Contract complexity and trust in construction project subcontracting

Abstract

PurposeThe purpose of this paper is to unpack the “black box” of the relationship between contract and inter-organizational trust, both theoretically and empirically. Two mediators, namely perceived safeguard and restriction, are identified to build up two seemingly contrary possible paths between contract and trust from current literature. Both paths are tested in the context of Chinese construction industry due to our access to sample.Design/methodology/approachA survey of 295 contractor-subcontractor relationships from Chinese construction industry was conducted. A three-step multiple regression model was employed to test the mediating effect of perceived safeguard and restriction. Then, a hierarchical regression model was used to test the possible moderating effect of bilateral transaction-specific investment.FindingsThe empirical results support the mediating effect of perceived safeguard between contract and trust in the construction subcontracting industry. Bilateral transaction-specific investments enhance the positive effect of contract on safeguard perception.Originality/valueTheoretically, this study contributes to governance literature by opening up the “black box” of the relationship between contract and trust. It provides a better understanding of how and when contract complexity impacts trust, instead of simply focusing on whether contract and trust act as complements or substitutes. Practically, this study provides guidelines for construction firms to decide the degree of contract complexity under various degrees of bilateral transaction-specific investments to enhance the other party’s trust, so as to improve performance outcomes.