Incentivization and Interdependency in Construction Contracting

Abstract

Construction projects require input from professionals of diverse disciplines. Effective cooperation among contracting parties is a necessary condition for successful projects; however, goals and motivations of contracting parties may not always be aligned. In fact, misalignment of interests is a major source of dispute. When disputes arise, contracting parties are likely to interpret contractual provisions in a way that favor their positions and as a result cause confrontation. This is not conducive to solving problems that require joint efforts. A cultural change is therefore needed to engender cooperation among contracting parties. In this connection, incentive schemes have been used as the bridge to engender common interests that in turn will provide the platform for cooperation. This study is about (1) investigating the use of incentive schemes in construction projects, (2) analyzing the effects of using incentive schemes on contracting behavior, and (3) explaining the roles of interdependency in the incentives-cooperation relationship. A conceptual framework is developed from literature on concepts of incentives, interdependency, and cooperation. A questionnaire is designed to collect data from construction professionals, mainly in Hong Kong, PRC, and Singapore. The proposed linkages among these three constructs are tested by partial least-square structural equation modeling (PLS-SEM). The findings suggest that cooperative behavior can result from the use of incentive schemes that engender interdependency. The acceptance of interdependency would have both psychological (alignment of objectives and trust) and economical (relationship-specific investment and previous working experience) influence on the parties by making them more likely to be cooperative. The findings further recommend that incentive schemes must be prudently designed with clear objectives, common interests, and resource supports. With that, careful implementation would maximize its effectiveness in fostering cooperation among contracting parties.

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