Within construction procurement, Transaction cost economics (TCE) offers a mechanism to
understand ‘unseen’ costs associated with the pre and post-contract work. Pre-contract, these
include costs related to information gathering and procurement. Post-contract they include
activities of contract administration and enforcement. This paper aims to estimate transaction
costs (TCs) for different delivery systems used in construction projects in New Zealand,
specifically the Traditional and Design-Build.
This study develops a conceptual model for the relationship between project delivery systems
and TCs. The model was operationalized and developed into a questionnaire. A crosssectional
sample approach was deployed, involving pilot and survey questionnaires. Data
was sought from construction professionals in management, design and operations. TCs were
measured using professionals’ time-spent in procurement as a surrogate for cost. Using using
a Likert-Scale 1-5 in evaluation, comparing the Traditional and Design-Build systems. Data
was triangulated with ‘real world’ cases to test and explain the developed model. The test
included Validity and Reliability, Path Analysis, Regression Analysis, Factor Analysis, and
Structural Equation Modelling (SEM). The primary analytical technique used was SEM to
yield information on Goodness-of-Fit, model development and comparison, and confirmatory
strategies. SPSS Amos 21 was used for data analysis and model development.
The results suggest that project delivery systems have indirect effect on TCs. This effect is
fully mediated by the costs of information, procurement, administration, and enforcement.
Applying the developed models to ‘real world’ cases, it was found that TCs in the Traditional
systems amounts to 18.5% of the annual salary cost of a project manager, while in the Design-Build systems, it amounts to 14.5% of the annual salary cost of a project manager.
The findings have practical implications on construction business practice due to their robust
empirical nature and theoretical framework, which might enhance the performance of the
construction industry.
