A Game Theory Perspective on Delivery Methods in Construction

Abstract

Question: Why is Integrated Project Delivery (IPD) a relatively underutilized procurement method in construction? Purpose: Expose and explain a few market failures that owners/developers might be ignoring by choosing traditional methods over IPD. Research Method: Game theoretic modeling and application of microeconomic principles. Informed by interviews with IPD participants, we model the important strategic and social advantages of IPD that complement more well-known efficiency advantages. Findings: Our primary insight is that traditional design-bid-build projects encounter pervasive moral hazard problems and externalities that reduce the efficiency of construction and create conflict between participants. At a basic human behavior level, IPD eliminates or mitigates these issues. Limitations: The interviews we conducted provide insight, not empirical inference. Therefore, this paper stands on its theoretical contribution and makes no boast of providing representative data or causal analysis. Implications: Owners/developers would do well to embrace IPD given its social and strategic contributions to Lean Construction. Additional efficiencies we highlight complement the more well-known advantages, possibly tipping the scales toward IPD for a greater number of construction projects. Value for practitioners: This paper will explain how non-integrated methods such as designbid-build create greater cost and conflict than previously realized. It suggests a path forward through (scalable) IPD that mitigates these costs. Keywords: Integrated Project Delivery, Procurement Methods, Moral Hazard, Cooperative Methods, Circular Economy, Construction Efficiency, Lean Procurement Paper type: Full paper