The interaction of trust and contractual governance on dispute negotiation strategy in contractor-subcontractor relationships

Supply chain scholars have increasingly gained attention to using governance mechanisms to manage inter-organizational relationship and have pointed out their significant impacts on performance outcomes. However, the typical relationship between general contractors and subcontractors is still potential adversarial and disputes are almost inevitable during the construction process, and using governance mechanisms to promote cooperation and eliminate conflicts in the construction industry has been a relatively new topic. Through a comprehensive review and analysis of literature on governance mechanisms, the study has presented the reasons for the inconsistent findings of the interactions between trust and contract, identified different dimensions of trust and contract with consideration of the characteristics of the construction industry. In spite of the links between governance mechanisms and performance outcomes are well established, less well established is how they influence behaviours which intermediate between governance mechanisms and outcomes. By providing a theoretical framework, we can reach a better understanding of how and when trust and contract interact with each other to influence the development of negotiation strategy, so that both general contractors and subcontractors can promote better cooperation in dispute resolution and better manage their relationship. Drawing on governance mechanism literature, we argue that trust can be approached from the goodwill dimension and the competence dimension, while contract can be approached from the control function and the coordination function in the construction industry. These dimensions of trust and contract may interrelated with each other in promoting the development of dispute negotiation strategy. As our research is in progress, subsequent empirical studies are expected to test our theoretical model and focus on each dimension of the constructs in more detail is needed.