerial factors 0.769 0.870 0.789 0.882
Political factors 0.752 0.859 0.797 0.887
All groups 0.808 0.893 0.793 0.884
 International Journal of Construction Management 197

Table 6. Questionnaire reliability test by Cornbach alpha coefficient.

Cronbach alpha

Impact on cost Degree of consideration

Category contingency amount in bid estimate

Bidding-related factors 0.917 0.901

Project-related factors 0.938 0.925
Design-related factors 0.897 0.874
Construction-related factors 0.884 0.898
Contractor-related factors 0.908 0.938
Owner-/consultant-related factors 0.926 0.874
Resources-related factors 0.937 0.944
Environmental factors 0.872 0.932
Legal factors 0.883 0.884
Economic factors 0.843 0.876
Technical/managerial factors 0.825 0.905
Political factors 0.872 0.904
All groups 0.881 0.893

Data processing and analysis

Parametric data has an underlying normal distribution (Field 2009). The Kolmogorov
Smirnov test is a major method to
examine the distribution of data. The analysis of the data collected from the questionnaire by SPSS software (version 20)
indicated that it follows normal distribution because the calculated p-value is greater than the significant Kolmogorov

Smirnov level, which is equal to 0.05 (p-value > 0.05). Parametric tests such as Pearson correlation coefficient and relative
importance index (RII) can be used throughout data processing.
To evaluate the rating of each factor and each group with respect to its impact on cost contingency amount and the
degree of consideration from the viewpoint of local contractors, RII was used, which is a parametric method; this tech-
nique has been used in other by Durdyev et al. (2012), Mehmood and Shah (2012) and Rahman et al. (2013a). The RII for
each factor and category was computed by SPSS software. The RII formula can be described as follows:

P
w 5n5 C 4n4 C 3n3 C 2n2 C 1n1
RII ¼ ¼
AN 5N

where w is the weighting given to each factor by the respondent, ranging from 1 to 5 (n1 D number of respondents for Very
Low, n2 D number of respondents for Low, n3 D number of respondents for Moderate, n4 D number of respondents for
High and n5 D number of respondents for Very High) A is the highest weight (i.e., 5 in the study) and N is the total number
of samples.
The RII value ranges from 0 to 1. To develop clear interpretation of the results obtained from the analysis, descriptive
and analytical techniques were used.

Results and discussion

Profile of the survey respondents
Table 7 lists the respondents‘ profile. The major respondents to the questionnaire had from 3 to 10 years of experience. The
respondents’ companies had more than 3 years of experience.

Ranking of each group of factors that impact cost contingency and their degree of consideration in bid price
Group 1: bidding-related factors
Impact on cost contingency amount. Table 8 shows that the respondents ranked ‘Insufficient time for bid preparation’ in
the first position with RII D 75.56%, which indicates the high importance of availability of adequate time for contractors
198 A. Enshassi and A. Ayyash

Table 7. Profile of the survey respondents.

Frequency Percentage

Position of the respondents

Company owner 5 13.89%
Company president 7 19.44%
Projects manager 11 30.56%
Site/office engineer 13 36.11%
Respondents years of experience in the line of work
From 1 to less than 3 years 2 5.56%
From 3 to less than 5 years 19 52.78%
From 5 to less than 10 years 8 22.22%
More than 10 years 7 19.44%
Classification of the company according to contractors union
First class 17 47.22%
Second class 12 33.33%
Third class 7 19.44%
Company years of experience in construction
1 year or less 3 years 3 8.33%
More than 3 years to 5 years 8 22.22%
More than 5 years to 10 years 14 38.89%
More than 10 years 11 30.56%
Types of implemented projects through company in the last 5 years
Residential buildings 8 22.22%
Infrastructure projects 8 22.22%
Public buildings 15 41.67%
Environmental projects 4 11.11%
Industrial projects 1 2.78%
Number of executed projects in the last 5 years
10 or less 18 50.00%
11
20 16 44.44%
21
30 1 2.78%
More than 30 1 2.78%
Value (in million dollars) of executed projects during the last 5 years
Less than 1 1 2.78%
From 1 to less than 2 6 16.67%
From 2 to less than 5 13 36.11%
More than 5 16 44.44%

to prepare and review their contract documents before its submission. ‘High level of competition in bid’ (RII D 75.56%)
was ranked as the second factor affecting the amount of cost contingency. Because Gaza Strip has a high number of con-
tracting companies with class 1 and the number of projects available for bidding is low, the number of competitors in any
tender will be high. This competition affects the amount assumed for cost contingency by the contractor. The increased
level of competition results in lower amount of cost contingency assumed.

Degree of consideration in bid estimate. ‘High level of competition in bid’ (RII D 77.22%) was ranked as the first factor
considered by the contractors in bid estimation. This is because the high need for contractors to get work in the high com-
petition environment, and high qualifications of competitors in each bid. Contractors will attempt to reduce their bid price
by reducing unforeseen components of project cost. The respondents ranked ‘Mistakes and discrepancies in contract doc-
uments’ (RII D 77.22%) in the same degree of consideration in bid estimate as was ‘High level of competition in bid’. In
this case, the contractors assumed an amount for uncertainty about these discrepancies, which lead to project cost and time
overrun. This result is in the line with results of Cha and Shin’s study which indicated ‘unfair terms included in the contract
 International Journal of Construction Management 199

Table 8. RII and ranks of bidding-related factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

High level of competition in bid 75.56 2 77.22 1

Mistakes and discrepancies in contract documents 73.89 3 77.22 1
Type of contract currency 71.67 5 73.89 2
Insufficient time for bid preparation 75.56 1 71.11 3
Unclear work scope and/or project definition 72.22 4 70.56 4
Incomplete of tender documents 66.67 7 70.00 5
Unclear information related to the project 68.33 6 67.22 6
before execution
Inaccurate quantities 60.56 8 63.89 7
Inappropriateness of specifications 60.00 9 63.33 8
Bidding-related factors group 69.38 70.49

conditions’ as one of the top five factors affecting contractor cost performance in the construction projects in South Korea
(Cha & Shin 2011).

Group 2: project-related factors

Impact on cost contingency amount. Table 9 shows that the respondents ranked ‘Type of project’ in the first position
(RII D 72.78%). This indicates that the requirements of the project and the degree of complexity have a high impact on
cost contingency amount. ‘Project complexity’ was ranked as the second factor (RII D 71.76%) that affects the amount of
cost contingency. Project complexity may cause several problems to the contractor during execution phase and may force
the contractor to pay higher money to provide the required skills, equipments and materials to be able for completing the
project. Besides this, the complexity of a project may cause varying disputes between project parties during the execution
phase.

Degree of consideration in bid estimate. ‘Project duration’ (RII D 75.43%) was ranked as the first one considered by the
contractors in bid estimation. When the project duration is long, the contractor may face many issues affecting his assump-
tion of cost contingency in bid estimation, such as fluctuation of resources price, shortage of cash flow and the longer time
period, and this may affect the ability of the contractor to get new works during project execution. On the other hand, short
project duration may cause delay forcing the contractor to pay liquidated damages amount or may be subject to loss.
Kasimu (2012) ranked insufficient time as the first construction factor causing cost overrun in construction projects. The
respondents ranked the ‘Project complexity’ (RII D 74.29%) as the second factor considered in the bid estimate. The

Table 9. RII and ranks of project-related factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

Project duration 63.89 5 75.43 1

Project complexity (method, technological & technical) 71.67 2 74.29 2
Type of project (resident, hospitals, school, factory, etc.) 72.78 1 73.89 3
Required quality of work 70.00 3 70.86 4
Project size 65.56 4 64.00 5
Time of execution (winter, summer) 56.11 6 59.41 6
Project-related factors group 66.67 69.65
200 A. Enshassi and A. Ayyash

Table 10. RII and ranks of design-related factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

Not coordinated design (structural, mechanical, 82.78 1 78.33 1

electrical, etc.)
Design complexity 68.89 2 65.00 2
Design quality 57.22 3 60.00 3
Design-related factors group 69.63 67.78

contractor may have not the sufficient knowledge or abilities to construct the project and so might assume a high contin-
gency amount for difficulties in execution and for providing the required resources to implement the project.

Group 3: design-related factors

Impact on cost contingency amount. Table 10 shows that the respondents ranked ‘Not coordinated design’ in the first
position with RII D 82.78%. This result is in the line with the result obtained from contract document discrepancies. When
design drawings have various contradictions, the contractor indicated that the cost contingency increases as the contradic-
tions increase. ‘Design complexity’ (RII D 68.89%) was ranked as the second factor that affects the amount of cost contin-
gency. Increased complexity of the design whether in type, method or details causes increased cost contingency
contractors misunderstand the design or are uncertain of their ability to construct the project design.

Degree of consideration in bid estimate. ‘Not coordinated design’ (RII D 78.33%) was ranked as the first factor by the
contractors in bid estimation. Contradictions in design drawings make the contractor uncertain about the estimation. So,
contractors assume an arbitrary amount to avoid any problems during the execution stage and expected disputes with other
parties. Ugwoeri (2012) described that awarding design to unqualified designers as the one of the most important risk for
construction industry in Nigeria. The respondents ranked ‘Design complexity’ (RII D 65%) as the second factor consid-
ered in bid estimate. This result is consistent with the results obtained from impact of design complexity on cost contin-
gency amount. Contractors included cost contingency in their bid estimation to protect themselves from any challenges
that may occur due to design complexity.

Group 4: construction-related factors

Impact on cost contingency amount. Table 11 shows that the respondents ranked ‘Site constraints’ in the first position
(RII D 76.11%). These constraints may affect the progress of the works on site, delivering and handling of materials and
equipment. ‘Mistakes during construction’ (RII D 72.22%) was ranked as the second factor that affects the amount of cost
contingency. The amount of cost contingency increased when contractors have inexperienced staff, poor site control or
supervision and construction challenges that may lead to mistakes during construction and many losses for the contractor.

Table 11. RII and ranks of construction-related factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

Site constraints (access, storage, electricity, etc.) 76.11 1 73.89 1

Mistakes during construction 72.22 2 68.33 2
Occurrence of variation orders during execution 43.89 4 53.33 3
Change in the scope/design/specification 50.56 3 51.11 4
of the project
Construction-related factors group 60.69 61.67
 International Journal of Construction Management 201

Table 12. RII and ranks of contractor-related factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

High need of the contractor to get the project 75.56 1 76.67 1

Financial and cash flow difficulties of the contractor 71.67 3 70.00 2
High contractor workload during estimation of contract 67.22 5 69.44 3
Lack of past experience with client/consultant 62.22 6 69.44 4
Contractor experience of project type 74.44 2 68.33 5
Inexperience of personnel working in bid estimation 68.57 4 67.22 6
Contractor-related factors group 69.95 70.19

Degree of consideration in bid estimate. ‘Site constraints’ (RII D 73.89%) was ranked as the first factor considered by the
contractors in bid estimation. Contractors consider the causes of site constraints and its effect on work progress in their bid
estimation. Site constraints consideration in bid estimate agreed with its impact on cost contingency. The respondents
ranked the ‘Mistakes during construction’ (RII D 68.33%) as the second factor considered in bid estimate. As the contrac-
tor bears the full responsibility of any construction mistakes, the cost allowance considered to cover these mistakes, espe-
cially when the contractor has inexperienced staff. Degree of consideration of mistakes during construction is compatible
with the impact of these mistakes on cost contingency amount as suggested by respondents.

Group 5: contractor-related factors

Impact on cost contingency amount. Table 12 shows that the respondents ranked ‘High need of the contractor to get the
project’ in the first position (RII D 75.56%). The amount of cost contingency will be smaller when the contractor has no
work and so will attempt to keep the bid price as lower as possible to acquire the project. If the contractor has other proj-
ects when the estimation is prepared, there will be a lack of significant interest to get the work and therefore the cost con-
tingency amount will be higher. ‘Contractor experience of project type’ (RII D 74.44%) was ranked as the second factor
that affects the amount of cost contingency. This result explains that the experience of the contractor in of similar projects
will helps to execute the work in more proficient way and in lower cost and shorter time, rather when the contractor exe-
cutes a project for the first time. In addition, the failure to implement any activity may result in rework, which is considered
more costly by the contractors. Memon et al. (2011) ranked ‘lack of experience’ as the second factor affecting construction
cost in Malaysia from about 59 factors studied, whereas Kasimu (2012) ranked ‘construction parties personal experience in
the contract works’ as the first factor causing cost overrun in construction parties group.

Degree of consideration in bid estimate. ‘High need of the contractor to get the project’ (RII D 76.67%) was ranked in
the first position by the respondents in bid estimation. The respondents ranked ‘Financial and cash flow difficulties of the
contractor’ (RII D 70%) as a second factor considered in cost estimation. Many problems the contractor will face are a
result of shortage of cash or financial difficulties. These problems can be related to work progress, purchase of required
material and equipment and problems with suppliers and subcontractors. Financial and cash flow difficulties of contractor
can cause project delay or cost overrun that must be covered by the contractor or to cover bank interests on loans when
needed. Rahman et al. (2013b) ranked ‘cash flow and financial difficulties faced by contractors’ as the second important
factor causing cost overrun in construction projects in Malaysia, whereas Memon et al. (2010) ranked it as the first factor
affecting project cost in Malaysia.

Group 6: owner-/consultant-related factors

Impact on cost contingency amount. Table 13 shows that the respondents ranked ‘Donor policy in biding tender to the
lowest price one’ in the first position (RII D 77.22%). Generally, major owners in Gaza Strip award the tender to the lowest
contract price. This policy exerts a pressure on the contractor to keep the bid price lower to be competitive. This owner
strategy impacts the amount of the cost contingency and thus makes it lower. ‘Owner financial reputation’ (RII D 74.44%)
was ranked as the second factor that affects the amount of cost contingency. This factor will affect contractor’s financial
responsibilities, such as wages, the purchase of materials, etc. Financial situation and availability of payments from owner
202 A. Enshassi and A. Ayyash

Table 13. RII and ranks of owner-/consultant-related factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

Owner financial reputation 74.44 2 77.71 1

Donor policy in biding tender to the lowest price one 77.22 1 73.89 2
Type of project owner/consultant (international, 68.89 5 71.67 3
local governmental, etc.)
Client’s over influence on the construction process 67.22 6 70.00 4
Delay in inspection and approval of completed works 69.44 4 68.33 5
Lack of experience of owner/consultant 69.44 3 59.44 6
Owner-related factors group 71.11 70.15

will help the contractor to complete the project with proposed cost and time. Chileshe and Yirenkyi-Fianko (2011) ranked
‘delay in payments’ as the first contractor risk that has an impact on the project, and Le-Hoai et al. (2008) ranked ‘financial
difficulties of owners’ as the first severe factor causing delay and cost overrun in Vietnam.

Degree of consideration in bid estimate. ‘Owner financial reputation’ (RII D 77.71%) was ranked as the first factor consid-
ered by the contractors in bid estimation. Financial situation of contracting companies in Gaza Strip is generally weak, and
the contractor depends on the availability of cash flow and payments from the owner for funding of project activities. So,
contractors depend on the financial situation and payment releasing time from the owner in their bid price to cover their
financial commitments to suppliers and payments for workers and materials. The respondents ranked the ‘Donor policy in
biding tender to the lowest price one’ (RII D 73.89%) as the second factor related to owner/consultant that is considered in
contractor bid price. The owner policy to award the contract based on the lowest price makes the contractor to ignore some
issues or risks related to the project and the contractor lowers the price until it becomes competitive and wins the project.

Group 7: resources-related factors

Impact on cost contingency amount. Table 14 shows that the respondents ranked ‘Shortage of project resources’ in the
first position (RII D 76.67%). This indicates the importance of the availability of project resources. The shortage of project
resources, especially materials and equipment, is one of the clearest factors that causes cost overrun and delay of project.
Generally, materials for construction project are provided through two routes in Gaza Strip: one from Israel through bor-
ders with Gaza Strip and the other way by underground tunnels from Egypt, which were excavated after Israeli siege of
Gaza Strip. The political and economic situations affect the availability of the materials required because major borders
are controlled by Israel and tunnels situation with Egypt is instable. This shortage of materials and equipments results in
increase of material price and hence increasing project cost.
‘Availability of qualified site management staff’ (RII D 73.89%) was ranked as the second factor that affects the
amount of cost contingency. This indicates the importance of management role to achieve project objectives. Most

Table 14. RII and ranks of resources-related factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

Shortage of project resources (labour, material 76.67 1 80.56 1

and equipment, etc)
Availability of qualified site management staff 73.89 2 75.56 2
Fluctuation in prices of resources (materials, 72.78 3 73.89 3
labour, equipment)
Varied labour and equipment productivity 59.44 6 61.11 4
Quality of materials supplied to site 60.56 5 58.89 5
Shortage of technical personnel (skilled labour) 64.44 4 58.86 6
Resources-related factors group 67.96 68.15
 International Journal of Construction Management 203

Table 15. RII and ranks of environmental factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

Differing site conditions 62.22 3 62.22 1

Occurrence of accidents because of poor 67.78 2 55.56 2
safety procedures (injuries and accidents)
Adverse weather conditions 57.22 4 53.33 3
Natural disasters (floods, earthquakes, etc.) 67.78 1 50.56 4
Environmental factors group 63.75 55.42

contracting companies focus their effort on physical activities management without attention to managerial activities such
as accounting and human resource management. If unqualified managerial staff has been appointed, it will affect cost
records, payments, resources management and workers’ productivity.

Degree of consideration in bid estimate. ‘Shortage of project resources’ was ranked as the first position (RII D 80.56%).
Rahman et al. (2013b) studied 18 factors causing cost overrun in construction projects in Malaysia and ranked ‘shortage of
materials’ and ‘shortage of site workers’ as the third and fourth important factors, respectively. The respondents ranked
the ‘Availability of qualified site management staff’ (RII D 75.56%) as the second factor related to resources that consid-
ered in the contractor bid price. Contractors consider qualification of management staff in their bid price to cover the risks
related to losses occurred by this staff.

Group 8: environmental factors

Impact on cost contingency amount. Table 15 shows that the respondents ranked ‘Natural disasters’ in the first position
(RII D 67.78%). This indicates that the contractors realize the impact of natural disaster, if that occurs, on cost contin-
gency. Natural disasters cause major project delays and cost overrun. ‘Occurrence of accidents because of poor safety
procedures’ (RII D 67.78%) was ranked as the second factor that affects the amount of cost contingency. Poor safety con-
ditions at project site may cause major losses whether in equipment, materials or workers. These losses may result in proj-
ect delay or cost overrun and in many cases may result in work suspension. Ugwoeri (2012) described that ‘occurrence of
accidents because of poor safety procedures’ is one of the most important risk for construction industry in Nigeria.

Degree of consideration in bid estimate. ‘Differing site conditions’ (RII D 62.22%) was ranked as the first factor consid-
ered by contractors in bid estimation. Major clients have a clause in their bid, which indicates that the differing site condi-
tions are the responsibility of the contractors. Contractors mitigate the risks associated with site by increasing the amount
of cost contingency, especially when they have high uncertainty about site conditions or have not studied it sufficiently.
The respondents ranked the ‘Occurrence of accidents because of poor safety procedures’ (RII D 55.56%) as the second
factor considered by contractors in bid estimation. Contractors in Gaza have poor culture about safety conditions in Gaza
Strip and consider arbitrary amount to cover any losses occurred as a result of poor safety management.

Group 9: legal factors

Impact on cost contingency amount. Table 16 shows that the respondents ranked ‘Difficulty to get permits’ in the first
position (RII D 65%). Governmental regulations in issuing permission or facilitate transactions contribute to delay and
cost overrun of project and may cause several losses to the contractor. Generally, this factor is related to project type, loca-
tion and complexity. The amount of the cost contingency will be increased significantly when the contractor expects to
face difficulties to get governmental permissions related to the project. From about 49 factors studied, Cha and Shin
(2011) ranked ‘regulatory provisions cause a delay in construction’ as the first factor affecting cost performance in con-
struction project in South Korea. Ugwoeri (2012) described ‘difficulty to get permits’ as the last of risk factor for construc-
tion industry in Nigeria.
‘Unclear arbitration process’ (RII D 61.67%) was ranked as the second factor that affects the amount of cost contin-
gency. Owners generally do not explain the method of arbitration for project in dispute cases. Contractor can be subjected
to financial losses when no clear arbitration process is found in contract, and the arbitration process is also very costly.
204 A. Enshassi and A. Ayyash

Table 16. RII and ranks of legal factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

Legal disputes during the construction 57.78 4 59.44 1

phase among the parties of the contract
Difficulty in getting permits 65.00 1 58.89 2
Unclear arbitration process 61.67 2 58.33 3
Complex laws and regulatory governmental 61.11 3 56.67 4
framework
Legal factors group 61.39 58.33

Hence, contractors consider clearance of arbitration process before project execution because it is important to eliminate
the risks associated in it. Kasimu (2012) ranked ‘unclear arbitration process’ as the last factor causing cost overrun in con-
struction items group.

Degree of consideration in bid estimate. ‘Legal disputes during the construction phase among the parties of the contract’
(RII D 59.44%) was ranked as the first factor considered by contractors in bid estimation. Disputes are one of the important
reasons of cost overrun and delay. Disputes at site put contractors under stress and may cost more as a result of suspension
of work or fees to litigators and wages of fixed staff during suspension. When contractors expect significant disputes in
any project, they will increase their bid price by increasing the amount of cost contingency. The respondents ranked the
‘Difficulty to get permits’ (RII D 58.89%) as the second factor considered by the contractors in bid estimation. Contractors
increase the amount of cost contingency when they expect difficult procedures to get governmental permits to implement
the project. Le-Hoai et al. (2008) ranked ‘obstacles from government’ the last severe and important factor causing delay
and cost overrun in Vietnam.

Group 10: economic factors

Impact on cost contingency amount. Table 17 shows that the respondents ranked ‘Delay in payment by owner’ (RII D
79.44%) as the first factor considered by the contractors in bid estimation. Payment is the first factor that helps the contrac-
tor to complete the project on time and to carry out financial commitments towards others such as workers, suppliers and
subcontractors. Weak financial status of contracting companies in Gaza Strip and the risks associated when owner delays
in releasing contractor’s payments make this factor as the first factor that impacts cost contingency amount. Chileshe and
Yirenkyi-Fianko (2011) ranked ‘the delay in payment’ as the factor with most risk that impacts the construction industry
in Ghana, and Mehmood and Shah (2012) indicated that ‘delays in payments of price adjustments’ is one of the major fac-
tors causing delay and cost overrun for higher education construction sector in Pakistan. ‘High liquidated damages

Table 17. RII and ranks of economic factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

Poor financial control on site 75.00 3 87.78 1

High liquidated damages amount 76.67 2 74.44 2
Delay in payment by owner 79.44 1 70.00 3
Unavailability and fluctuation in 72.22 4 63.33 4
foreign exchange
Type and value of insurance 61.67 6 63.33 5
Economic instability 64.44 5 54.44 6
Economic factors group 71.57 68.89
 International Journal of Construction Management 205

amount’ was ranked as the second factor that affects the amount of cost contingency. When the duration of the project is
insufficient or the contractor expects some difficulties to complete the project on time, the contractor will be enforced to
pay the amount of liquidated damages as a compensation of the delay caused. If the amount of the liquidated damage is
high, the cost contingency amount will be higher.

Degree of consideration in bid estimate. ‘Poor financial control on site’ (RII D 87.78%) was ranked as the first factor
considered by contractors in bid estimation. Construction projects involved a series of activities related to each other and
each activity affects other activities. If the contractor did not have financial plan and control for all project activities or had
unsatisfactory method of control on-site, the project cost will be increased. As a protection to the leakage of local contrac-
tors of the financial management basics, contractors use cost contingency amount to cover up. If the contractor feels inca-
pable to control all financial activities on site, the amount of cost contingency would be higher. Enshassi et al. (2008)
indicated ‘delayed payments on contracts’ as one of the most severe risk factors in Gaza Strip. The respondents ranked the
‘High liquidated damages amount’ (RII D 58.89%) as the second factor considered by contractors in bid estimation. Con-
tractors increase the amount of cost contingency when the liquidated damages amount is high.

Group 11: technical/managerial factors

Impact on cost contingency amount. Table 18 shows that ‘Poor site management and supervision’ (RII D 69.44%) was
ranked as the first factor that impacts cost contingency amount. This indicates that poor site management and supervision
provided by the contractor will cause cost overrun and project delays. Several problems may occurs as a results of poor
supervision such as rework, increased losses of materials and other losses related to equipment and financial rights of the
contractor. The amount of cost contingency will be increased when the management and supervision qualifications of the
contractor are lower or when the contractor expects difficult supervision and management on project site. Le-Hoai et al.
(2008) ranked ‘poor site management and supervision’ as the most important factor causing delay and cost overrun in Viet-
nam, and Memon et al. (2010) ranked ‘contractor’s poor site management and supervision’ as the second factor affecting
project cost in Malaysia. ‘Poor communication between involved parities’ was ranked as the second factor that affects the
amount of cost contingency amount. Communication between project parties is one important management technique that
helps to complete the project on time. When the communication system between project participants is not established or
practiced in bad way, the project will be subject to cost overrun and delay. Contractors consider bad communication as
one of the important factors that affect cost contingency because it is their responsibility to arrange for the project commu-
nications in case of works or material approvals and during any point of work progress.

Degree of consideration in bid estimate. ‘Poor communication between involved parities’ (RII D 73.89%) was ranked as
the first factor considered by contractors in bid estimation. Because of complicated and poor communications at the site,
contractors increase the amount of cost contingency to overcome the risks of cost overrun that may result from bad com-
munication. The respondents ranked the ‘Poor site management and supervision’ (RII D 72.78%) as the second factor con-
sidered by contractors in bid estimation. Contractors increase the amount of cost contingency when expecting any
constraints or challenges associated to site management to cover the cost overrun that may result.

Group 12: political factors

Impact on cost contingency amount. Table 19 shows that ‘Border and tunnels closure’, with very high relative importance
index (RII D 89.44%), was ranked as the first factor that impacts cost contingency amount. This indicates the challenges

Table 18. RII and ranks of technical/managerial factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

Poor communication between involved parties 69.44 2 73.89 1

Poor site management and supervision 74.44 1 72.78 2
Inadequate site investigations 68.33 3 68.33 3
Method estimate adopted 60.00 4 60.56 4
Technical/managerial factors group 68.06 68.89
206 A. Enshassi and A. Ayyash

Table 19. RII and ranks of political factors group.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

Border and tunnels closure 89.44 1 90.56 1

Working at hot (dangerous) areas 77.78 2 78.89 2
(close to IDF positions)
Unstable security circumstances 75.56 3 78.89 3
(invasions, wars)
Political factors group 80.93 82.78

construction industry faces in Gaza Strip under Israeli siege and also the challenges due to tunnels’ situation with Egypt.
Unstable political and security situations result in closures of borders and tunnels. In such cases when there is shortage of
materials at local market, the price of the available materials increases dramatically. This causes many problems to all proj-
ect parties, especially contractors and may result in major delays and cost overrun. Contractors increase the amount of cost
contingency in bid estimate to protect themselves from the risks associated with borders and tunnels closure.

Degree of consideration in bid estimate. ‘Border and tunnels closure’ (RII D 90.56%) was ranked as the first factor con-
sidered by the contractors in bid estimation. Complex political situations enforce the contractors to increase their bid price
because they have to protect themselves from any problems caused by border and tunnels closure.

Ranking of all groups that impact cost contingency and their degree of consideration in bid price
Table 20 shows the rank of all groups that impact the cost contingency amount and their degree of consideration in bid
price in Gaza Strip. ‘Political factors group’ was ranked as the first group that impacts cost contingency amount and the
first group considered by contractors in bid estimation. This indicates the importance of political situations in Gaza Strip
on construction industry. This result is in line with results of Kasimu (2012) in which ‘political situation’ was ranked as
the first factor causing cost overrun under political group, and is also consistent with the results of Enshassi et al. (2008) in
which ‘the closure and working at hot (dangerous) areas (close to IDF positions)’ was considered as one of the five most
important construction risks factors. ‘Construction-related factors group’ was ranked as the last group that impacts the cost
contingency amount, whereas ‘Environmental factors group’ was ranked as the last group considered by local contractors
in bid estimation.

Table 20. RII and ranks of all groups affecting cost contingency.

Impact on cost Degree of

contingency amount consideration in bid estimate

Factors RII Rank RII Rank

Political factors 80.93 1 82.78 1

Bidding-related factors 69.38 6 70.49 2
Contractor-related factors 69.95 4 70.19 3
Owner-/consultant-related factors 71.11 3 70.17 4
Project-related factors 66.67 9 69.95 5
Economic factors 71.57 2 68.89 6
Technical/managerial factors 68.06 7 68.89 7
Resources-related factors 67.96 8 68.15 8
Design-related factors 69.63 5 67.78 9
Construction-related factors 60.69 12 61.67 10
Legal factors 61.39 11 58.33 11
Environmental factors 63.75 10 55.42 12
All groups 68.43 67.73
 International Journal of Construction Management 207

Conclusion
Cost contingency is an important part of contractors bid estimate. It is a risk management tool used to reduce the impact
of risk on project cost. In this study, 61 factors was identified and grouped into 12 groups that were studied by using sur-
vey questionnaire. The results indicate that local contractors generally use cost contingency to reduce the impact of sev-
eral risks inherent in the project. Cost contingency amount rely heavily on the experience and judgment of local
contractors in realizing the impact of each factor on the project cost if it occurred. The common factors affecting cost
contingency amount are (1) border and tunnels closure, (2) not coordinated design (structural, mechanical, electrical,
etc.), (3) delay in payment by owner, (4) working at hot (dangerous) areas and (5) donor policy in biding tender to the
lowest price one. The common factors considered by local contractors in bid estimate are (1) border and tunnels closure,
(2) poor financial control on site, (3) shortage of project resources (labour, material, equipment, etc.), (4) unstable secu-
rity circumstances (invasions, wars), (5) working at hot (dangerous) areas and (5) not coordinated design (structural,
mechanical, electrical, etc.). Factors related to political situations are the major factors affecting cost contingency amount
and at the same time are the most common factors considered by local contractors in bid and estimate to avoid financial
problems when it occur.
Determination of the project risk factors helps contractors to clearly identify specific impact of any factor on cost con-
tingency and how it should considered in bid estimation. Contractors are recommended to come up with a clear plan and
strategy before starting a project taking into account project duration as well as technical and managerial capabilities of
their staff. Early project planning and scheduling of labour, equipment and cash will help to achieve lower cost contin-
gency amount. The contractors are encouraged to prepare method statement for each project taking into consideration proj-
ect complexity, duration and project type. The contractors are advised to develop a proper monitoring system of the works
and hire qualified and experienced staff in order to avoid any mistakes that may lead to rework of activities and finally
reduce the risks of time and cost overruns. Proper safety and site management plan should be developed before execution
to avoid any problems or accidents that may occur at project site. The contractors are advised to study and visit the project
site before preparing bid estimation and collect any data provided/available regarding the project site. The contractor
should be aware of the shortage of the material and should prepare time schedule for material delivery process to the site
in order to avoid material shortage or fluctuation problems, and is also is advised to purchase the construction materials at
the beginning of work. Contractors are recommended to participate in tenders that are appropriate to their financial ability
so as to reduce their expectations of financial problems during execution.
Designers should review their design sufficiently and provide full coordination between all designers to reduce the
risks of problems occurring during execution. Owners and consultants should clearly identify their requirements and
needs in order to reduce payment delay problems. There should be an effective coordination and communication among
various parties working on the project in order to improve management, control problems and reduce any cost overrun
or delay. Owners and consultants should clearly identify dispute resolution procedures in their bid documents and thus
increase the contractor’s confidence about disputes resolution. Owners should provide sufficient time duration for proj-
ect execution appropriate with project requirements to increase the contractors‘ risk for delay in finishing project works
in time and increased bid price. Owners should allocate proper liquidated damage amount that is appropriate with local
contractors’ financial abilities and project requirements. Owners and donors are advised to compensate contractors for
any losses due to unexpected political conditions. Local authorities must provide proper conditions to enforce owners
and donors to compensate the contractors for any losses that may result from bad political conditions.

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