Subcontractor procurement in construction: the interplay of price and trust

Andreas Hartmann · Jasper S. Caerteling

132 citations0/0 files storedSupply Chain Management An International Journal

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Construction Project Management and Performance Quality and Supply Management Outsourcing and Supply Chain Management

Abstract

Purpose The purpose of this paper is to examine the relative importance of price and trust and their interaction in subcontractor selection. By doing so, it aims to respond to the currently dominant view that trust‐based procurement is the remedy to performance problems in construction. The paper also aims to argue that a specific interplay of both price and trust is always inherent to the selection of subcontracted services. Design/methodology/approach A choice‐based conjoint experiment was conducted to underpin the initial argument. The conjoint analysis is based on a sample of medium‐sized contractors from the Dutch residential building industry. Findings The research shows that neither price nor trust can be downplayed as procurement mechanisms. On the one hand, through repeated relationships main contractors become more confident in judging the performance of subcontractors. The level of trust increases and finally affects the supplier selection. On the other hand, favourable quotes are a prerequisite for trust to become choice relevant. Moreover, the extent to which subcontractors have performed with respect to quality, technical know‐how and cooperation in the past finally accounts for whether they are chosen or not. Research limitations/implications The joint occurrence of price and trust as procurement mechanisms should be acknowledged. More research is needed to understand the trade‐offs main contractors make between price and trust while procuring subcontracted services. Practical implications Subcontractors need to offer competitive bids to be able to increase their chance of recurrent relationships with main contractors and thus trust development. Originality/value This study is one of the first that considers the interaction of price and trust in subcontractor procurement. It contributes to the ongoing discussion around partnering and supply chain integration in construction.

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References

1985Economic Action and Social Structure: The Problem of Embeddedness 1995An Integrative Model Of Organizational Trust 1976Markets and Hierarchies: Analysis and Antitrust Implications.1998Not So Different After All: A Cross-Discipline View Of Trust 1994Determinants of Long-Term Orientation in Buyer-Seller Relationships 1995DOES FAMILIARITY BREED TRUST? THE IMPLICATIONS OF REPEATED TIES FOR CONTRACTUAL CHOICE IN ALLIANCES.2000Stated choice methods analysis and applications 1998Does Trust Matter? Exploring the Effects of Interorganizational and Interpersonal Trust on Performance

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