Determining the magnitude of transaction costs in construction procurement systems: an exploratory study
Rajeh, M; Tookey, JE; Rotimi, J.O.B.
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Transaction cost economics (TCE) has traditionally examined customer-supplier relationships in the context of contractual arrangements. This enables the development of appropriate strategies, such as long-term agreements and alliances, to eliminate the risk associated with contracting uncertainty, limiting the number of instances of bargaining or opportunism and asset specificity. In the context of construction procurement decisions, TCE could generate a valuable understanding of the costs associated with coordination, inspection, translation, incentives, transactions, and other interactions. This paper therefore reports on an exploratory effort to capture the transaction costs (TCs) of different procurement systems used in construction projects. Specifically determining the relative values of TCs for Traditional and Design - Build systems for the purpose of comparison. The paper involves a meta-study of construction procurement systems and TCE. It reviews the approach to the development of a conceptual framework that could enable the selection of appropriate procurement systems and/or make-or-buy decisions that could minimise TCs and therefore enhance the performance of the construction industry. The study is an aspect of a doctoral research study on determining appropriate construction procurement systems based on rational evaluative tools (TCE being one such tool). An outline of the larger study programme that forms the basis of the current paper is presented to demonstrate the benefits of the research investigation to construction clients and the construction industry as a whole.