Farsighted project contract management: incomplete in its entirety

TLDR

Project organization aims to create a cooperative environment, with contracts enabling owners to employ resources for development goals, yet contracts are inherently incomplete and must adapt to unforeseen circumstances. The study seeks to ensure contracts foster a cooperative organization by aligning contractor and owner objectives. The authors analyze contract efficacy using a three‑dimensional vector (reward, risk, safeguard) and a four‑dimensional vector (incentive intensity, adaptiveness, monitoring/control reliance, court reliance) drawn from Transaction Cost Economics. The findings yield a contract‑selection strategy that varies with client‑controlled versus contractor‑controlled uncertainty, project complexity, and whether uncertainty lies in product, delivery method, or both. Keywords: contract selection, forms of contract governance, incentivization, project organization, transaction costs.

Abstract

Abstract The purpose of project organization is to create a cooperative environment. Contracts are the method by which the owner creates a project organization to employ resources to achieve their development objectives. Contracts should aim to produce a cooperative organization, aligning the contractors' objectives with the owners. A three‐dimensional vector (reward, risk, safeguard), adapted from the Transaction Cost Economics literature, is used to analyse the efficacy of contract types to do this. Contracts are also unavoidably incomplete. They need to respond to unforeseen circumstance. A four‐dimensional vector (incentive intensity, adaptiveness, reliance on monitoring and control, reliance on the courts), also from the Transaction Costs Economics literature, is used to analyse the governance efficacy of contract types. The results are used to develop a contract selection strategy, depending on whether the uncertainty is controlled by the client or the contractor, the project is simple or complex, and the uncertainty is in the project's product, method of delivery or both. Keywords: Contract selectionforms of contractgovernanceincentivizationproject organizationtransaction costs