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A study of detailed contracting that will improve the verifiability of the contracted actions by careful ex ante contract specifications is presented. A principal-agent game is analyzed wherein the verifiability of the agent's actions is endogenously determined by the principal's investment in writing specific contract that concerns the quality of the agent's output.

Resolving the delay claims that usually trail delayed completion of construction projects is beset with immense difficulties that often lead to disputes between the parties involved. The research reported in this paper is a part of a wider study aimed at developing a framework for reducing the attendant disputes and aiding cost-efficient dispute resolution. The focus of the part reported here is owner consultants' perceptions on existing methodologies for analyzing project delay. Based on a survey of U.K. construction consulting organizations, the study examined, among others, the awareness and use of these methodologies, their perceived reliability, expert involvement, and obstacles to their use. The main study findings are: (i) delay analysis is a multidisciplinary task, with the project quantity surveyor often playing the leading role on the owner's side; (ii) the simpler methodologies are used more often than the complex ones although the former are known to be less reliable than the latter; and (iii) the principal obstacles to the use of the sophisticated methodologies are: lack of adequate project information, the use of programmes not in CPM network form, and poorly updated programmes. It is thus argued that improvement in current programming and record-keeping practices will promote the use of the more reliable methodologies which, in turn, will facilitate smoother resolution of delay claims. DOI: 10.1061/(ASCE)CO.1943-7862.0000096 CE Database subject headings: Delay time; Contract management; Claims; Critical path method; Consultants; Construction industry.

Whole life costing (WLC) has become the best practice in construction procurement and it is likely to be a major issue in predicting whole life costs of a construction project accurately. However, different expectations from different organizations throughout a project's life and the lack of data, monitoring targets, and long-term interest for many key players are obstacles to be overcome if WLC is to be implemented. A questionnaire survey was undertaken to investigate a set of ten common factors and 188 individual factors. These were grouped into eight critical categories (project scope, time, cost, quality, contract/administration, human resource, risk. and health and safety) by project phase, as perceived by the clients, contractors and subcontractors in order to identify critical success factors for whole life performance assessment (WLPA). Using a relative importance index, the top ten critical factors for each category, from the perspective of project participants, were analyzed and ranked. Their agreement on those categories and factors were analyzed using Spearman's rank correlation. All participants identify 'Type of Project' as the most common critical factor in the eight categories for WLPA. Using the relative index ranking technique and weighted average methods, it was found that the most critical individual factors in each category were: 'clarity of contract' (scope); 'fixed construction period' (time); 'precise project budget estimate' (cost); 'material quality' (quality); 'mutual/trusting relationships' (contract/administration); 'leadership/team management' (human resource); and 'management of work safety on site' (health and safety). There was relatively a high agreement on these categories among all participants. Obviously, with 80 critical factors of WLPA, there is a stronger positive relationship between client and contactor rather than contractor and subcontractor, client and subcontractor. Putting these critical factors into a criteria matrix can facilitate an initial framework of WLPA in order to aid decision making in the public sector in South Korea for evaluation/selection process of a construction project at the bid stage. DOI: 10.1061/(ASCE)CO.1943-7862.0000090 CE Database subject headings: Life cycles; Assessment; Costs; Contracts; Construction management; Contract management; Bids.

This paper discusses the issue of unbalanced bid prices in unit price highway contracts. It analyzes the reasons contractors unbalance their bids and looks for ways that allow public transportation agencies to discourage this practice. It reviews the results of a study of quantity estimating accuracy of 462 transportation projects in Oklahoma, and finds that one method to reduce unbalanced bid prices is for the agency to ensure that the bid quantities used in the engineer's estimate are as accurate as possible. Doing so reduces the need for contractors to unbalance to protect fixed costs and target profit on bid items that will underrun the quantity used in the engineer's estimate. DOI: 10.1061/(ASCE)CO.1943-7862.0000084 CE Database subject headings: Estimation; Pricing; Contracts; Highway and road construction.

This paper studies the characteristics of different project delivery methods in public transit projects with respect to the owner's project control and its share in project risks. The most appropriate project delivery method is selected early in the project life cycle based on a number of objectives and criteria set forth by the owner. The ability to manage risk effectively and owner's control over the project are among the most important factors for selecting the delivery method. These two factors are highly interrelated. This paper discusses the interaction of risk and control in the context of the project delivery method. Results of several interviews with transit authorities are used to ensure the validity of findings. This paper shows that higher control over the project is achieved only if the owner is willing to accept more risks. In other words, there is no delivery method that allows the owner to enjoy high levels of control and minimum risk simultaneously. CE Database subject headings: Risk management; Contracts; Owners; Project delivery.

Empirical martingale simulation (EMS) was proposed by Duan and Simonato (Duan, J.-C, J.-G. Simonato. 1998. Empirical martingale simulation for asset prices. Management Sci. 44(9) 1218-1233) as an adjustment to the standard Monte Carlo simulation to reduce simulation errors. The EMS price estimator of derivative contracts was shown to be asymptotically normally distributed in Duan et al. (Duan, J.-C, G. Gauthier, J.-G. Simonato. 2001. Asymptotic distribution of the EMS option price estimator. Management Sei. 47(8) 1122-1132) when the payoffs are piecewise linear and continuous. In this paper, we extend the asymptotic normality result to more general continuous payoffs, and for discontinuous payoffs we make a conjecture. Key words: empirical martingale simulation; Monte Carlo; Black-Scholes; GARCH; options; regression analysis; asymptotic normality; coverage rate History: Received June 29, 2007; accepted April 4, 2009, by Michael Fu, stochastic models and simulation. Published online in Articles in Advance June 26, 2009., 1. Introduction Boyle (1977) first used Monte Carlo simulation as a tool to estimate derivative contract prices when there is no closed-form solution. Because the price of a derivative contract [...]

The study focuses on the development of an innovative procurement method in order to improve owners' contracting strategies. The aim of this paper is to develop a procurement system that improves the overall project implementation process, in order to meet the project objectives of time, cost, and quality. The Specialist Task Organization (STO) approach is suggested based on a constructive research approach, where extensive theoretical development of the STO concept is developed. The analogical validation was carried out through the review of four case study examples in order to find the analogies between the positive outcomes of four case studies and the elements of the STO route. The proposed task-oriented approach utilizes integrated product (task) development, integrated management, and fragmented execution via task organizations. The merits of the STO approach include, the shifting of competition from only single design and cost based to multiple designs, life-cycle costs, alternative materials, and maintainability implications. The STO approach assumes a modular approach to design, and allows experts knowledge in design and construction through their involvement from preconstruction through project starts up. The suggested STO route is a potential tool in realizing complete sustainability in construction in terms of environmental and social sustainability, as well as economic sustainability. DOI: 10.1061/(ASCE)0742-597X(2009)25:3 (131) CE Database subject headings: Procurement; Management methods; Integrated systems; Construction management; Sustainable development.

In recent years, many U.S. federal, state, and local governments have been authorized to use the design-build method of project delivery instead of the traditional design--bid--build method. Recent studies have not been definitive on the cost advantage of design-build for governmental owners. There are fewer change orders in design--build due to design errors because the designer (architect/ engineer) and contractor are one entity, but there are other causes of change orders. Some literature suggests that changes requested by the owner of the facility are greater with the design--build method. This research examines the causes for construction-phase changes in 14 design--build and 20 design--bid--build projects. Total changes, expressed as number per contract, cost per contract, or percentage of original contract, were significantly lower in design--build. Fewer design errors in design--build accounted for this advantage. The number of owner-requested changes was significantly greater in design--build. The cost of owner-requested changes, averaged over all the projects, was significantly less for design--bid--build. The differences in changes due to differing site conditions were not significant. The concept that there are more owner-requested changes in design--build projects is supported by this research. DOI: 10.1061/(ASCE)0733-9364(2009) 135:7 (588) CE Database subject headings: Construction management; Project delivery; Design/build; Contracts.

This study compares the performance of design/bid/build and design/build to see if one project delivery method is superior in regards to time and cost. Similar military buildings were used to identify two samples of projects delivered with each of the two delivery methods. These projects provide a meaningful comparison because they include buildings of the same typology (i.e., U.S. Navy Bachelor Enlisted Quarters) delivered using similar design models. Project duration, project duration per bed, project time growth, cost growth and cost per bed were statistically compared. Upon completion of the analysis, the hypothesis that design/build projects are superior to design/bid/build projects in regards to time and cost was tested. Design/build projects were proven superior in performance in almost every measure. Other findings, including recommendations to practitioners and researchers, will be provided as well. DOI: 10.1061/(ASCE)CO. 1943-7862.0000017 CE Database subject headings: Design/build; Bids; Military engineering; Construction management; Construction costs.

Formal contracting addresses the moral hazard problems inherent in interfirm deals via explicit terms designed to achieve incentive alignment. Alternatively, when firms expect to interact repeatedly, relational mechanisms may achieve similar results without the associated costs. However, as we now know from a growing body of theoretical and empirical work, the resulting intuition--that relational mechanisms will be substituted for formal ones whenever possible--does not generally hold. The extent to which firms substitute relational mechanisms for formal ones in the presence of repeated interaction is an empirical question that forms the basis of this paper. We study a sample of 52 joint technology development contracts in the telecommunications and microelectronics industries and devise a coding scheme to allow empirical comparison of contract terms, Counter to the above intuition (but consistent with recent research), we find that a firm's contracts are more detailed and more likely to include penalties when it engages in frequent deals (whether with the same or different partners). Our results suggest complementarity between formal and relational contracts, and have implications for optimal contracting, particularly in high technology sectors. Key words: contracts; repeated interactions; R&D; alliances History: Received April 25, 2006; accepted June 3, 2008, by Pankaj Ghemawat, business strategy. Published online in Articles in Advance March 23, 2009., 1. Introduction The governance of interfirm collaboration is the subject of large body of research that spans multiple disciplinary areas. A recurring focus in this work is on the roles [...]

This paper provides new results that cast doubt on the conventional assumption that introducing voluntary forward markets will mitigate the market power of electricity generating companies by encouraging them to contract forward. We provide complementary insights by developing an agent-based simulation model of an actual system. This facilitates understanding the strategy selection of heterogeneous companies through computational learning. We use a detailed model of the Spanish system, where companies trade through a uniform price, pool-based spot market. We model market power in this pool through agents offering to generate with conjectured price responses estimated from supply function equilibrium assumptions. We envisage the introduction of a forward market, with price formation following the conventional financial perspective of expected spot plus a risk premium. We find, in general, that larger companies prefer to exercise market power in the spot market, while smaller companies prefer to contract forward, but strategy selection itself can be quite a delicate, situation specific process. Index Terms--Electricity markets, forward contracts, market power, trading.

Over the past decade, an increasing trend of client organizations has been observed to adopt relationship-based approaches to run their building and construction projects internationally. Since there are numerous benefits of adopting relationship-based projects in construction, it is important to conduct research in the area of key performance indicators (KPIs) because it can help set a benchmark for measuring the performance of relationship-based projects. Nevertheless, few, if any, comprehensive and systematic research studies in this area have been conducted. This paper reports an empirical study which applies the Delphi survey technique to formulate a model to assess the success of relationship-based construction projects in Australia. Four rounds of Delphi survey questionnaires were conducted with 22 construction experts in Australia. The Delphi survey selected eight KPIs to evaluate the success of relationship-based projects in Australia. These KPIs included: (1) client's satisfaction; (2) cost performance; (3) quality performance; (4) time performance; (5) effective communications; (6) safety performance; (7) trust and respect; and (8) innovation and improvement. A statistically significant consensus on the eight selected KPIs was also obtained from the Delphi experts. A formula for calculating a performance index for relationship-based projects in Australia has been finally derived. Construction senior executives and project managers can use the index to measure, monitor, and improve the performance of their individual relationship-based projects. It also broadens the existing body of knowledge of both academics and practitioners in the construction industry because the research method could be replicated in other geographical locations to create similar indices for international comparisons, thus assisting in the understanding of managing relationship-based projects across different countries. CE Database subject headings: Construction management; Australia; Client relationships; Contracts.

The ways to manage a construction project very much depend on the attitude of the people involved. Collectively this is identified as construction contracting behavior (CCB). The CCB of the construction industry is adversarial as pinpointed in many industry-wide reviews. A more cooperative project delivery approach has therefore been advocated. In fact, drive for efficiency provides the incentive for cooperation. Nevertheless, members of a project team, in representing their respective organizations, are often in conflict. The dichotomous pair of cooperation and aggression forces therefore coexist. It is not uncommon to note that CCB turns aggressive as the construction activities of a project intensify. This change is often sudden and thus matches well with the phenomenon of hysteresis described by the catastrophe theory (CT). It is hypothesized that the dynamics of CCB can be modeled by CT. The three-variable CT models include CCB (as dependent variable), cooperation forces (as normal factor) and aggression forces (as splitting factor). With data collected from a survey fitted by the Cuspfit program, it was found that trust intensity is an effective normal factor. Contract incompleteness and competitive inertia are splitting factors that trigger aggression. DOI: 10.1061/(ASCE)0733-9364(2008)134:12(942) CE Database subject headings: Construction management; Contracts; Contract management.

This paper investigates the likelihood of occurrence and quantifies the magnitude and rate of discrepancies in highway project final costs with respect to their contract award amounts. Using data from Indiana, we develop a multistep econometric approach that can be used to estimate the effects of factors associated with the contract bidding process, project type, and the project physical environment on cost discrepancies in highway contracts. Estimation findings indicate that for a given project type and project year, contracts of larger size or longer duration are generally more likely to incur cost overruns. In addition, for contracts that incur cost overruns, the cost overrun rate decreases nonlinearly with increasing contract size up to a certain point after which the cost overrun rate increases with increasing contract size. Our approach allows for the possibility that cost overrun amounts are not linearly related to contract award amounts (contract size), and shows that greater analytical flexibility needs to be incorporated into any investigation of contract cost overruns. Agencies interested in improving their financial forecasts can replicate our proposed methodology using local contract data. DOI: 10.1061/(ASCE)0733-9364(2008)134:12(953) CE Database subject headings: Costs; Bids; Highway and road construction; Financial management; Economic factors; Estimation.

A problem that always annoys building employers and their consultants when drafting building contracts is whether it is more cost efficient to retain certain risks with themselves or to transfer the same to contractors, and it has long been a difficulty to accurately estimate the cost for transferring risks to the other contract party. It is a very common market practice to remove contractors' entitlement to extension of time due to inclement weather, and in view of the significant impacts that inclement weather posed on construction progress, it would be helpful to assess the associated costs for such risk allocation exercises in order to ensure that it is a cost-effective transaction. The costs for these potential weather-caused delays are priced by contractors in their returned tenders. This risk-pricing behavior is affected by the contractor's risk perception and risk attitude. However, merely working out contractors' risk perception and risk attitude patterns is inadequate, as they may vary in accordance with different organizational sizes and project backgrounds. Therefore, further studies should be carried out on the implications of project information, such as project value and contract period, on different-sized contractors' risk behaviors. In this research, a questionnaire survey was conducted to investigate the weather-risk-pricing behavioral patterns of various-sized contractors under different given project scenarios. The survey revealed that the impacts of project value and contract period (and, thus, the intensity of work and scale of exposure to weather risk) were significant on contractors' risk behaviors, and these impacts varied in accordance with different organizational sizes. The medium-sized contractors' pricing behaviors were rather constant under different project values and contract periods, while both small and large contractors behaved differently when the intensity of work and scale of risk exposure varied. Despite the fact that contractors of various sizes behaved differently in some given scenarios, the number of days of delaying cost allowed by them in returned tenders were generally less than the actual number of days of inclement weather affecting work. DOI: 10.1061/(ASCE)0733-9364(2008)134:9(673) CE Database subject headings: Risk management; Weather; Contracts; Contractors; Pricing; Project management.

Delayed completion of a construction project is often caused by a complex interaction of a combination of events, some of which are the contractor's risks and others are the project owner's. The apportionment of the liability to give effect to the risk allocation has therefore been a matter of great controversy. Many delay analysis methodologies have been developed over the years for performing this task. This paper reports on an empirical study into the current practice in the use of these methodologies in the United Kingdom, as part of a wider study aimed at developing a framework for improving delay claims analysis. The part of the study reported here was based on a questionnaire survey of key informants. The issues investigated include the categories of staff within contracting organizations who contribute to delay claims analyses, the awareness, use and reliability of existing delay analysis methods and the obstacles to their use in practice. The main findings of the study are that: (1) the preparation of delay claims often requires input from commercial managers (quantity surveyors), schedulers, site managers, external claim consultants and estimators; (2) commercial managers have the greatest involvement; (3) claims analyzed using the as-built versus as-planned and the impacted as-planned techniques are often successful although there is considerable literature on the shortcomings of these techniques; and (4) the main obstacles to the use of the methods relates to deficiencies in project records and scheduling practice. DOI: 10.1061/(ASCE)0733-9364(2008)134:9(692) CE Database subject headings: Claims; Delay time; Construction management; Damage; Scheduling.

While scholars of local service delivery arrangements are fully aware the process is dynamic, research has tended to take the form of cross-sectional studies that are inherently static in nature. In this article, the authors model the determinants of production mode accounting for past delivery decisions. They find, not surprisingly, that there are strong inertial effects; previous delivery mode is a strong predictor of the current service delivery arrangement. More interestingly, the impact of the transaction cost nature of services on production choice is conditioned on past decisions, such as the extent of contracting and the type of vendors used. There is also evidence that contract management capacity and the competitiveness of the contracting environment are influential. Keywords: contracting; outsourcing; delivery mode; production choice; nonprofit; change; transaction costs

Abstract: This paper examines the problem of harvest capacity planning at a tactical level. Annual capacity planning allows planners to determine the number of contractors to hire per period throughout [...]

Incentives have been increasingly applied to align the objectives of participants in the delivery of construction projects. However, little research has been undertaken to systematically study the use of such incentives. This paper reports the findings of an empirical survey of the Chinese construction industry on: the need to apply incentives; frequency of the usage of incentives; how the incentive schemes are decided; and their effectiveness in application. The incentive schemes of the Three Gorges Project is also studied, from which an incentive matrix is presented that has measures tied not only to the final results but also extended to the whole construction process to facilitate providing early warnings, obtain continuous improvement, and ultimately achieve satisfactory project results for participants. It is recommended that future studies be encouraged to develop incentives according to project features such as project type, delivery system, project risk, and participants' needs and their experience, enabling incentives to be applied broadly by participants to improve the efficiency of project delivery. DOI: 10.1061/(ASCE)0733-9364(2008) 134:7(457) CE Database subject headings: China; Construction industry; Incentives; Contracts; Partnerships; Risk management.

Over the years, it has been observed that partnering has been ineffectively implemented in the public sector of Hong Kong. Contributing factors to this lack of success are nature and the large size of bureaucratic organizations and commercial pressure compromising the partnering attitude. The Mass Transit Railway Corporation Limited (MTRCL), one of the prominent pioneers in adopting project partnering in the infrastructure sector of Hong Kong since 1999, however, implemented the partnering principle with significant success. This paper, based on a recently completed research project funded by the Construction Industry Institute Hong Kong in late 2004 and a followup in-depth interview meeting with senior executives of MTRCL in early June 2005, analyzes the rationale behind the successful development of partnering culture in the infrastructure sector of Hong Kong through a case study--the Tseung Kwan O Railway Extension (TKE) Contract 654--platform screen doors. The project comprises the supply and installation of platform screen doors along the whole MTRCL's TKE with five stations. This project was analyzed by means of the project documentation and face-to-face interviews with the project representatives, comparisons with another five partnering case studies, and a followup in-depth interview meeting with another two senior executives of MTRCL. After the analysis, it was found that the implementation of partnering together with an incentive agreement (IA), a kind of target cost (TC) contract, underpinned the partnering success of this project. Therefore, it is recommended that partnering together with TC contracts, such as IA, greatly assists in the achievement of construction excellence, and can provide a workable model for enhancing overall project performance in electrical and mechanical projects. CE Database subject headings: Construction management; Hong Kong; Partnerships; Procurement; Incentives.

Private finance initiative (PFI) projects play an increasingly important role for both the United Kingdom government and the construction sector. It is still a relatively new form of procurement that requires a wide range of specialist advice during the bidding stage and in-depth knowledge of how the facility will perform in the long term. This paper investigates the level of participation in PFI projects in the United Kingdom, the opportunities available for the construction sector, the types of problems experienced, and the challenges for the future. It achieves this by analyzing the results of a questionnaire survey of a large number of client and construction organizations. The study finds that there is a wide gap in the level of PFI experience between client and construction organizations, affordability of PFI projects, and high bidding costs are key issues for client and construction organizations, respectively, and, given the nature of PFI projects, there is considerable scope for knowledge transfer both during the project and between different PFI projects. CE Database subject headings: Construction companies; Contracts; Procurement; United Kingdom.

The need for the top management team (TMT) of an organization to possess 'legal astuteness' to manage it more effectively is emphasized. Such a knowledgeable TMT has the capability to use legal tools to formulate suitable formal, legal contracts in business, and duly circumvent regulatory constraints beforehand.

Methods to quantify and evaluate quality become important when lump sum and performance contracts replace traditional unit-price or cost-plus contracts. Here, a combined graphical and mathematical method is described along with its results when applied on a Swedish rail maintenance contract with incentives. The regression analysis tools in the Excel software were used. The result of the incentives was that train delay decreased about 10% and the number of technical errors decreased about 20%. The improved quality took place without cost increase. The good relation between the owner and the contractor did not suffer from the rise of efficiency. On the contrary, it was improved. With minor modifications and clarifications the owner now intends to use it for in-house contracting, as the case studied, as well as when outsourcing to private companies. With other performance indicators, the elaborated method and lessons learned should be applicable also for other sectors, where a contractor assuring a specified service level during a period of time is paid a bonus depending on degree of fulfillment. DOI: 10.1061/(ASCE)0733-9364(2008)134:4(265) CE Database subject headings: Contracts; Contract management; Incentives; Quality control; Railroad engineering; Maintenance; Monitoring.

This paper explores the dynamics of government-to-government contracting at the local level in order to examine how governments' shared organizational characteristics, notably a governance structure based on political accountability, potentially make them more attractive vendors for services that risk contract failure. Relying on panel data from the 1992 and 1997 International City/County Manager Association's (ICMA) Alternative Service Delivery surveys along with data from the U.S. Census and other sources, this paper identifies service areas in which governments most frequently turn to government vendors. In particular, a comparison of public works and transportation services--a service area with low risks of opportunism leading to contract failure--and health and human services--a service area with high risks of opportunism leading to contract failure--shows that contracting governments are more likely to utilize governments over private firms and nonprofits for high-risk services. This is not the case for low-risk services, suggesting that governments view other governments as trusted contract vendors. KEYWORDS: contract management, contracting, service delivery

A principal's decision over delegation of tasks, whether to delegate two tasks or handle one of them, is examined. Results indicate that the principal, if she delegates one of the tasks only, will have a more effective commitment to honor relational contracts. The role of available performance information and discount rate in this kind of job design is also analyzed.

A firm's capabilities of designing detailed contract and the role of managers, engineers and lawyers in designing such contracts are highlighted.

A tractable framework is developed to analyze technology adoption in contractible activities between firms and suppliers. Findings show less advanced technologies are adopted when there is greater contractual incompleteness. Other applications of the framework are discussed.

The impact of voluntary bonus, enforceable incentive payments, and explicit incentives such as fines on efficiency is investigated. Results show that the use of fine does not induce an agent to exert more effort. Why fines may lead to a lower level of effort from agents is examined.

A new model for incomplete contracting and ownership is presented. The conventional modeling approach is restrictive because it argues that renegotiation of incomplete contracts always results in ex post efficiency. The effects of integration and nonintegration are also analyzed.

The development of a variable to measure the impact of relation-specific investments and the enforcement of written contracts by national governments is described. The usage of this variable to analyze data on trade flows and judicial quality in different countries is discussed.

The analysis of the reconstruction of professional firms, based on the trends of closure of contracts by English and Welsh lawyers, is presented.

Contracting out is currently one of the most prevalent mechanisms of the privatization movement. Understanding its trends and rigorously analyzing its implications is an increasingly salient issue for public management research. This article builds a multi-stage theoretical framework addressing two broad research questions. The first is to identify the array of economic, political, organizational, and institutional factors that may impact a government agency's decision to contract out. The second is to detail the various organizational and environmental factors influencing contractor performance. Particular attention is paid to effective contract monitoring and its relationship to contractor performance. Keywords: contract monitoring, contracting decision, contracting out, contractor performance

When designing price contracts, one of the major questions confronting managers is how many blocks there should be in the contract. We investigate this question in the setting of a [...]

The relationship between firm size and financial covenants during long-term loan agreements is presented.

The trends of supply chain management in multilaeral contracts are discussed. The coordination of supply chain management by neutral third parties, to manage the incentives of all the parties involved, is described.

Lenders may choose to encourage borrower side contracting using group, or co-signed, loans or discourage it using individual loans, so as to make relative performance comparisons. In this context wealth of the agents relative to outsiders, and wealth inequality among potential joint liability partners, are important factors determining the choice among loan contracts. In a related model of whether to borrow, higher covariance of returns mitigates an adverse selection effect. We test these models using relatively rich data gathered in field research in Thailand. The prevalence of joint liability contracts relative to individual contracts exhibits a U-shaped relationship with the wealth of the borrowing household and increases with the wealth dispersion. The likelihood of joint-liability borrowing increases the lower is the probability of project success, a direct affirmation of adverse selection. Higher correlation across projects makes joint liability borrowing more likely relative to all other alternatives. Strikingly, most of the results disappear if we do not condition the sample according to the dictates of the models, with selection into and across credit contracts. JEL classification: D82; O16 Keywords: Empirical contract theory; Adverse selection; Mechanism design; Joint liability; Micro-credit

We consider a model in which people with limited self-control can sign binding financial agreements among themselves, thereby forming coalitions. We show that these financial agreements may help them to alleviate their self-control problems. We then demonstrate that there exists a stable structure of coalitions in which people form rotating savings and credit associations (roscas). We therefore provide a behavioral rationale for one of the most prevalent and puzzling financial institutions in developing countries. Finally, we derive and discuss some empirical predictions. JEL classification: D14; G29; O17 Keywords: Rosca; Self-control; Social pressure; Stability; Contract; Credit

The total cost or modified total cost method is the most common contractor used method of quantifying contract damages, probably because of its simplicity. But the judiciary has placed limits on its use. In theory, before it can be used by a contractor in a court of law, the contractor must show that (1) all the damages were the result of actions by the owner; (2) the project was sufficiently complex that there is no other way to satisfactorily quantify the damages; (3) the contractor's bid is correct; and (4) the costs are reasonable. This note focuses only on the correctness of the contractor's bid. The writers recently completed a benchmarking study of union interior system (framing and drywall) specialty contractors. The study relied on the use of a reference project and an accompanying shopping list of 10 commonly constructed items. In theory, all contractors were developing a bid on the same thing. The study was distributed nationally. Based on an analysis of 57 responses (and subsequently cleansed to 42 responses) the range of workhours to construct the shopping list was 1,247-2,500 with an average of 1,805. There is a twofold increase from the low bid to the high bid. There are also significant differences between regions that are in close proximity to one another, for example, northern and southern California and San Diego, Pittsburgh and Philadelphia, Chicago and St. Louis. The range in the total database is 1,253, which is a surprisingly large amount. The standard deviation in some regions of the United States was as large as the standard deviation of the total database. Based on these results, it is concluded that a contractor could make a sizable mistake in his/her bid and still be within the range of 'correct' estimates. Almost any bid could be argued as correct. This hardly seems to be a reasonable standard of proof. DOI: 10.1061/(ASCE)1052-3928(2007)133:1(74) CE Database subject headings: Bids; Claims; Contractors; Construction management; Cost control.

Subsurface ground conditions present a big factor of uncertainty in a construction project. It is difficult to determine subsurface ground conditions even with a prebid site investigation. Nevertheless, such conditions must be included in the bid price. Due to this uncertainty, claims arise during the construction of a project. Many claims end up in litigation. This paper presents an analysis of legal cases dealing with differing subsurface ground conditions in construction contracts. By creating a database containing salient features from legal cases related to subsurface ground conditions, this research identifies the most important factors influencing the outcome of legal cases pertaining to subsurface ground conditions. Further, the most commonly used arguments by the litigating parties and the precedent cases supporting them are identified and categorized. DOI: 10.1061/(ASCE)1052-3928(2007)133:1(53) CE Database subject headings: Evaluation; Underground construction; Contract management; Subsurface environment.

The application of menu theorems to understand the allocations equilibrium in a bilateral contracting environment where multiple principals issue contracts independently to multiple agents is analyzed.

The externalities of principal-agent relationship are discussed. Assuming contracts to be bilateral, a principal's approach to the job of issuing contracts to agents, when there is no coordination failure among them, is analyzed.

This paper contributes to the literature on the foundations of incomplete contracts. In a holdup framework, we provide two sets of conditions under which simple delegation of authority is the solution to the complete-contracting problem. In cases where overinvestment can be ruled out, delegation is optimal if the payoffs of the parties satisfy certain separability conditions. If overinvestment might be an issue, delegation (possibly with restricted competencies) is optimal if additionally some continuity requirements are met. The paper also contributes to the literature on delegation, where such replication results have previously been derived in settings with asymmetric information. (JEL: D 82, D 23, L 14, L 22)

The impact of structured and contractual administrations on performance of partnerships between multinational corporations, and their international market performances is analyzed.