The management of disputes as an element of construction transaction costs: An empirical study

The process of delivering construction projects is characterised by a multiplicity of transactions between individual organisations whose integration is vital yet problematic. The premise of this paper is that the management and resolution of contractual disputes between these organisations represent a substantial element of their transaction costs. The argument is set in the context of Transaction Cost Economics (TCE) theory, according to which the concepts of bounded rationality, uncertainty, information asymmetry, and opportunistic behaviour together present serious problems for transaction efficiency. The work presented here is part of a wider study examining the impact of advances in information technology (specifically, the availability of information-rich building models) on the more efficient resolution (or even avoidance) of contractual disputes. We argue that there is a prima facie case for this, and therefore for the reduction of transaction costs, by exploiting the potential of digital building models. However, the operationalisation and measurement of transaction costs, especially in the construction context, has proved an intractable barrier to the empirical testing of the applicability of TCE theory. To address this, the initial stage of the work, reported here, is concerned with defining and measuring the resources currently required for the management of certain types of contractual dispute, and is based upon data collection from three project case studies.