A transaction cost framework for evaluating construction project organizations

A project delivery system is a set of contracts and commitments that defines the organizational relationships and responsibilities of the different entities involved in designing and constructing a facility. Many alternative project delivery systems exist today, but there is no objective means for comparing them. This research presents a Project Delivery Cost Impact Framework that identifies and describes the specific cost impacts of project delivery systems so that comparisons may be made. This framework was developed through the application of organization theory, primarily transaction cost economics, to construction project organizations. The main premise of transaction cost economics is that, in addition to the costs of production, there are costs of transactions between parties. The choice between alternative project delivery systems should depend on the relative efficiency of each mode. Trade-offs between production and transaction costs must be weighed. Transaction cost economics identifies a set of environmental factors which when combined with a set of human factors explains the circumstances under which transactions may become costly. Firms may then decide to bypass the market and move the transactions within a single firm. Several levels of analysis within a construction project organization are identified: individual, group, firm, inter-firm, and project levels. Each of these levels may be organized in numerous ways. There are varying organization and transaction costs associated with each organization choice at each of the different levels of the project organization. At the project level, several transaction costs are identified: project procurement, contract administration, information communication, and firm interactions. Detailed path models (based on transaction cost economics) demonstrate the impact of project delivery systems on the four transaction costs as well as production costs. The path model demonstrating the relationship between project delivery systems and project procurement cost is evaluated with expert interviews and case studies of United States Postal Service projects. Most of the variables and relationships in the model are supported by the data, but several modifications are suggested.