Contract complexity and contract administration costs in small supplier alliances in the Norwegian offshore market

Abstract

This research focuses on the problem of perceived contract administration costs among small service suppliers in the Norwegian offshore market. Based on transaction cost economics (TCE), resource-dependence theory (RDT) and supply chain management literature, the authors analyse the association between several contract administration issues and perceived contract administration costs, and in particular in service supplier alliances. A mail survey among 109 Norwegian service suppliers makes the research design of this study, and the empirical findings demonstrate that when the contract complexity becomes substantial, the small contractors face substantial contract administration costs. This problem enlarges significantly for small service contractors with preference for participation in supplier alliances with other service suppliers, and sub suppliers. The reason is that such cooperative arrangements have to deal with a broader set of contracting partners, contract issues in the regulation and enforcement of contractual terms related to division of work, payment clauses, service performance and project fulfilment.