Managing contract violations in construction projects: a moderated mediating model of enforcement decisions

Abstract

Contracts are frequently violated due to opportunism, misunderstandings, or external factors in construction projects. However, most previous studies focussed on how to prevent contract violations but little research has been conducted on responses to contract violations (i.e. enforcement practices) and the factors affecting these responses. Drawing on Attribution Theory, this study constructs a moderated mediating model of enforcement decisions, including contractual enforcement and relational enforcement, from contract violation, to trust and then to enforcement decisions, with the moderating role of legal enforceability. The findings from questionnaires show that compared with spirit violations, letter violations lead to lower trust and, thus, increase the severity of contractual enforcement and relational enforcement. Furthermore, trust exerts a more negative effect on contractual enforcement when legal enforceability is strong. Theoretically, this study provides a deeper understanding of enforcement decisions by incorporating contractual enforcement and relational enforcement, by differentiating types of contract violations, and by considering legal institutions. Practically, overly severe enforcement may lead to disputes and litigation and even endanger the profitable long-term relationship. This study provides guidelines for managers from the violating party to avert overly severe enforcement, and thus avoid high dispute resolution costs and facilitate long-term partnering.