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Presenter: (Frank) Shi Le École du printemps. 29 mai 2011

Exploring the contractual relationship between prime contractor and subcontractors in turnkey projects. Presenter: (Frank) Shi Le École du printemps. 29 mai 2011. Contents. Overview Research Background Research Objectives Literature and conceptual framework Research methods Implications

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Presenter: (Frank) Shi Le École du printemps. 29 mai 2011

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  1. Exploring the contractual relationship between prime contractor and subcontractors in turnkey projects Presenter: (Frank) Shi Le École du printemps. 29 mai 2011

  2. Contents • Overview • Research Background • Research Objectives • Literature and conceptual framework • Research methods • Implications • Limitations & Questions

  3. Overview Chronological Relationship focused 2 Stage approach: Prime contractor & subcontractors Contract Contractual Relationship

  4. Research Background Experience: • Delays • Project Quality (shirking) • Legal disputes Literature: Risk on contractor (Iyer 2005) • Increase in project complexity; • Increase in subcontracting work • Increase in contractor risk Risk on turnkey prime contractor (Martinsou 2010) • Turnkey Responsibility lies with the prime contractor. Call for better contract (Tosi 1989) • Aligning agent with the interest of the principal

  5. Literature Review Agency theory (Ex ante) Transaction Cost Economics (TCE) (Ex post) Who are they: on Ex ante incentive alignment stage: • Goal conflicts • Unobservable behaviors • Risk sharing between principal and agent Unit of Analysis: The Contract Goal: Optimal contract Who are they: on Ex post governance • Opportunism • Adaptability Unit of Analysis: The Transaction Goals: • Optimal governance • Minimized transaction cost

  6. Different, but both are needed(Williamson 1985) Agency Theory: TCE:

  7. Research Questions Incentive alignment & Adaptability (Nature of Contract) • How do prime contractors align the goals of their subcontractors with their own through incentive alignment. • What are the potential adaptability issues under such incentive structure

  8. Transaction Cost TCE: However: • Adaptability ≠ Actual Transaction Cost Mediating Factors: • Complexity/outcome uncertainty • Contract Completeness • Information Impactedness • Contingency planning • Monitoring and control • Subcontractor’s competence • Moral hazards

  9. Research Questions (Continued) Governance & Transaction cost (Practice) • How do prime contractors balance their ex ante and ex post efforts when managing subcontractors? • What are the effects on transaction cost?

  10. Angles & Implications Angles Implications • Agency theory (Goal alignment) and TCE (Adaptability) • Not about Market vs Hierarchy, but transaction cost in market mode. • Prime contractor’s standpoint, but looks at behaviors of both sides. • Focus on both ex ante and ex post effort when looking at transaction cost. • Align Agency theory and TCE. • Theory & Practice.

  11. Data collection Research Strategies Research Approach Research Philosophy Research methodology Philosophy: Interpretivism Approach: Inductive Strategy: Descriptive (Case studies) Data collection method: • Semi-structured interview • Secondary sources (Contract, Progress report, correspondence etc.)

  12. Sample Industry: • Infrastructural construction projects Project characteristics: • Finished projects. • Project with multiple subcontractors • Directly comparable • With contractual issues Location: • China • New Caledonia Size: 3 or more contracts

  13. Limitation & Questions • Confidentiality • Result bias. • Criteria for determining project for direct comparison • How to determine transaction cost in cost plus contracts, target cost? • How to attribute transaction cost to controllable effort.

  14. Thank you for your attention, questions and suggestions!

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