Identification of ex-ante and ex-post transaction costs in industrial construction engineering projects
Abstract
Construction costs comprise not only production but also transaction costs, which can be categorized as ex-ante (pre-contractual) and ex-post (post-contractual) costs. No evidence has been found in the literature of research about transaction costs in industrial construction engineering projects. The objective of this paper is to identify ex-ante and ex-post transaction costs in industrial engineering construction projects. To accomplish this, empirical research with 4 case studies was conducted with a large engineering firm in Brazil. This research not only identified transaction costs already found by others, dividing them into ex-ante and ex-post, but also identified that travel, RFP clarification, support to strategic decisions of the owner and knowledge transfer are transaction costs not previously identified in the researched literature but that are very relevant to the respective subject. Therefore, this research confirms that transaction costs should be considered ex-ante and ex-post by owners and contractors in industrial construction engineering projects and enlightens academics and practitioners on ways to achieve the reduction of such costs.
Keyword : transaction cost, TC, industrial construction, engineering projects, strategic decisions
How to Cite
Fonseca, F. B. da, Vanalle, R. M., & Camarotto, J. A. (2018). Identification of ex-ante and ex-post transaction costs in industrial construction engineering projects. Journal of Civil Engineering and Management, 24(5), 424-436. https://doi.org/10.3846/jcem.2018.5199
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Solino, A. S.; Gago de Santos, P. 2009. Transaction costs in PPP transport infrastructure projects. Working paper. Luxembourg: European Investment Bank.
Walker, A.; Wing, K. C. 1999. The relationship between construction project management theory and transaction cost economics, Engineering, Construction and Architectural Management 6(2): 166–176. https://doi.org/10.1108/eb021109
Whittington, J. M. 2008. The transaction cost economics of highway project delivery: design-build contracting in three states: Doctoral dissertation. University of California, Berkeley, CA.
Williamson, O. E. 1975. Markets and hierarchies: Analysis and antitrust implications: A study in the economics of internal organization. University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship.
Williamson, O. E. 1979. Transaction-cost economics: the governance of contractual relations, The Journal of Law and Economics 22(2): 233–261. https://doi.org/10.1086/466942
Williamson, O. E. 1985. The economic institutions of capitalism. Simon and Schuster.
Winch, G. 1989. The construction firm and the construction project: A transaction cost approach, Construction Management and Economics 7(4): 331–345. https://doi.org/10.1080/01446198900000032
Winch, G. M. 2001. Governing the project process: a conceptual framework, Construction Management and Economics 19(8): 799–808. https://doi.org/10.1080/01446190110074264
Winch, G. M. 2015. Project organizing as a problem in information, Construction Management and Economics 33(2): 106–116. https://doi.org/10.1080/01446193.2015.1021703
Yin, R. K. 2015. Qualitative research from start to finish. Guilford Publications.
Zerjav, V.; Hartmann, T.; Javernick-Will, A. 2011. Internal governance of design and engineering: The case of the multinational firm, Journal of Construction Engineering and Management 138(1): 135–143. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000417
Bajari, P.; Tadelis, S. 2001. Incentives versus transaction costs: A theory of procurement contracts, Rand Journal of Economics 32(3): 387–407. https://doi.org/10.2307/2696361
Batavia, R. 2001. Front-end loading for life cycle success, in Offshore Technology Conference, 2001. Houston: OTC. https://doi.org/10.4043/12980-MS
Bryman, A. 2003. Quantity and quality in social research. Routledge.
Chang, C. Y.; Ive, G. 2007. Reversal of bargaining power in construction projects: meaning, existence and implications, Construction Management and Economics 25(8): 845–855. https://doi.org/10.1080/01446190601164113
Chang, C. Y.; Qian, Y. 2015. An econometric analysis of holdup problems in construction projects, Journal of Construction Engineering and Management 141(6): 04015004. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000957
Coase, R. H. 1937. The nature of the firm, Economica 4: 386–405. https://doi.org/10.1111/j.1468-0335.1937.tb00002.x
Eccles, R. G. 1981. The quasifirm in the construction industry, Journal of Economic Behavior & Organization 2(4): 335–357. https://doi.org/10.1016/0167-2681(81)90013-5
Eisenhardt, K. M. 1989. Building theories from case study research, Academy of Management Review 14(4): 532–550. https://doi.org/10.5465/amr.1989.4308385
ENR. 2017. Top 500 design firms [online], [cited 1 September 2017]. Available from Internet: http://www.enr.com/toplists/2017-Top-500-Design-Firms1
Farajian, M. 2010. Transaction cost estimation model for us infrastructure public private partnerships: MS thesis. University of Maryland, College Park, MD.
Formoso, C. T.; Sommer, L.; Koskela, L.; Isatto, E. L. 2011. An exploratory study on the measurement and analysis of making-do in construction sites, in Annual Conference of the International Group for Lean Construction, Peru, Lima. https://doi.org/10.13140/RG.2.1.4753.1043
Guo, L.; Li, H.; Li, P.; Zhang, C. 2016. Transaction costs in construction projects under uncertainty, Kybernetes 45(6): 866–883. https://doi.org/10.1108/K-10-2014-0206
Ho, P.; Tsui, C. W. 2009. The transaction cost of public private partnerships: implications on PPP governance design, in Proceedings of the ASCE LEAD Speciality Conference Global Governance in Project Organizations, November 2009, South Lake Tahoe, California, 5–7.
Isatto, E. L.; Formoso, C. T. 2011. An exploratory study on the measurement and analysis of making-do in construction sites, in Annual Conference of the International Group for Lean Construction, 2011.
Jiang, W.; Jiang, W.; Lu, Y.; Lu, Y. 2017. Influence of initial trust on control from client perspective: construction industry in China, Engineering, Construction and Architectural Management 24(2): 326–345. https://doi.org/10.1108/ECAM-11-2015-0180
Jobin, D. 2008. A transaction cost-based approach to partnership performance evaluation, Evaluation 14(4): 437–465. https://doi.org/10.1177/1356389008095487
Kerzner, H. 2013. Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.
Lai, L. W. C. 2000. The Coasian market-firm dichotomy and subcontracting in the construction industry, Construction Management and Economics 18(3): 355–362. https://doi.org/10.1080/014461900370717
Lee, H. S.; Seo, J. O.; Park, M.; Ryu, H. G.; Kwon, S. S. 2009. Transaction-cost-based selection of appropriate general contractor-subcontractor relationship type, Journal of Construction Engineering and Management 135(11): 1232–1240. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000086
Li, H.; Arditi, D.; Wang, Z. 2012a. Transaction-related issues and construction project performance, Construction Management and Economics 30(2): 151–164. https://doi.org/10.1080/01446193.2012.655254
Li, H.; Arditi, D.; Wang, Z. 2012b. Factors that affect transaction costs in construction projects, Journal of Construction Engineering and Management 139(1): 60–68. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000573
Li, H.; Arditi, D.; Wang, Z. 2014. Transaction costs incurred by construction owners, Engineering, Construction and Architectural Management 21(4): 444–458. https://doi.org/10.1108/ECAM-07-2013-0064
Li, H.; Arditi, D.; Wang, Z. 2015. Determinants of transaction costs in construction projects, Journal of Civil Engineering and Management 21(5): 548–558. https://doi.org/10.3846/13923730.2014.897973
Lingard, H.; Hughes, W.; Chinyio, E. 1998. The impact of contractor selection method on transaction costs: a review, Journal of Construction Procurement 4(2): 89–102.
Lu, P.; Guo, S.; Qian, L.; He, P.; Xu, X. 2015a. The effectiveness of contractual and relational governances in construction projects in China, International Journal of Project Management 33(1): 212–222. https://doi.org/10.1016/j.ijproman.2014.03.004
Lu, P.; Qian, L.; Chu, Z.; Xu, X. 2015b. Role of opportunism and trust in construction projects: Empirical evidence from China, Journal of Management in Engineering 32(2): 05015007. https://doi.org/10.1061/(ASCE)ME.1943-5479.0000401
Lynch, T. D. 1996. A transaction cost framework for evaluating construction project organization: Doctoral dissertation. Pennsylvania State University, University Park, PA.
Miles, M. B.; Huberman, A. M. 1994. Qualitative data analysis: An expanded sourcebook. Sage.
Miller, C. J. M.; Packham, G. A.; Thomas, B. C. 2002. Harmonization between main contractors and subcontractors: a prerequisite for lean construction? Journal of Construction Resources 3(1): 67–82. https://doi.org/10.1142/S1609945102000059
Muller, R.; Turner, J. R. 2005. The impact of principal-agent relationship and contract type on communication between project owner and manager, International Journal of Project Management 23(5): 398–403. https://doi.org/10.1016/j.ijproman.2005.03.001
Palaneeswaran, E.; Kumaraswamy, M.; Rahman, M.; Ng, T. 2003. Curing congenital construction industry disorders through relationally integrated supply chains, Building and Environment 38(4): 571–582. https://doi.org/10.1016/S0360-1323(02)00188-9
Pang, H. Y.; Cheung, S. O.; Choi, M. C.; Chu, S. Y. 2015. Opportunism in construction contracting: minefield and manifestation, International Journal of Project Organization and Management 7(1): 31–55. https://doi.org/10.1504/IJPOM.2015.068004
Project Management Institute (PMI). 2017. Project Management Professional (PMP) [online], [cited 23 April 2017]. Available from Internet: https://www.pmi.org/certifications/types/project-management-pmp
Reve, T.; Levitt, R. E. 1984. Organization and governance in construction, International Journal of Project Management 2(1): 17–25. https://doi.org/10.1016/0263-7863(84)90054-1
Solino, A. S.; Gago de Santos, P. 2009. Transaction costs in PPP transport infrastructure projects. Working paper. Luxembourg: European Investment Bank.
Walker, A.; Wing, K. C. 1999. The relationship between construction project management theory and transaction cost economics, Engineering, Construction and Architectural Management 6(2): 166–176. https://doi.org/10.1108/eb021109
Whittington, J. M. 2008. The transaction cost economics of highway project delivery: design-build contracting in three states: Doctoral dissertation. University of California, Berkeley, CA.
Williamson, O. E. 1975. Markets and hierarchies: Analysis and antitrust implications: A study in the economics of internal organization. University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship.
Williamson, O. E. 1979. Transaction-cost economics: the governance of contractual relations, The Journal of Law and Economics 22(2): 233–261. https://doi.org/10.1086/466942
Williamson, O. E. 1985. The economic institutions of capitalism. Simon and Schuster.
Winch, G. 1989. The construction firm and the construction project: A transaction cost approach, Construction Management and Economics 7(4): 331–345. https://doi.org/10.1080/01446198900000032
Winch, G. M. 2001. Governing the project process: a conceptual framework, Construction Management and Economics 19(8): 799–808. https://doi.org/10.1080/01446190110074264
Winch, G. M. 2015. Project organizing as a problem in information, Construction Management and Economics 33(2): 106–116. https://doi.org/10.1080/01446193.2015.1021703
Yin, R. K. 2015. Qualitative research from start to finish. Guilford Publications.
Zerjav, V.; Hartmann, T.; Javernick-Will, A. 2011. Internal governance of design and engineering: The case of the multinational firm, Journal of Construction Engineering and Management 138(1): 135–143. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000417