An analysis of contractual incompleteness in construction exchanges

Contract design is a significant topic in exchange governance at all time. More complete contracts mitigate ex post opportunism and the associated distortions in unobservable investment, but at the cost of additional resources expended in ex ante design. In construction exchanges, the question that the contracting parties must face is how to design an optimally contractual incomplete arrangements minimizing the ex post flexibility cost. The optimal degree of contractual incompleteness involves a tradeoff between these opposing forces, the magnitudes of which may be predicted based on observable characteristics of the parties, the construction project and of the exchange environment. In this paper we develop a comprehensive frame integrating transaction cost theory (TCE) and trust from sociological theory perspectives to attempt to answer the question.