Relationship between Organizational Sizes and Contractors’ Risk Pricing Behaviors for Weather Risk under Different Project Values and Durations
Publication: Journal of Construction Engineering and Management
Volume 134, Issue 9
Abstract
A problem that always annoys building employers and their consultants when drafting building contracts is whether it is more cost efficient to retain certain risks with themselves or to transfer the same to contractors, and it has long been a difficulty to accurately estimate the cost for transferring risks to the other contract party. It is a very common market practice to remove contractors’ entitlement to extension of time due to inclement weather, and in view of the significant impacts that inclement weather posed on construction progress, it would be helpful to assess the associated costs for such risk allocation exercises in order to ensure that it is a cost-effective transaction. The costs for these potential weather-caused delays are priced by contractors in their returned tenders. This risk-pricing behavior is affected by the contractor’s risk perception and risk attitude. However, merely working out contractors’ risk perception and risk attitude patterns is inadequate, as they may vary in accordance with different organizational sizes and project backgrounds. Therefore, further studies should be carried out on the implications of project information, such as project value and contract period, on different-sized contractors’ risk behaviors. In this research, a questionnaire survey was conducted to investigate the weather-risk-pricing behavioral patterns of various-sized contractors under different given project scenarios. The survey revealed that the impacts of project value and contract period (and, thus, the intensity of work and scale of exposure to weather risk) were significant on contractors’ risk behaviors, and these impacts varied in accordance with different organizational sizes. The medium-sized contractors’ pricing behaviors were rather constant under different project values and contract periods, while both small and large contractors behaved differently when the intensity of work and scale of risk exposure varied. Despite the fact that contractors of various sizes behaved differently in some given scenarios, the number of days of delaying cost allowed by them in returned tenders were generally less than the actual number of days of inclement weather affecting work.
Get full access to this article
View all available purchase options and get full access to this article.
Acknowledgments
The work described in this paper was substantially supported by a research grant from the Hong Kong Polytechnic University, HKSAR. Acknowledgement is given to all parties who have made themselves available for participating in the research survey.
References
Alkass, S., Mazerolle, M., and Harris, F. (1996). “Construction delay analysis techniques.” Constr. Manage. Econom., 14, 375–394.
Ammar, A., Hanna, A. S., Nordheim, E. V., and Russell, J. S. (2003). “Indicator variables model of firm’s size-profitability relationship of electrical contractors using financial and economic data.” J. Constr. Eng. Manage., 129(2), 192–197.
Au, M. C. Y., and Chan, E. H. W. (2005a). “Contractors’ pricing for time-related contract risks at the tendering stage.” Proc., Third Int. Conf. on Construction in the 21st Century—Advancing Engineering, Management and Technology, Athens, Greece.
Au, M. C. Y., and Chan, E. H. W. (2005b). “Attitudes of contractors and employers toward transfer of a time-related risk in construction contracts.” Proc., Construction Research Congress, San Diego, April 5–7, 2005.
Barney, J. B. (1986). “Organizational culture: Can it be a source of sustained competitive advantage?” Acad. Manage. Rev., 11, 656–665.
Chan, E. H., and Tse, R. (2003). “Cultural considerations in international construction contracts.” J. Constr. Eng. Manage., 129(4), 375–381.
Chan, T. S., and Chan, E. H. W. (2005). “The impact of perceived leadership styles on work outcomes: The case of building professionals.” J. Constr. Eng. Manage., 131(4), 413–422.
Drew, D. S., and Skitmore, M. (1997). “The effect of contract type and size on competitiveness in bidding.” Constr. Manage. Econom., 15, 469–489.
Drew, D. S., Skitmore, M., and Lo, H. P. (2000). “The effect of client and type and size of construction work in a contractor’s bidding strategy.” Build. Environ., 36(3), 393–406.
Flanagan, R., and Norman, G. (1982). “An examination of the tendering pattern of individual building contractors.” Build. Technol. Manage., 28, 25–28.
Fu, W. K., Drew, D. S., and Lo, H. P. (2002). “The effect of experience on contractors’ competitiveness in recurrent bidding.” Constr. Manage. Econom., 20, 655–666.
Fu, W. K., Drew, D. S., and Lo, H. P. (2003). “Competitiveness of inexperienced and experienced contractors in bidding.” J. Constr. Eng. Manage., 129, 388–395.
Ghobadian, A., and Gallear, D. (1997). “TQM and organization size.” Int. J. Operat. Product. Manage., 17, 121–163.
Hsee, C. K., and Weber, E. U. (1999). “Cross-national differences in risk preference and lay predictions.” J. Behav. Decis. Making, 12, 165–179.
Huang, R. Y., and Halpin, D. W. (1995). “Graphical-based method for transient evaluation of construction operations.” J. Constr. Eng. Manage., 121(2), 222–229.
Kish, L. (1965). Survey sampling, Wiley, New York, 45–53.
Lam, K. C., and Runeson, G. (1999). “Modeling financial decisions in construction firms.” Constr. Manage. Econom., 17, 589–602.
Moselhi, O., and Hassanein, A. (2003). “Optimized scheduling of linear projects.” J. Constr. Eng. Manage., 129(6), 664–673.
Moselhi, O., and Hassanein, A. (2004). “Planning and Scheduling Highway Construction.” J. Constr. Eng. Manage., 130(5), 638–646.
Ng, W. M., Khor, E. L., Tiong, L. K., and Lee, J. (1998). “Simulation modeling and management of large basement construction project.” J. Comput. Civ. Eng., 12(2), 101–110.
Odusote, O. O., and Fellows, R. F. (1992). “An examination of the importance of resource considerations when contractors make project selection decisions.” Constr. Manage. Econom., 10, 137–151.
Paek, J. H., Lee, Y. W., and Ock, J. H. (1993). “Pricing construction risk: Fuzzy set application.” J. Constr. Eng. Manage., 119(4), 743–756.
Rebeiz, K. S., and Salameh, Z. (2006). “Relationship between governance structure and financial performance in construction.” J. Manage. Eng., 22, 20–26.
Sanchez, P. M. (2005). “Neural-risk assessment system for construction projects.” Proc., Construction Research Congress, San Diego.
Shash, A. A., and Abdul-Hadi, N. H. (1993). “The effect of contractor size on mark-up size decision in Saudi Arabia.” Constr. Manage. Econom., 11, 421–429.
Smith, G. R., and Bohn, C. M. (1999). “Small to medium contractor contingency and assumption of risk.” J. Constr. Eng. Manage., 125(2), 101–108.
Van Maanen, J., and Barley, S. R. (1984). “Occupational communities: culture and control in organizations.” Res. Organ. Behav., 6, 287–366.
Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 134 • Issue 9 • September 2008
Pages: 673 - 680
Copyright
© 2008 ASCE.
History
Received: Aug 7, 2007
Accepted: Mar 31, 2008
Published online: Sep 1, 2008
Published in print: Sep 2008
Authors
Metrics & Citations
Metrics
Citations
Download citation
If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Simply select your manager software from the list below and click Download.