Optimal Outcome Sharing among Clients, Builders, and Designers in Collaborative Construction Contracts: Comparing Design–Bid–Build and Design–Build Methods Using Principal–Agent Theory

Abstract

This study addresses a significant gap in the literature by proposing an optimal outcome–sharing framework within client–builder–designer relationships, specifically in design–bid–build (DBB) and design–build (DB) project delivery methods. Based on the assumption of different degrees of risk avoidance among all parties involved, this research focuses on collaborative contracting scenarios where designers and builders collaborate with clients. Our study investigates the allocation of outcome shares and how they are affected by the risk avoidance levels of the contracting parties. To achieve this, we developed a mathematical model based on principal–agent theory and conducted empirical investigations through structured exercises with construction practitioners in Iran. Key findings reveal that optimal outcome shares for designers remain consistent across both DBB and DB delivery methods, while builders’ optimal shares vary depending on the delivery method. Specifically, in DBB delivery, the client’s share is higher due to its leadership role, whereas in DB delivery, the builder’s share increases as it assumes a leadership role. Furthermore, our results highlight the importance of considering risk preferences in collaborative contracting, because they significantly impact outcome allocation decisions. This study contributes to contract literature by offering innovative insights into outcome sharing among clients, builders, and designers, along with a practical framework for structuring compensation. This study offers insights for negotiating fair outcome-sharing agreements in construction projects, considering varying levels of risk avoidance. Understanding how risk avoidance affects outcome allocation can inform the negotiation process and help stakeholders achieve more equitable and mutually beneficial agreements.