Novel Probabilistic Cost Estimation Model Integrating Risk Allocation and Claim in Hydropower Project

Abstract

The uncertain construction of hydropower projects and fierce market competition put forward more stringent requirements for contractors with regard to accuracy and competitiveness of cost estimation. However, previous probabilistic cost estimation models are mostly devoid of loss-sharing considerations. To fill this gap, this paper proposes a novel probabilistic cost estimation model integrating risk allocation and claim. The bargaining game between the owner and the contractor is first used to determine the proportion of risk allocation in the price fluctuation and the claim amount in the engineering quantity variation. Then, these two key parameters are incorporated into a Monte Carlo-based probabilistic cost risk simulation. The proposed model is applied to an actual hydropower project, and the results show that the risk reserve fund of the proposed model only accounts for 2.66% of the budget under 80% completion probability, and the average cost risk sensitive coefficient of the proposed model has more than tripled. From the results, the cost estimation value calculated by the novel model is more competitive and accurate in bidding; in addition, to reduce additional cost expenditures, the contractor should maintain a high level of patience during negotiations. This research contributes to improving the probability of winning a contract without sacrificing the contractor’s profit and to extending the current theory of probabilistic cost estimation.