METHOD OF FORECASTING PAYMENTS ON CONSTRUCTION CONTRACTS

The research on forecasting techniques for payments on current and proposed construction contracts reported in this paper was performed as part of a study to develop a system for generating a 1-to-2-year forecast of monthly cash flows for the Virginia Department of Highways and Transportation. The study revealed that presently used cash flow forecasting methods consistently underestimate ending cash balances. In addition, it showed that the behavior of individual contracts varies widely, with the percent paid out at the halfway point in the schedule ranging from zero to 93 percent. Furthermore, contractors' schedules, on which current forecasts are based, are not reliable indicators of contract duration, payout patterns, or final cost. By the end of the scheduled duration (contractual time limit not allowing for shutdowns) contracts are typically less than 70 percent complete. Cost overruns average 7.8 percent of the contract amount. Seasonality is a critical determinant of construction payout, as is exhibited by the fact that payouts can be six times as high in September as in January. A simple technique that emphasizes the effects of seasonality on payout and realistic estimates of contract duration explained more than 93 percent of the variation in a retrospective test of a sample data base. The accuracy of the forecasting method in actual use will depend on the variability of the weather and on the prompt entry of information on contracts let and scheduled advertisement dates into the forecasting data base. (Author)

Media Info

  • Media Type: Digital/other
  • Features: Figures; Tables;
  • Pagination: pp 26-35
  • Monograph Title: ANALYTIC METHODS AND DECISION MAKING FOR TRANSPORTATION PLANNING AND PROGRAMMING
  • Serial:

Subject/Index Terms

Filing Info

  • Accession Number: 00391009
  • Record Type: Publication
  • Files: TRIS, TRB
  • Created Date: Dec 30 1984 12:00AM