Owner’s Risk Allocation and Contractor’s Role Behavior in a Project: A Parallel-mediation Model

Abstract

Risk allocation decisions are of critical importance in project management. The present study proposes an explanation for how risk allocation in a contract motivates a contractor to cooperate with a project owner. Theories of risk allocation and trust were used to motivate the research. Using a survey methodology, we collected data concerning 124 construction projects in China. We found that risk allocation influenced the contractor’s role behavior through the contractor’s feeling of being trusted but not the contractor’s trust in the owner. Feeling of being trusted partially mediated the effect of risk allocation on the contractor’s in-role (i.e., contractual) behavior and fully mediated the effect on extra-role behavior. The study introduces a social and psychological view of the impacts of risk allocation to the project and engineering management literature. We contribute to theory by arguing and demonstrating the mediating effect of trust on the relationship between risk allocation and contractor behavior. From a practical standpoint, we conclude that contractual risk allocation has a significant impact on building a trusting relationship between owners and contractors and that contractors who feel trusted perform both contractually mandated actions and actions external to the contract more diligently, resulting in the likelihood of improved outcomes for both parties.