Transaction-related issues and construction project performance

Abstract

Transaction cost economics deals with costs incurred at the pre-contract phase such as the costs of conducting market research, exploring financial opportunities, conducting a feasibility study, organizing a bidding/negotiation and managing design; and with costs incurred in the post-contract phase such as the costs of administering the contract, administering change orders and claims, resolving disputes and managing incentives. Many researchers have investigated the factors that affect project performance over the years, but neglected to consider transaction-related issues. The effects of transaction-related issues on project performance are investigated in this study. Project performance is measured on the basis of completion within budget and on schedule, compliance with quality standards, and satisfaction of the owner. Transaction-related issues include the magnitude of transaction costs, the uncertainty in the transaction environment, and the owner’s and the contractor’s roles in the transaction. Hypotheses are tested by using a structural equation model using data collected from a survey administered to construction owners. The findings indicate that project performance can be stronger if the uncertainty in the transaction environment is minimized, transaction costs are kept low, and owners and contractors are sensitive to transaction-related issues.

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