Appropriate Types of Payments in Construction Contracts Based on Agency Theory Parameters

Abstract

Choosing between different compensation strategies is one of the major concerns of owners in construction contracts. This paper is aimed at examining the choice between behavior-based and outcome-based payment types through the views of practitioners from construction projects with variables defined by agency theory. The study adopts the analysis of data through the Delphi technique supported by factor analysis and multinomial logistic regressions to test the paper hypotheses. The paper shows that in projects with a high level of contractor risk aversion, outcome uncertainty, task programmability, and information systems, cost-plus-fee payment is more attractive than lump-sum payment. Conversely, the paper shows that in projects with a high level of goal conflict and outcome measurability, lump-sum payment is more attractive than cost-plus-fee payment. The results demonstrate the practical usefulness of agency theory in the arena of construction management. The contribution of this paper lies in providing insights into choosing an appropriate contract payment type based on agency theory parameters.