The principle of inconsistent trinity in the selection of procurement systems

Graham Ive and Chen-Yu Chang

Construction Management and Economics, 2007, vol. 25, issue 7, 677-690

Abstract: This paper examines the economic characteristics of construction procurement systems partially in terms of transaction cost economics and partly those of project management. It proposes the theoretical principle of an inconsistent trinity, according to which, in selecting a procurement system, the client will inevitably face a trade-off between the procurement system best able to deliver: (1) fastest completion of the project (and therefore higher discounted present value of revenue from the project); (2) least vulnerability when making changes (lower transaction hold-up costs arising from temporal or process specificity); as well as (3) least vulnerability to non-performance (lower transaction measurement costs from greater visibility to third parties for ordering of disputes). The model provides a potentially testable contribution to a transaction cost theory of construction procurement. It also has two implications: (1) the three main family types of procurement systems are held to be intrinsically different in economic terms, so selection of procurement system does matter; (2) no system can enjoy absolute advantage over others, so the proposed strategy of procurement system selection is to align the characteristics of procurement systems with attributes of projects.

Keywords: Transaction costs; hold-up; measurement costs; opportunism; temporal specificity; procurement system (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (2)

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DOI: 10.1080/01446190601164089

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