Towards a more stable Construction Joint Venture agreement: individual rationality vs. fairness

Abstract

Contractors’ decisions are individually rational and not always based on fairness that is needed in collaborative projects, such as Construction Joint Ventures (CJVs). This paper provides a comparative analysis between rational and fair-based sharing in CJVs risk management, along with the commonly used investment-based approach. The analysis is divided into two processes; (1) the contingency cost (CC) calculation process to generate the CCs based on the probabilities and impacts of the project’s different risk factors; and (2) the sharing process to allocate the payoff shares to the participating players using three different cooperative game theory (CGT) solution concepts, namely Kernel, Shapley value and τ-value. The analysis is carried out using two illustrative case studies drawn from the literature. The authors mathematically analyzed the stability of the coalition, and evaluated the results through a questionnaire survey held by construction practitioners to offer their perception on the proposed shares. The results show that fair-based approaches resulted in the most stable coalition formation compared to rational-based and investment-based shares. This shows the need to adopt fairness into the decision-making process of contractors in CJVs. Ultimately, this research shall help the decision-makers to craft agreements that stabilize collaborative construction projects.