The Impact Of Uncertainty On Transaction Cost In Construction Projects.An Investigation Of The Construction Industry Of Pakistan

In this dynamic world,construction organizations must learn how to articulate strategies and implement them successfully at the right time.The continuous investigations of problems in the organizations provide opportunities for such responses.Notwithstanding,the construction organizations devote considerable time and energy in determining the cost of the projects and price estimation for tendering in Design-bid-Build(DBB)projects but cost overrun found a persuasive problem in the construction industry.In a contracting relationship,the contract price exchanged between trading partners,if it is a cost for a project owner at the same time price to the client.However,the main contention is that it is not only production cost but also Transaction Cost(TC)incurred by the project owner.TC is the cost arises because of project contracting.The hidden nature of this cost has made it challenging the practitioners to identify and control the cost due to which its role is substantial to enhance the total project cost in any construction project.In general,uncertainty prevails in projects but in the process of project contracting,projects exposed to the more uncertain situation because the second party takes responsibility for project operations.There are various stakeholders involved in projects such as designers,consultant,contractor,and client,etc.due to which contract conditions remain unfulfilled,and it increases the uncertainty for an additional cost.The construction organizations that are frequently contracting out projects need to understand the reasons and causes of TC escalation.Accordingly,significant decisions made whether to’make’or `buy’the contracting services.Drawing on the Transaction Cost Economics(TCE)Theory,this thesis focuses on the public sector construction industry where different nature and sizes of construction projects procured through DBB contract services.Many researchers have applied organizational theory(TCE),and various books published in many countries,but very few studies found in Pakistan with the application of this theory to address the issue in the construction industry.This thesis aims to understand the TC escalation problems under uncertainty in construction projects in Pakistan.In this thesis,three significant questions formulated to address the issue.First,question primarily focuses on an understanding of the critical causes of TC escalation in the construction industry.After tendering process,projects encounter uncertain situations in the ex-post phase of the projects.The rest of the two research questions formulated finding the solution for the TC escalation problem.Hence,the second question formed to identify and assess the risk factors,which influence TC.The third question posed to explore the opportunities from uncertainty and to overcome the TC escalation problems.The sampled projects for data collection selected from public sector construction industry of Pakistan.This study drew on the positivist epistemology,which is consistent with the research objective.Therefore,quantitative research methods used,and for data collection survey method typically employed.The findings explained that TC escalation is due to inappropriate preparation in the ex-ante phase of the project.This study established that the skill development of the employees and bringing improvement in the procurement procedure could help to overcome the risk of TC escalation.The study also found that the risk of TC is internally driven rather than externally and this risk is suggested to manage through the technical skill and professional development of the employees.The study also explores that the internal organization environment is more prone to create uncertainties and possibly crucial for the organizations to explore opportunities.These uncertainties make the practitioners proactive decision makers bring cost efficiency in construction projects.This study helps the practitioners,policymakers,and academics in the industry to make a comprehensive plan to overcome the cost escalation issues.It also assists the project practitioner to mitigate the risk and utilize the uncertainty that can reduce the cost escalation issues in project contracting.