Transaction Costs, Learning and Alliances in Construction

Abstract

Alliances in construction, whether in the form of partnering arrangements or strategic commercial relationships, provide a mechanism that can improve inter-organizational relations and project performance. Alliances help construction organizations to achieve their business objectives through collaborative, harmonious commercial relationships. The key to gaining competitive advantage and improving customer satisfaction lies in the ability of construction organizations to form such cooperative "learning" alliances. Essentially, these should be long-term strategic partnerships, which engender an environment to enable mutual and reflective learning (between organizations). It is proffered that cooperative learning alliances enable construction organizations to better consider business decisions that are influenced by this learning climate (bounded rationality), and make best use of the information (opportunism) they encounter. These two concepts impact considerably on transaction costs within organizations. Thus, if construction organizations utilize a mechanism to best capitalize on these facets, then more efficient internal governance structures result. This can be achieved through cooperative learning where ideas, objectives and mission are shared between alliance partners. To demonstrate the effectiveness of cooperative learning alliances, a case study is used to explore their impact on transaction costs.