Developing Cooperative Project Client-Supplier Relationships: How Much to Expect from Relational Contracts?

Abstract

In recent years, infrastructure promoters have become interested in translating the Toyota lean management paradigm into new infrastructure development projects. This approach assumes client and project suppliers are willing to work cooperatively. To enable this prerequisite, clients have started to experiment with relational contracts. An empirical study on the use of a relational contract in the £4.2bn extension of Heathrow airport in London confirms, however, the old adage that the devil is in the details. Unarguably, relational contracts enable the project client and suppliers to work together for a common purpose. However, the interwoven ways in which the client implements the contract—writing up the commercial details, as well as adjusting and interpreting these details throughout the project—are critical to encourage the suppliers to work cooperatively and meet the expectations of the client. This study unpacks five factors for making relational contracts work in projects: suppliers are keen to reap reputation benefits from project participation; suppliers have flexibility in their production processes; client and suppliers choose the right people for the jobs; client learns to relationally contract in response to supplier feedback; and client aligns its practices to control and improve performance with the suppliers' skills.