Contracting strategies in construction industries

Despite a rich literature on procurement management in construction industries, which stemmed from the long history of the industry and strategic value of procurement, the industry is still accused of using inefficient contracting strategies. Traditional approaches in this field try to find out how clients could ensure that contractors are forced to operate in a highly competitive market and how clients could govern their procurement-related transactions with suppliers rigorously through contracts. High levels of adversarial behaviour in construction industries led researchers to explore approaches which had supported successful projects in the Japanese car industry. Consequently, researchers suggested relational approaches for construction industry. However, more recent studies try to highlight the danger of out-of-context use of relational approaches. This paper presents a critical review of the literature on contracting strategies in construction industries. The purpose of this paper is to demonstrate how the approaches toward competence in procurement within the construction industry are distinctively based on different schools of thought and how the client is left alone in selecting the strategy which brings more value. To validate the need for tailoring the procurement strategies for each project, the paper draws on the body of knowledge known as Transaction Cost Economics. The three elements of Contingency Factors, Behavioural Factors and Context, elaborated in Transaction Cost Economics, present a conceptual framework which facilitates understanding of the causal relationship between project characteristics and the cost inherent in each procurement strategy.