A case study of management control. A construction project: Issues of transaction costs and trust

This thesis is the result of an intensive, in-depth case study of a building construction project that is characterised by high uncertainty and strong dependencies between its contributors. The complexity of transaction relationships involving independent firms of contributors (e.g.architect, engineers, quantity surveyor, main contractor, sub-contractors and suppliers), leads to interesting insights into how control works within construction project organisations. A case study method is adopted to investigate the case, using a triangulation data collection, including interviews, observations and documents. The themes and concepts from the data gathered were coded, identified, and categorised through a constant comparison with relevant theories from the literature. As a result of grounded theory analysis, an initial theoretical framework of transaction cost economics theory is extended to make sense of the case study. The initial framework suggests that the transaction characteristics (asset specificity, uncertainty, and frequency) and individual attributes (bounded rationality and opportunism) were relevant in choosing management control patterns of inter-firm relationships. Contracts are generally used to create project organisation, but are unavoidably incomplete. Hence, formal contract is not the only solution to the control and coordination problems. The framework extends TCE propositions by suggesting that informal or social control mechanisms can encourage cooperative behaviour of transacting parties and may also influence a relationship's control structure. Consistent with these arguments, the findings showed that in addition to formal process of managing contractual requirements to gain efficiency, informal processes (i.e. coordinating interdependent tasks) influenced the choice of MCS. Furthermore, control was to manage and guarantee continuity of transaction relationships in particular to cope with uncertainty due to the incomplete contract. The observations suggest that by selecting familiar or known contributors and with reputation to some extent mitigate control problems and thereby reduce the need for costly formal controls. The case revealed a number of control mechanisms consisting of management accounting practices, such as planning and scheduling, budgeting, work progress monitoring, and performance evaluation were used for both formal and informal control purposes. Hence, the thesis leads to an understanding that market-based and bureaucracy based control patterns (as suggested by TCE) are blended with social-based control when inter-firm relationships are complex and due to strong dependency of transacting parties in project-based organisations.