AcceptedManuscriptNotCopyedited1FACTORSTHATAFFECTTRANSACTIONCOSTSINCONSTRUCTIONPROJECTSHuiminLi1,DavidArditi2,ZhuofuWang3ABSTRACTTheactualcostofaconstructionprojectiscomposedofnotonlyproductioncosts,butalsotransactioncosts.Transactioncostsincludebutarenotlimitedtothecostsofpreparingthebiddingpackage,estimating,drawingupacontract,administeringthecontract,anddealingwithanydeviationsfromcontractconditions.Transactioncostsconstituteanimportantpartoftheconstructionowner‟sbudget.However,understandingtransactioncostsisdifficultbecauseoftheinconsistencyandtheambiguityindefiningtransactioncostsintheliterature.Theobjectiveofthisstudyistoidentifywaystominimizethetransactioncostsbornebytheconstructionowner.Astructuralequationmodelistestedondatacollectedbymeansofasurveyadministeredtoconstructionowners.Thefindingsindicatethatthetransactioncostsbornebytheownercanbeminimizediftheownerminimizestheuncertaintiesinherentinthetransactionenvironmentby(1)makingsuretheengineeringdesignisascompleteaspossiblebeforebidsaresoughtfromcontractors,(2)exploringthepossibilityofadoptingintegratedprojectdeliverymethodsthatwouldallowtheownertoengagetheservicesofacontractorearlyinthedesignphase,(3)agreeingtosharesomeoftheriskswiththecontractors,(4)understandingwellthebehaviorofcontractors,and(5)payingcloseattentiontoprojectmanagementefficiency.Keywords:Transactioncosts,constructionproject,structuralequationmodeling,constructionmanagement;transactioncosteconomics1Lecturer,Dept.ofConstructionEngineeringandManagement,NorthChinaUniversityofWaterResourcesandElectricPower,450011Zhengzhou,China.E-mail:ncwulhm@yahoo.cn2Professor,Dept.ofCivil,ArchitecturalandEnvironmentalEngineering,IllinoisInstituteofTechnology,Chicago,IL60616(correspondingauthor).E-mail:arditi@iit.edu3Professor,Dept.ofConstructionEngineeringManagement,HohaiUniv.,210098Nanjing,China.E-mail:zfwang@hhu.edu.cnJournalofConstructionEngineeringandManagement.SubmittedAugust21,2011;acceptedApril17,2012;postedaheadofprintApril19,2012.doi:10.1061/(ASCE)CO.1943-7862.0000573Copyright2012bytheAmericanSocietyofCivilEngineersAcceptedManuscriptNotCopyedited2INTRODUCTIONContractorsdevoteconsiderabletimeandenergytodeterminingthecostsofconstructionandthenassessingthepricetheywillquotetotheowner.Theownerisinterestedinthepricequotedbycontractors.Priceistherateatwhichexchangemaytakeplace.Pricetothecontractorbecomesacosttotheowner(HillebrandtandHughes2000).Howevertheactualcostofaconstructionprojectisnottheonlyproductioncost.Thecostsofpreparingabiddingdocument,estimating,drawingupacontract,administeringthecontract,anddealingwithanydeviationsfromcontractconditionsarealsoimportant.Thesecostsareknownastransactioncostsinthestudyofeconomicorganizations(Coase1937).Intransactioncosteconomics,atransactionoccurswhenagoodorserviceistransferredacrossatechnologicallyseparableinterface(Williamson1987).Thetransactioncosteconomicsapproachprovidesausefulframeworkforanalyzingtheinevitabledifferencesininterestbetweendifferentcontractingpartieswhoaremembersoftheprojectcoalition(Winch1989).Themaincontentionisthat,inadditiontothecostofproduction,therearealsotransactioncostsbetweentheparties(Winch1989).Transactioncostsaredifferentthanproductioncosts;whileproductioncostsarethecostsoftransforminginputsintooutputs,transactioncostsarisefromeconomicexchange.Transactioncostsarereferredtoas“softco...