Chang, Chen-Yu (2002) An economic interpretation of construction procurement behaviour for the commercial and industrial buildings. PhD thesis, University College London, UK.
Abstract
This study applies the rationale of transaction cost economics to develop a positive theory for interpreting and predicting construction procurement behaviour. The client is assumed to be a decision-maker who chooses the optimal procurement method so as to maximise his/her profit function, i.e. (discounted expected) revenue minus the sum of transaction costs and production costs. Three stereotypical and most popularly used forms of procurement methods are reviewed: traditional method (TM), design and build (DB) and management system (MS). By way of transaction cost reasoning, this study discovers that, with the assumption of fixed production costs across routes, revenue from the project, transaction costs from process specificity and from measurement difficulties constitute three pillars for comparing procurement methods. Moreover it is further claimed that it is to the presence of quasi rent, quality rent and design rent that we can ascribe the reasons why there are differentials in transaction costs between procurement routes. From the theoretical view, this study puts forth the principle of an inconsistent trinity, according to which, to determine the most efficient procurement method, the client will inevitably face the trade-off between (1) fast delivery of the project, (2) single point of responsibility for design and construction (lower measurement costs) as well as (3) high flexibility in accommodating variations (lower transaction costs arising from process specificity). Empirically, six variables are pointed out as relevant in affecting the client's decision: (1) the client's opportunity cost of time; (2) uncertainty of requirements; (3) costs of switching supplier; (4) the use of partnering or not; (5) the scale of the client; (6) degree of specialisation. With the help of a Logit model, six hypotheses relating to these variables are tested, as predictions regarding relative frequency of selection of procurement routes for projects of given sets of attributes. The analysis of this study aims to provide a new way of thinking about the nature of the project coalition, risk management and the development of tools for aiding the client in selecting the right procurement route.
| Item Type: | Thesis (Doctoral) |
|---|---|
| Uncontrolled Keywords: | client; construction procurement; design and build; measurement; partnering; procurement; reasoning; risk management; specialisation; supplier; transaction cost; uncertainty; variations |
| Index terms: | specialization, reasoning, transaction cost, management system, production cost, face, profit, revenue, variation, design and build, procurement method, partnering, risk management, presence, construction procurement, design and construction |
| Subjects: | economic analysis, environmental science, contractual arrangements, psychology, business, risk assessment, financial analysis, cognitive psychology, partnership management, contractual condition, management, manufacturing engineering |
| Topics: | Organizational Design, Contract Administration, Cost Management, Business Strategy, Research Practice, Stakeholder Management, Engineering Principles, Risk Management, Sustainability, Procurement |
| Descriptive scope: | 3 PCT |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here