Addressing Project Complexity: The Role of Contractual Functions

Abstract

Project complexity leads to transaction risks in interorganizational exchanges and can negatively affect performance if appropriate governance mechanisms are absent. Although the contract prevails in construction projects to address transaction risks, its role in coping with complexity-related risk has not yet been fully investigated. Given this circumstance, this paper differentiates between three types of project complexity and illustrates relational and performance risks caused by each project complexity dimension. This research also distinguishes three contractual functions and hypothesizes the effective contractual functions under each type of project complexity. Empirical results show that contractual coordination can deal with risks induced by technical, organizational, and environmental complexity, whereas the adaptation function can address environmental complexity-related risk. However, contractual control is ineffective when either technical or environmental complexity is high. This research provides new insights into project complexity management and provides practical guidance for construction practitioners to improve complex project performance through contract arrangement.