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.
Keywords
Acknowledgements
The authors thank the National Natural Science Foundation of China (Project No. 71302191), Department of Education of Henan Province, humanities and social science projects (Project No. 2013-QN-028) and Basic Science Research Project of Henan Province, China (Project No. 122300410029) for financially supporting this study.
Citation
Guo, L., Li, H., Li, P. and Zhang, C. (2016), "Transaction costs in construction projects under uncertainty", Kybernetes, Vol. 45 No. 6, pp. 866-883. https://doi.org/10.1108/K-10-2014-0206
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited