Optimizing the distribution of outcomes across multiple levels of subcontracting in construction projects

Abstract

PurposeAlthough outcome sharing in construction is a well-established concept in the literature, there is still an ongoing debate on the most effective approach for distributing project outcomes between an owner and downstream contracting parties (DCPs). To address this issue, this paper aims to investigate an optimal framework for distributing project outcomes among various levels of subcontracting in construction projects. The framework includes contractors, subcontractors, sub-subcontractors and other related parties.Design/methodology/approachTo formulate the optimization problem, the principal–agent model is utilized. The theoretical development is validated through an experiment conducted with employees from road construction companies.FindingsWhen distributing outcomes among various levels of subcontracting, the sharing should be determined by their contribution to the outcome, effort costs, level of outcome uncertainty and risk preference.Originality/valueThis paper expands on the existing principal–agent theory by incorporating multiple levels of agents, transforming the conventional view of outcome sharing among downstream subcontracting levels into testable hypotheses and well-defined concepts. The paper has practical implications for industry practitioners seeking to effectively allocate benefits and costs throughout a project's subcontracting chain.