The impact of contractor selection method on transaction costs: a review
Lingard, H., Hughes, W. and Chinyio, E. (1998) The impact of contractor selection method on transaction costs: a review. Journal of Construction Procurement, 4 (2). pp. 89-102. ISSN 1358-9180
The basic premise of transaction-cost theory is that the decision to outsource, rather than to undertake work in-house, is determined by the relative costs incurred in each of these forms of economic organization. In construction the "make or buy" decision invariably leads to a contract. Reducing the costs of entering into a contractual relationship (transaction costs) raises the value of production and is therefore desirable. Commonly applied methods of contractor selection may not minimise the costs of contracting. Research evidence suggests that although competitive tendering typically results in the lowest bidder winning the contract this may not represent the lowest project cost after completion. Multi-parameter and quantitative models for contractor selection have been developed to identify the best (or least risky) among bidders. A major area in which research is still needed is in investigating the impact of different methods of contractor selection on the costs of entering into a contract and the decision to outsource.
Alsogoff S. A. and McDermott P. (1994) Relational contracting: a prognosis for the UK construction industry, Proceedings of CIB W92: Procurement systems symposium, East meets West, Rowlinson S. (Ed)., 4-7 December, Hong Kong, 11-19. Ascher K. (1987) The politics of privatization: contracting out public services, Macmillan, Basingstoke. Assaf S. and Jannadi M.O. (1994) A multi-criterion decision-making model for contractor prequalification selection, Building Research and Information, 22, 332-335. Casson M. (1994) Why are firms hierarchical? Journal of the Economics of Business, 1, 47-76. Casson M. (1995) Economic perspectives on business information, in L. Bud-Frierman (ed) Information acumen: the understanding and use of knowledge in modern business, London: Routledge. Coase R.H. (1937) The nature of the firm, Economica, 4, 386-405. Coase R.H. (1988) The firm, the market and the law, University of Chicago Press, Chicago. Coase R.H. (1992) The institutional structure of production, American Economic Review, 82, 713-719. Construction Industry Development Agency (1993) The Australian construction industry: pre-qualification criteria for contractors and subcontractors, Construction Industry Development Agency, Sydney. Crowley L.G. and Hancher D.E. (1995a) Risk assessment of competitive procurement, Journal of Construction Engineering and Management, 121, 230-237. Crowley L.G. and Hancher D.E. (1995b) Evaluation of competitive bids, Journal of Construction Engineering and Management, 121, 238-245. Dahlman C. J. (1979), The problem of externality, Journal of Law and Economics, 22, 141-162. Dawood N.N. (1994) Developing an integrated bidding management expert system for the precast concrete industry, Building Research and Information, 22, 95-102. Diekmann J.E. (1981) Cost-plus contractor selection: a case study, Journal of the Technical Council, American Society of Civil Engineers, 107, 13-25. Dutta S. and John G. (1995) Combining laboratory experiments and industry data in transaction cost analysis: the case of completion as a safeguard, Journal of Law, Economics and Organization, 11, 87-111. Fine B. (1975) Tendering strategy, in Turin D. A. (Ed.) Aspects of the Economics of Construction, George Godwin, London. Gilbreath R.D. (1992) Managing construction contracts: operational controls for commercial risks, Wiley, New York. Green S. T., (1989), Tendering: optimization and rationality, Construction Management and Economics, 7, 53-63. Hardy S.C., Norman A. and Perry J.G. (1981) Evaluation of bids for construction contracts using discounted cash flow techniques, Proceedings of the Institution of Civil Engineers, 70, 91-111. Herbsman Z. and Ellis R. (1992) Multi-parameter bidding system: innovation in contract administration, Journal of Construction Engineering and Management, 118, 142-150. Hodgson G. M. (1993), in Pitelis C. (Ed), Transaction Costs, Markets and Hierarchies, Blackwell, Oxford. 11 Holmstrom B.R. and Tirole J. (1989) The theory of the firm, in Schmalensee R. & Willig R.D. (Eds) Handbook of Industrial Orgnanization, Volume 1, Elsevier Science Publishers, Amsterdam. Holt G. D., Olomolaiye P. O. and Harris F. C., (1995), A review of contractor selection practice in the UK construction industry, Building and Environment, 30, 553-561. Ioannou P.G. and Leu S.S. (1993) Average-bid method: competitive bidding strategy, Journal of Construction Engineering and Management, 119, 131-147. Kay N.M. (1982) The evolving firm: strategy and structure in industrial organization, Macmillan, London. Klein B., Crawford R.G. and Alchian A.A. (1978) Vertical integration, appropriable rents and the competitive contracting process, Journal of Law and Economics, 21, 297-326. Kwakye A.A. (1994) Understanding tendering and estimating, Gower, Aldershot. Lewis (1977), Range estimating – managing uncertainty, AACE Bulletin, 19, 205-207. Lower J. (1982) Prequalifying construction contractors, Journal of American Water Works Association, 74, 220-223. Lyons B.R. (1994) Contracts and specific investment: an empirical test of transaction cost theory, Journal of Economics and Management Strategy, 3, 257-278. Lyons B.R. (1995) Specific investment, economies of scale, and the make-or-buy decision: a test of transaction cost theory, Journal of Economic Behaviour and Organization, 26, 431-443. Merna A. and Smith N.J. (1990) Bid evaluation for UK public sector construction contracts Proceedings, Institution of Civil Engineers, 88, 91-105. Mudd D.R. (1984) Estimating and tendering for construction work, Butterworth, London. Murdoch J.R. and Hughes W.P. (1992) Building contract law, Longman, London. Mustafa M.A. and Ryan T.C. (1990) Decision support for bid evaluation, International Journal of Project Management, 8, 230-235. National Joint Consultative Committee for Building (1994a), Code of procedure for single stage selective tendering. National Joint Consultative Committee for Building (1994b), Code of procedure for two stage selective tendering. Nguyen V.U. (1985) Tender evaluation by fuzzy sets, Journal of Construction Engineering and Management, 111, 231-243. Pasquire C and Collins S (1997) The effect of competitive tendering on value in construction RICS Research Papers 2(2), Royal Institution of Chartered Surveyors, London. Pass C, Bryan L, Pendleton A and Chadwick L (1995) Collins dictionary of business (2ed.) Harper Collins, Glasgow. Pearson G (1985) Tender assessment, Chartered Quantity Surveyor, 8, 194-195. Rankin J H, Champion S L and Waugh L M (1996) Canadian Journal of Civil Engineering, 23, 117-123. Reve T. and Levitt R. E. (1984), Organization and governance in construction, Project Management, 2, Russell J S, Skibniewski M J and Cozier D R (1990) QUALIFIER@: knowledge-based system for contractor prequalification, Journal of Construction Engineering and Management, 116, 157-171. 12 Russell J.S. (1992) Decision models for analysis and evaluation of construction contractors, Construction Management and Economics, 10, 185-202. Russell J.S., Hancher D.E. and Skibniewski M.J. (1992) Contractor prequalification data for construction owners, Construction Management and Economics, 10, 117-129. Russell J.S. and Jaselskis E.J. (1992) Quantitative study of contractor evaluation programmes and their impact, Journal of Construction Engineering and Management, 118, 612-624. Seeley I.H. (1984). Quantity surveying practice, Macmillan, London. Selinger S. (1983) Payment timing as a factor in bid evaluation, Journal of Construction Engineering and Management, 109, 335-341. Seydel J. and Olson D.L. (1990) Bids considering multiple criteria, Journal of Construction Engineering and Management, 116, 609-623. Smith J.J. (1979) Tender evaluation: the whole concept, The Civil Engineering Contractor, 3, 39-49. Smith R.C. (1986) Estimating and tendering for building work, Longman, London. Telchoiz P and Ashley D, (1978), Optimal bid prices for unit price, Journal of the Construction Division (ASCE), 104 (CO1), 57-67. Trickey G.G. (1982) Does the client get what he wants? Quantity Surveyor, 38, 86-87. Turner D.F. (1979) Quantity surveying: practice and administration, (2ed.) Godwin, London. Uher T.E. and Runeson G. (1985) Subcontractor-general contractor relationship in the Australian building industry, International Journal of Project Management, 3, 35-38. Vorster M. (1977) When the lowest tender isn’t the lowest., Construction in Southern Africa, February 1977, 37-43. Williamson O. E. (1975) Markets and hierarchies: analysis and antitrust implications: a study in the economics of internal organization, The Free Press, London. Williamson O. E. (1985) The economic institutions of capitalism, The Free Press, London. Willis A.J. and Willis C.J. (1980), Practice and procedure for the quantity surveyor, Granada, London. Winch G., 1989, The construction firm and the construction project: a transaction cost approach, Construction Management and Economics, 7, 331-345. Wong K.C. and So A.T.P. (1995) A fuzzy expert system for contract decision making, Construction Management and Economics, 13, 95-103. Yizhe T. and Youjie L. (1992) Unbalanced bidding on contracts with variation trends in client-provided quantities, Construction Management and Economics, 10, 69-80.
Centaur Editors: Update this record