Understanding the Inverted U-Shaped Relationship Between Contractual Complexity and Negotiation Efficiency: An Institutional Perspective

• Published in: IEEE transactions on engineering management 2023-11, Vol.70 (11), p.3932-3943
• Main Authors: Wang, Rui, Lu, Wenxue, Wei, Yuxin
• Format: Article
• Language: English
• Subjects: Complexity; Complexity theory; Construction contracts; Contracts; Contractual complexity; Creativity; Efficiency; institutional theory; Law; legal enforceability; negotiation efficiency; Negotiations; Organizations; Project management; Standards organizations; Task analysis; transaction governance; Transactional analysis
• ISSN: 0018-9391; 1558-0040
• DOI: 10.1109/TEM.2021.3091673

Construction project transactions are characterized by long-term duration and a high level of task uncertainty. Improving negotiation efficiency is of great significance for the handling of task conflicts and completing projects on time. The project contract represents the legal basis for conflict negotiation between the buyer (owner) and the seller (contractor). However, a dispute still exists over the relationship between contractual complexity and negotiation efficiency. To settle this dispute, we draw on institutional theory to establish a research model and use a dataset collected from 327 construction project transactions in China to empirically test it. The results show that the relationship between contractual complexity and negotiation efficiency is inverted U-shaped. The increase in legal enforceability steepens this curvilinear relationship and moves its vertex to the lower right, meaning that the maximum negotiation efficiency is lower in an institutional environment with higher legal enforceability, despite the effect of the contract being more obvious and contractual complexity being more likely to promote negotiation efficiency in a wider range. This article can offer practical guidance for construction project managers to design contracts according to the institutional environment where the transaction is embedded in a manner that promotes negotiation efficiency.