Transaction costs in construction projects under uncertainty

Abstract

Purpose – The purpose of this paper is to find how those uncertainty factors influence transaction costs generated and to identify ways to minimize the transaction costs borne by the construction owner. Design/methodology/approach – The literature indicates that there is no consensus on a standard definition of transaction costs in the construction industry. A detailed literature review of research work on transaction costs in construction is conducted in order to identify the determinants of transaction costs in construction projects. A structural equation model is tested on data collected by means of a survey administered to construction owners. Findings – The findings indicate that the transaction costs borne by the owner can be minimized if the owner minimizes the uncertainties inherent in the construction project by making sure the engineering design is as complete as possible before bids are sought from contractors; harmonious relationships between project participants; fair risk allocation; have experience in similar type projects; and contractor selection practices that routinely detect irregular behavior. Research limitations/implications – The data used in this research are primarily based on the experiences of public owners and the markets in which they operate; a larger representation of private owners could make the conclusions more general. Another limitation of the study is that it relies on a survey of opinions rather than actual records of costs and other hard data. Practical implications – No empirical study has ever been conducted of transaction-related issues in the construction industry because of the lack of a common understanding of transaction cost. This paper provides the groundwork for such a study. Originality/value – This paper attempts to reconcile the many determinants of transaction costs in construction projects under uncertainty considered by different researchers in a multitude of research studies.

Critical success factors for Kaizen implementation in the Nigerian construction industry

“…Most third world construction industries have similar challenges, such as cost overruns, project financing and small and medium scale construction companies, which are facing stiff competition from multinational construction companies. The challenges faced in third world construction companies are, therefore, very similar (Ballesteros-Pérez et al, 2015;Dada and Jagboro 2007;Guo et al, 2016;Amoatey et al, 2015) and this allows for consideration of strategic transferability. Shang and Pheng (2013) investigated the challenges facing the implementation of kaizen in Chinese construction companies, by interviewing project managers.…”

Identification and Assessment of Uncertainty Factors that Influence the Transaction Cost in Public Sector Construction Projects in Pakistan

“…Similarly, from the TCE perspective, uncertainty per se does not cause market failure (i.e., increase in TC) unless it is operationalized with human, environmental, and project factors [5,6,27]. Likewise, risk has always been considered to have a negative implication, whereas, in the absence of information about uncertainty, one cannot be sure whether it will lead to negative or positive outcomes.…”

“…According to the TCE theory, the TC is the result of uncertainty due to the interplay among different sets of human, environmental, and project factors [6,27]. In this study, the factors that influence TC are extracted from the literature.…”

“…The TCE theory claims that project managers in the contracting business not only bear the contract preparation cost, but also contract enforcement and monitoring cost, which is known as the transaction cost (TC) [5]. The main contention is that it is the uncertainty that is associated with human and environmental factors that cause project managers to incur a TC over and above production cost until project completion [6]. The uncertainty during project delivery is implicitly used to explain the project failure justifying the schedule extension by iron-clad parameters, i.e., time, cost, and objective [1].…”

Contractual governance as a source of institutionalised waste in construction

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