Contract complexity and trust in construction project subcontracting

Abstract

PurposeThe purpose of this paper is to unpack the “black box” of the relationship between contract and inter-organizational trust, both theoretically and empirically. Two mediators, namely perceived safeguard and restriction, are identified to build up two seemingly contrary possible paths between contract and trust from current literature. Both paths are tested in the context of Chinese construction industry due to our access to sample.Design/methodology/approachA survey of 295 contractor-subcontractor relationships from Chinese construction industry was conducted. A three-step multiple regression model was employed to test the mediating effect of perceived safeguard and restriction. Then, a hierarchical regression model was used to test the possible moderating effect of bilateral transaction-specific investment.FindingsThe empirical results support the mediating effect of perceived safeguard between contract and trust in the construction subcontracting industry. Bilateral transaction-specific investments enhance the positive effect of contract on safeguard perception.Originality/valueTheoretically, this study contributes to governance literature by opening up the “black box” of the relationship between contract and trust. It provides a better understanding of how and when contract complexity impacts trust, instead of simply focusing on whether contract and trust act as complements or substitutes. Practically, this study provides guidelines for construction firms to decide the degree of contract complexity under various degrees of bilateral transaction-specific investments to enhance the other party’s trust, so as to improve performance outcomes.

To trust or not to trust: is trust a prerequisite for solving design quality problems?

“…Wong et al (2005) suggested that when contractors effectively perform and communicate, they act as the project's trust initiators. Zhang et al (2020) pointed out that complex contracts are effective safeguard mechanisms to enhance trust between project parties. Contracts can also be used as governance mechanisms to facilitate co-operative relationships (Yan andZhang 2020, Zhang et al 2020).…”

“…Zhang et al (2020) pointed out that complex contracts are effective safeguard mechanisms to enhance trust between project parties. Contracts can also be used as governance mechanisms to facilitate co-operative relationships (Yan andZhang 2020, Zhang et al 2020). Lindblad and Guerrero (2020) presented the association between clients' roles and different construction innovation types.…”

Unauthorised Instructions in Civil Engineering Project: Contributing Factors

“…thus, the attitude of the key participants in carrying out their works in the projects sometimes quite unpredictable and could significantly influence the unauthorised instructions occurrence. In the meantime, many contractual issues highlighted by scholars in literature related to completeness, fairness and clarity of the SFoC [20], [21], [22], [23], [24]. These deficiencies may cause the SFoC to fail to respond to complexity and unpredictable site and ground condition, thus could lead to the occurrence of giving and obey of unauthorised instructions.…”

“…This very often leads to contractual obligations misunderstanding where eventually could cause the issuance of unauthorised instructions. As replete in the literature, among the factors that cause confusion to the contracting parties about the condition of the contract are the existence of multiple cross-references with clauses and long sentences in the contract [20], [21], [22]. Since the function of SFoC is to provide administrative procedures in the construction work and to regulate the legal relationship between contracting parties, clear and unambiguous SFoC clauses is vital.…”

The Evolutionary Game of Trust in Public-Private Partnership Project Networks

“…Lui et al indicated that enterprise familiarity, partner reputation, and specific assets affect interfirm cooperation through trust [24]. Zhang et al investigated 295 subcontractor relationships in China's construction industry and noted that perceived safeguards play a mediating role between contract complexity and interorganisational trust, while special-purpose investments moderate the positive effect of contract complexity on perceived safeguards [25]. Trust will enable partners to improve their governance approach to informal relationships, promote mutual plan sharing, and foster flexibility when delivering performance improvements [26,27].…”