Power and proximity: A study of subcontract formation in the UK building industry

The relationship between main contractors and subcontractors is a major feature of construction activity. The importance of this relationship has been recognised, but its complexity has not. Attention has been focused exclusively on one dimension or another: either the parties' relative power or, more fashionably, their proximity. This leads to apparent anomalies: for example, where a small subcontractor exerts an unexpected amount of power over a much larger main contractor; or a so-called 'partnership' actually conceals the power of a dominant party. A new classification is proposed here, based on both dimensions. This power-proximity typology of relations is supported by legal, economic, and organisational literature, in which reference can be found to both dimensions and to the factors that affect them. A model of subcontract formation was developed from this literature informed by the content of five in-depth interviews with practitioners. The model was examined and refined by generating hypotheses and testing them using empirical data from a survey of 88 transactions. The results clearly confirm the appropriateness of a typology of relationships based upon the two dimensions. In general, subcontractors have less contractual power than main contractors, though some enjoy relatively higher levels than others. These were shown to relate to size, interdependence, contractual awareness and the availability of alternatives, with designers, piling specialists and lift installers exhibiting the highest levels. The most significant influence on proximity was the parties' past relationship, though contractors were less inclined to be close to subcontractors that they perceived to be powerful or contractual. The conceptual map of relations provided by the study could prompt further research in a number of areas. Controlled replication of the study could result in refinement or development of the model itself. Alternatively attention may be directed towards its constituent elements. The concept of contractual power and the indicators that have been chosen to measure it, are potentially useful tools for analysing contract formation. In terms of construction subcontracts, attention should be directed from payment towards retention and damages terms as indicators of relative contractual power. Finally, in an era where there is currently a great deal of uncritical comment in the industry about the trend towards close and equitable relationships, a deeper understanding of the constructs that are associated with proximity, such as trust, mutuality, and reciprocity would be most valuable.