Preventing post‐contractual opportunism by an option to switch from one contract to another

Abstract

This article proposes a pre‐emptive mechanism that prevents a self‐interested contractor from taking benefits resulting from any post‐contractual opportunism. The mechanism is based on an option to switch from one contract to another. The client and the contractor must simultaneously enter into two (or more) contracts with an option given to the client to decide which one will apply once the work has been completed. The client's advantage lies in the power of preventing the contractor's opportunistic behaviour. The contractor's advantage lies in the possibility to demonstrate good faith.

Keywords:

• Contract incompleteness
• opportunism
• residual rights
• transaction costs
• construction contracts
• switching option