Fairness in interorganizational project relations: norms and strategies

Abstract

There is a strong preference for fairness in human interaction, so that people who experience unfairness tend to react with anger, resentment and loss of motivation. Concerns to appear fair influence the behaviour of both individuals and firms. Perceptions of fairness are susceptible to framing and may be influenced by various norms for outcome distribution as well as by decision processes and interpersonal relations. This paper deals with causes and effects of fairness perceptions in construction project relations, mainly fixed price contracts procured by competitive tendering. In such projects, uncertainty results in continuous post contract award problem‐solving and negotiations, and fairness concerns may have incremental but significant influence on the terms of exchange. Case studies of client–contractor interaction in two projects are used to discuss of how fairness norms relate to strategies and industry culture. It is concluded that that an intuitive cost‐based norm of fair pricing shapes interaction in construction projects, but that consequences vary between projects. The norm may favour contractors, but is also related to poor risk management and client distrust. To improve performance, clients need to design procurement practices and communication so that perceptions of contractor losses are counteracted.

Keywords:

• Construction contracts
• conflict
• procurement
• fairness
• winner's curse