Subcontractor procurement in construction: the interplay of price and trust

• Published in: Supply chain management 2010-01, Vol.15 (5), p.354-362
• Main Authors: Hartmann, Andreas, Caerteling, Jasper
• Format: Article
• Language: English
• Subjects: Collaboration; Confidence; Construction; Construction industry; Contractors; Cooperation; Costs; Design engineering; Experiments; Prices; Procurement; Purchasing; Remedies; Studies; Subcontracting; Subcontractors; Suppliers; Supply chain management; Supply chains; The Netherlands; Tradeoffs; Trust
• ISSN: 1359-8546; 1758-6852
• DOI: 10.1108/13598541011068288

Purpose - The purpose of this paper is to examine the relative importance of price and trust and their interaction in subcontractor selection. By doing so, it aims to respond to the currently dominant view that trust-based procurement is the remedy to performance problems in construction. The paper also aims to argue that a specific interplay of both price and trust is always inherent to the selection of subcontracted services.Design methodology approach - A choice-based conjoint experiment was conducted to underpin the initial argument. The conjoint analysis is based on a sample of medium-sized contractors from the Dutch residential building industry.Findings - The research shows that neither price nor trust can be downplayed as procurement mechanisms. On the one hand, through repeated relationships main contractors become more confident in judging the performance of subcontractors. The level of trust increases and finally affects the supplier selection. On the other hand, favourable quotes are a prerequisite for trust to become choice relevant. Moreover, the extent to which subcontractors have performed with respect to quality, technical know-how and cooperation in the past finally accounts for whether they are chosen or not.Research limitations implications - The joint occurrence of price and trust as procurement mechanisms should be acknowledged. More research is needed to understand the trade-offs main contractors make between price and trust while procuring subcontracted services.Practical implications - Subcontractors need to offer competitive bids to be able to increase their chance of recurrent relationships with main contractors and thus trust development.Originality value - This study is one of the first that considers the interaction of price and trust in subcontractor procurement. It contributes to the ongoing discussion around partnering and supply chain integration in construction.