Tang, Y and Yao, H (2023) Watch out for the hidden costs of subcontracting in construction projects: The impacts of subcontractor dispersion. Journal of Construction Engineering and Management, 149(11): 04023113, ISSN 0733-9364
Abstract
Transaction costs of subcontracting are considered hidden costs due to unobservability and immeasurability, which potentially jeopardize project performance. This study develops a framework of transaction costs in construction projects [i.e., prevention-oriented costs (monitoring costs and coordination costs) and rectification-oriented costs (renegotiation costs)]. Furthermore, this study explores the impacts of the subcontractor dispersion on transaction costs and also provided a holistic view of the relationships by investigating the contingent role of different attributes, including project, relational, and institutional attributes. Using empirical evidence obtained from 283 professionals employed by Chinese general contractors, this study finds that a higher level of the subcontractor dispersion leads to more coordination and monitoring costs but fewer renegotiation costs. In addition, the contingent effects of different attributes proffer insights into the underlying mechanisms of how different transaction costs rise in a subcontracting relationship. Coordination costs occur due to information processing requirements, monitoring costs rise from the worry of shrinking, and renegotiation costs come from the relative power between parties. This study highlights the subcontractor dispersion as an important component of the subcontracting arrangement that has been long ignored and reveals the potential trade-off between different types of costs when determining the distribution of subcontracted work among subcontractors. Besides, the moderation analyses demonstrate different features and sources of each type of transaction costs, confirming the significance of the framework both theoretically and empirically. This study reminds project managers of the hidden costs that are frequently underestimated and the contingency analyses help them recognize effective domains for different subcontracting arrangements.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | contingency analysis; renegotiation costs; subcontracting arrangements; subcontractor dispersion; transaction costs |
| Index terms: | construction project, information processing, project manager, monitoring, evidence, project performance, coordination, subcontractor, transaction cost, prevention, general contractor, subcontracting |
| Subjects: | control systems, financial risk, management, evaluation and assessment methods, production management, project management theory and practice, data science, profession, practitioner, financial analysis, organization |
| Topics: | Project Management, Supply Chain Management, Cost Management, Site Management, Digital Applications, Roles and Professions, Research Practice, Organizational Design |
| Descriptive scope: | 4 PCTA |
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