Relational Contracting

In this essay we start by highlighting the differences between the manufacturing and construction industries, providing a framework through which to understand the gaps between TPS and a construction project.  Next, we introduce the concept of ‘lean construction’ and its contrasting characteristics to traditional construction management techniques.  Using Spear and Bowen’s (1999) structured insight into the main TPS principles, we present and critique how lean construction attempts to bridge these aforementioned gaps in a way that caters to and benefits the construction industry.  Lastly, we introduce and propose the concept of ‘relational contracting’ as the foundation upon which the success of TPS-style principles in the construction industry rely.

We show how a price analysis of stable relations between customer and supplier in the public procurement of homogeneous goods can help differentiate opportunistic from honest behaviour among economic agents. We consider two types of stable relations: repeated procurements and connections based on the state ownership of suppliers. On the basis of a large dataset on the procurement of granulated sugar in Russia from 2011 to 2013, we find that for private suppliers, prices of repeated contracts were lower compared to one-time deals when procured through more transparent procedures and higher when procured through non-transparent procedures. For non-transparent procedures, we observe significant overpricing of contracts with state-owned suppliers compared to private suppliers, especially in the case of repeated contracts, whereas for competitive e-auctions, there is only a small difference between the contract prices of state-owned suppliers and private suppliers.

In Australia, the Commonwealth alongside the states and territory governments are committed to
delivering effective and efficient infrastructure projects across the country. To date, over 340
economic infrastructure projects valued at $20 Million or more, account for almost two-fifth of the
total value of capital expenditure on major projects. The majority of these projects are delivered
under a relationship-based procurement (RBP) method. Amongst various types of relational contracts,
Early Contractor Involvement (ECI) is seen as one of the delivery systems and contracting
arrangements that owns a number of these projects. Furthermore, the South Australian’s Department
for Transport Energy and Infrastructure (DTEI), and the Queensland’s Department of Transport and
Main Roads (TMR) have published a number of documents in an attempt to standardise the ECI
contract as practiced in Australia. Despite the evident documents indicating the ECI as a form of
binding contract, many academic and industrial professionals use the term as a concept too. From
their perspective, ECI refers to engagement of the contractor at the early stage of project development
and can happen through a wide range of methods. This paper, therefore, studies different delivery
systems that incorporate the concept of ECI into their implementation process through a literary
analysis on the existing scholars and contractual documents.

In recent years, many countries have employed Early Contractor Involvement (ECI) delivery system mostly for their big, complex projects with a relatively high risk profile; however they customise this method based on their needs and situations. Some countries such as UK adopted a relationship-based approach throughout the whole life of the project while the ECI being used in some other countries such as Australia is distinctly different from its UK version and more adopts a hybrid model where the contract starts with a collaborative approach and moves on to a more conventional type of contract such as Design and Construct (D&C). ECI as an emerging procurement system is still very much in its embryonic stage and there is lack of knowledge in the concept of ECI and evaluating its effectiveness when it is used. This paper, therefore, aims to contribute to this under-developed area by comparing different types of ECI as carried out in different countries to help understand implementation process and the characteristics of ECI in each context. This paper is part of the literature review of a PhD research study under progress by the first author.

Using a 3-tier framework for a study of the acquisition of an Advance Military Vehicle (AMV), we explore the shaping of the buyer-supplier relationship in the context of the UK defence acquisition process. This relationship encompasses the Ministry of Defence (MoD), a monopsonist, partnering with a monopolistic defence industry. The transition from an oligopolistic to monopolistic defence industry is a result of a number of government policies that have created a consolidated defence industrial base. Defence industry relationships have historically been adversarial, making defence acquisition in the past inefficient. We identify Integrated Project Teams (IPTs) as being central to the institutional level aims of creating a collaborative industrial relation. IPTs characterise relational contracting practices at the governance level, which demands communication, collaboration and trust. However, difficulties at the process level in utilising relational contracting because of a lack of definition communication and mutual gain within the day-to-day business of the IPT limit the benefits of this approach. This failure to create an effective partnership between the MoD and its prime contractors highlights the major challenge facing the UK defence sector in its transition towards capability acquisition, such as Network Enabled Capability (NEC). NEC demands a more collaborative, through-life approach to defence acquisition.

The paper draws on an analysis of case studies from the line of research that examines contractual and working relationships in the aerospace industry (Cullen, Keast and Simpson, 2002; Cullen, Hickman, 2001; Cullen, 2005). These studies found a divergence between the parties' intended working relationship and the agenda prescribed by formal contracts. The paper proposes that the ramifications of the contractual arrangements engender strains between the dynamic nature of collaborative transactions and the laissez-faire presumption of conflictual relations that underpins Western commercial contract law, which in turn influences contractual relations and formal agreements.

In a generation's time, collaborative methods of innovation have become a centerpiece of modern economic organization. Rather than creating technology primarily in-house, companies often enter into complex contractual arrangements whereby innovation processes cross firm boundaries. This collaborative approach gives a firm access to external expertise without executing a full acquisition. Collaboration poses a puzzle for theories of economic organization. On one hand, uncertainty is significant when firms are jointly creating new technology, which makes formal contracts highly incomplete. On the other hand, innovation networks often appear too dynamic and heterogeneous for the typical prerequisites for informal constraints to readily obtain. How then are innovation networks governed? In an important series of articles, Ronald Gilson, Charles Sabel, and Robert Scott argue that collaborating firms have devised a new variant of relational contracting to govern their joint efforts. This new governance form carefully blends formal agreements with

This article proposes relational contract as a model for analyzing marriage under Canadian law. In contrast, in Bracklow v. Bracklow, the Supreme Court of Canada recognized two competing models of marriage and three models of spousal support. The difficult policy issues in the law of spousal support relate not to a tension between different models but instead go to compensation, including reliance and expectations. This article uses relational contract to critique Bracklow, considering the challenges in defining models. The Court's basic social obligation model and its non-compensatory support are unjustifiably broad, and its compensatory support is too narrow. In assessing the extent to which competing models give couples flexibility in customizing their relationships, the article discerns in Bracklow the emergence of new notions of public order in the sphere of marriage and a sense of not only procedural, but also substantive, justice.

In Project Business Management (PBM), companies come together to do projects as customers, contractors, and in other roles. PBM is high-risk business for all these parties involved. Many risks are linked with the mutual obligations among the contract parties, in which shortcomings and problems, but also refusal to meet obligations of one organization may translate into problems or even crises for others.

Careful selection of the organizations, with which one is prepared to have a contract, is therefore a key element of success in project business. A simple collection of selection criteria done early in the project may help ensuring that the right questions are being asked before decisions are made that have implications far into the future.

Purpose: Servitization increases the uncertainty exposure of provider firms due to the operational differences between services and production which is further increased when operations are set in triads. This paper analyses the uncertainty exposure in servitized triads and explores suitable organisational responses.
Design/methodology/approach: A conceptual frame is defined detailing three uncertainty types (environmental, organisational and relational uncertainty) and suitable organisational responses to these. This frame guided the analysis of in-depth case evidence from a cross-national servitized triad in a European-North African set-up which was collected through 29 semi-structured interviews and secondary data.
Findings: The empirical study identified the existence of the three uncertainty types and directional knock-on effects between them. Specifically, environmental uncertainty created organisational uncertainty which in turn created relational uncertainty. The uncertainty types were reduced through targeted organisational responses where formal relational governance reduced environmental uncertainty, service capabilities reduced organisational uncertainty, and informal relational governance reduced relational uncertainty. The knock-on effects were reduced through organisational and relational responses.
Originality: This paper makes two contributions. First, a structured analysis of the uncertainty exposure in servitized triads is presented which shows the existence of three individual uncertainty types and the knock-on effects between them. Second, organisational responses to reduce the three uncertainty types individually and the knock-on effects between them are presented.

Analysis of the state of the UK public services market in 2017. The report argues that government is responsible for the quality of its supply chain and that poor procurement and contract management have severely undermined the political and commercial sustainability of the market.

: Using a 3-tier framework for a study of the acquisition of an Advance Military Vehicle (AMV), we explore the shaping of the buyer-supplier relationship in the context of the United Kingdom's defense acquisition process. This relationship encompasses the Ministry of Defence (MoD), a monopsonist, partnering with a monopolistic defense industry. The transition from an oligopolistic to monopolistic defense industry is the result of a number of government policies that have created a consolidated defense industrial base. Defense industry relationships have historically been adversarial, making defense acquisition in the past inefficient. We identify Integrated Project Teams (IPTs) as being central to the institutional level aims of creating a collaborative industrial relation. IPTs characterize relational contracting practices at the governance level, which demands communication, collaboration, and trust. However, difficulties at the process level in utilizing relational contractin...

Tradicionalmente atribui-se à doutrina ou dogmática jurídica a tarefa de sistematizar e conferir coerência e unidade de sentido a determinado ramo do direito, tomando as normas postas vigentes como pressuposto incontornável de uma teorização voltada a informar a interpretação e aplicação do direito. Em contraste, este artigo procura descrever e analisar a proposta de uma doutrina jurídica estendida ou desviacionista, avançada no texto considerado como manifesto do movimento americano de estudos críticos do direito, de autoria de Roberto Mangabeira Unger. Ao lado da caracterização desse estilo de análise jurídica, que funciona como uma espécie de doutrina antidogmática, o texto discute o exemplo abordado por Unger: as construções dissonantes que se pode fazer do ramo do direito dos contratos, partindo do conflito entre princípios e contraprincípios constitutivos dessa seara. Finalmente, o texto aborda a crítica dirigida a tal teorização pelo pensador jusnaturalista contemporâneo John Finnis. Tal crítica revela a distância entre as posições morais e ideológicas avançadas, de um lado, pelos modernistas críticos, e, de outro, pelo direito natural de inspiração tomista. A conclusão é de que a exploração criativa das contradições existentes no interior da própria doutrina contratual pode ser mobilizada sobretudo no desenho de novos arranjos transacionais, especialmente daqueles voltados a contratos relacionais.

Traditionally, legal doctrine or dogmatics has been attributed the task of systematizing and conferring coherence and unity of meaning to a certain branch of law, taking the norms in force as an unavoidable assumption of a theorization aimed at informing the interpretation and application of the law. In contrast, this paper aims at describing and analyzing the proposal of an extended or deviationist legal doctrine, advanced in the text considered to be the manifesto of the American movement of critical legal studies, authored by Roberto Mangabeira Unger. Besides the characterization of this style of legal analysis, which works as a kind of anti-dogmatic doctrine, the text discusses the example approached by Unger: the dissonant constructions that can be made of the branch of contract law, based on the conflict between principles and counter-principles that constitute this area. Finally, the text addresses the critique of such theorization by contemporary natural law thinker John Finnis. This critique reveals the distance between the moral and ideological positions advanced, on the one hand, by the critical modernists, and, on the other, by the natural law of Thomistic inspiration. The conclusion is that the creative exploration of the contradictions existing within the contract doctrine itself can be mobilized above all in the design of new transactional arrangements, especially those aimed at relational contracts. Therefore, this paper comprises a literature review on topics in the interface between general jurisprudence and philosophy of law, on the one hand, and contractual theory, on the other.

Keywords: jurisprudence; legal doctrine; contract law; relational contracts.

Clientelism is frequently observed in our societies. Various mechanisms that help sustain incomplete political contracts (e.g., monitoring and punishment) have been studied in the literature to date. However, do such contracts emerge in elections with secret ballots when the interactions are one-shot? How does repetition affect the evolution of incomplete political contracts? Using an incentivized experiment, this paper finds that even during one-shot interactions where monitoring is not possible, candidates form incomplete contracts through vote buying and promise-making. The candidates’ clientelistic behaviors are heterogeneous: some target swing voters, whereas others offer the most to loyal voters, or even opposition voters. These tactics distort voting behaviors as well as election outcomes. Repeated interactions significantly magnify candidates’ offers and deepen clientelistic relationships. These results underscore the possibility that clientelism evolves due to people’s strategic behaviors and interdependent preferences, without relying on alternative mechanisms.

The construction industry in Hong Kong has adopted relational contracting (RC) as a way forward to address frequent conflicts in construction projects and to promote sustainable development. Despite this effort, adversarial behavior of project team members is still prevalent, stemming from conflicting agendas, which hinders the successful implementation of RC. There is a need to improve collaborative attitudes and behavior among project team members in RC projects, but there is still a lack of understanding of factors that can promote this inter-organizational collaboration. Therefore, using the theory of planned behavior, this research investigates factors that form relational attitudes, collaborative intentions, and collaborative behavior, and their relationships in RC projects in Hong Kong. Quantitative data were collected from experienced practitioners in RC projects and were analyzed using structural equation modeling (SEM). The results reveal that senior management commitment ...

In a generation’s time, collaborative methods of innovation have become a centerpiece of modern economic organization. Rather than creating technology primarily in-house, companies often enter into complex contractual arrangements whereby innovation processes cross firm boundaries. This collaborative approach gives a firm access to external expertise without executing a full acquisition. Collaboration poses a puzzle for theories of economic organization. On one hand, uncertainty is significant when firms are jointly creating new technology, which makes formal contracts highly incomplete. On the other hand, innovation networks often appear too dynamic and heterogeneous for the typical prerequisites for informal constraints to readily obtain. How then are innovation networks governed?In an important series of papers, Professors Gilson, Sabel, and Scott argue that collaborating firms have devised a new variant of relational contracting to govern their joint efforts. This new governance...

The construction industry needs to move towards more relational procurement procedures to reduce extensive losses of value and avoid conflicts and disputes. Despite this, the actual conceptualization and assessment of relationships during conflict and dispute incidents seem to be neglected. Via a review of literature, relationship quality is suggested as a systematic framework for construction projects. General system theory is applied and a framework consistent of four layers respectively labelled as triggering, antecedent, moderation and outcome is suggested. Two different case studies are undertaken to represent the systematic framework; which verifies that changes in contracting circumstances and built environment culture can affect the identified layers.

Through system reliability theories a fault tree is derived to represent a systematic framework of relationship quality. The combinations of components, causes, and events for two case studies are mapped out through fault tree. By analysing the fault tree the combination of events that lead to relationship deterioration may be identified. Consequently the progression of simple events into failure is formulized and probabilities allocated. Accordingly the importance and the contribution of these events to failure become accessible. The ability to have such indications about relationship quality may help increase performance as well as sustainable procurement.

The construction industry in Hong Kong has adopted relational contracting (RC) as a way forward to address frequent conflicts in construction projects and to promote sustainable development. Despite this effort, adversarial behavior of project team members is still prevalent, stemming from conflicting agendas, which hinders the successful implementation of RC. There is a need to improve collaborative attitudes and behavior among project team members in RC projects, but there is still a lack of understanding of factors that can promote this inter-organizational collaboration. Therefore, using the theory of planned behavior, this research investigates factors that form relational attitudes, collaborative intentions, and collaborative behavior, and their relationships in RC projects in Hong Kong. Quantitative data were collected from experienced practitioners in RC projects and were analyzed using structural equation modeling (SEM). The results reveal that senior management commitment ...

Multinational military exercises are among the most notable demonstrations of military cooperation and intent. On average, one is initiated every 8.9 days. But it has often been argued that joint military exercises (JMEs) increase the risk of war. Using a relational contracting approach, we claim that formal military alliances mediate the effect of JMEs. Exercises and alliances serve complementary functions: The former allows targeted responses to military provocations by adversaries, while the latter provides institutional constraints on partners and establishes a partnership’s overall strategic limitations. In combination, alliances dampen the conflict escalation effects of exercises, deterring adversaries while simultaneously restraining partners. We test this theory using a two-stage model on directed dyadic data of JMEs from 1973 through 2003. We find that JMEs in general do not escalate conflict, and that JMEs conducted with allies in particular reduce the probability of confl...