Determinants of transaction costs in construction projects

Abstract

Transaction costs occur when a good or service is transferred across a technologically separable interface, and include the costs of drafting, negotiating and enforcing an agreement, and also the costs of governance and bonding to secure commitments. In the complex and high risk environment of a construction project, questionable decisions can be made in the planning and design phase, and disagreements, conflicts, disputes, change orders, and claims can occur in the construction phase. These problems contribute to an increase in transaction costs. Transaction costs at the pre-contract phase of a project are different from the transaction costs at the post-contract phase. However, there is no consensus on a standard definition of transaction costs in construction projects. In this study, a detailed literature review focusing on transaction costs in construction project management is presented. The factors that affect transaction costs are identified and categorized under the headings of the owner's and contractor's roles in the transaction, project management efficiency, and the characteristics of the transaction environment.

Keywords:

• construction project
• transaction costs
• construction management
• transaction cost economics

Additional information

Notes on contributors

Huimin Li

Huimin LI. He is a Lecturer in the Department of Construction Engineering and Management at North China University of Water Resources and Electric Power, China. He holds a PhD in Management Science and Engineering and he conducts research and publishes regularly in the area of transaction costs in construction. His interests also include a range of areas within the Construction Management discipline including project delivery systems, procurement processes, risk management and schedule management.

David Arditi

David ARDITI. He is currently Professor of Civil and Architectural Engineering at Illinois Institute of Technology. He is the founder and Director of the Construction Engineering and Management Program since 1981. His area of expertise covers all aspects of construction management, engineering and support. Dr. Arditi and his research associates have published over 250 papers in refereed national and international journals and in peer reviewed conference proceedings. He is an active member of several professional societies, is currently serving on the editorial board of eight journals, and regularly reviews papers and books for several publications.

Zhuofu Wang

Zhuofu WANG. He is a Professor in the Department of Construction Engineering and Management at Hohai University, China. He holds a PhD degree from Hohai University and his research focuses on many areas of construction engineering and management. He has numerous research publications in journals and at conferences on PERT, scheduling risk, bidding mechanisms, incentive mechanisms, project delivery systems, and transaction cost analysis.