Trust and Trustworthiness in Procurement Contracts with Retainage

Published Online:https://doi.org/10.1287/mnsc.2022.4516

References

  • Akerlof GA (1982) Labor contracts as partial gift exchange. Quart. J. Econom. 97(4):543–569.CrossrefGoogle Scholar
  • Anderhub V, Engelmann D, Güth W (2002) An experimental study of the repeated trust game with incomplete information. J. Econom. Behav. Organ. 48(2):197–216.CrossrefGoogle Scholar
  • Andreoni J (2018) Satisfaction guaranteed: When moral hazard meets moral preferences. Amer. Econom. J. Microeconom. 10(4):159–189.CrossrefGoogle Scholar
  • Arcadis (2020) Global construction disputes report. Accessed August 11, 2022, https://www.arcadis.com/en-gb/knowledge-hub/perspectives/global/global-construction-disputes-report.Google Scholar
  • ASA (2018) Retainage Laws in the 50 States 2018 (Foundation of the American Subcontractors Association, Inc, Alexandria, VA).Google Scholar
  • Bajari P, Tadelis S (2001) Incentives vs. transaction costs: A theory of procurement contracts. RAND J. Econom. 32(3):387–407.CrossrefGoogle Scholar
  • Bajari P, Houghton S, Tadelis S (2014) Bidding for incomplete contracts: An empirical analysis of adaptation costs. Amer. Econom. Rev. 104(4):1288–1319.CrossrefGoogle Scholar
  • Bausman DC (2004) Retainage Practice in the Construction Industry (Foundation of the American Subcontractors Association, Inc, Alexandria, VA).Google Scholar
  • Beer R, Ahn H-S, Leider S (2018) Can trustworthiness in a supply chain be signaled? Management Sci. 64(9):3974–3994.LinkGoogle Scholar
  • Berg J, Dickhaut J, McCabe K (1995) Trust, reciprocity, and social history. Games Econom. Behav. 10(1):122–142.CrossrefGoogle Scholar
  • Bolton GE, Ockenfels A (2000) ERC: A theory of equity, reciprocity, and competition. Amer. Econom. Rev. 90(1):166–193.CrossrefGoogle Scholar
  • Brosig-Koch J, Heinrich T (2014) Reputation and mechanism choice in procurement auctions: An experiment. Production Oper. Management 23(2):210–220.CrossrefGoogle Scholar
  • Cerić A (2016) Trust in Construction Projects (Routledge, Oxon, UK).Google Scholar
  • Chakraborty I, Khalil F, Lawarree J (2021). Competitive procurement with ex post moral hazard. Preprint, submitted January 28, https://dx.doi.org/10.2139/ssrn.3774670.Google Scholar
  • Chakravarty S, MacLeod WB (2009) Contracting in the shadow of the law. RAND J. Econom. 40(3):533–557.CrossrefGoogle Scholar
  • Chappell D (2021) Construction Contracts: Questions and Answers, 4th ed. (Routledge, Oxon, UK).Google Scholar
  • Chaturvedi A (2021) Excessive competition and supplier non-performance risk: Trade-offs in reverse auctions. Production Oper. Management. 30(9):3073–3093.CrossrefGoogle Scholar
  • Chen DL, Schonger M, Wickens C (2016) oTree—An open-source platform for laboratory, online, and field experiments. J. Behav. Experiment. Finance 9:88–97.CrossrefGoogle Scholar
  • Chen L, Lee HL (2016) Sourcing under supplier responsibility risk: The effects of certification, audit, and contingency payment. Management. Sci. 63(9):2795–2812.LinkGoogle Scholar
  • Choi EW, Özer Ö, Zheng Y (2020) Network trust and trust behaviors among executives in supply chain interactions. Management Sci. 66(12):5823–5849.LinkGoogle Scholar
  • Cooper DJ, Kagel JH (2003) The impact of meaningful context on strategic play in signaling games. J. Econom. Behav. Organ. 50(3):311–337.CrossrefGoogle Scholar
  • Corbin AL (1919) Conditions in the law of contract. Yale Law J. 28(8):739–768.CrossrefGoogle Scholar
  • Cox JC, Isacc RM, Cech P, Conn D (1996) Moral hazard and adverse selection in procurement contracting. Games Econom. Behav. 17(2):147–176.CrossrefGoogle Scholar
  • Cox SCH, Udom K, Lupton S (2011) Which Contract? Choosing the Appropriate Building Contract, 5th ed. (RIBA Publishing, London).Google Scholar
  • Cui TH, Raju JS, Zhang ZJ (2007) Fairness and channel coordination. Management Sci. 53(8):1303–1314.LinkGoogle Scholar
  • Davis AM (2015) An experimental investigation of pull contracts in supply chains. Production Oper. Management 24(2):325–340.CrossrefGoogle Scholar
  • Davis AM, Hyndman K (2018) An experimental investigation of managing quality through monetary and relational incentives. Management Sci. 64(5):2345–2365.LinkGoogle Scholar
  • Davis AM, Leider S (2018) Contracts and capacity investment in supply chains. Manufacturing Service Oper. Management 20(3):403–421.LinkGoogle Scholar
  • Djankov S, Ghossein T, Islam AM, Saliola F (2017) Public Procurement Regulation and Road Quality (The World Bank).CrossrefGoogle Scholar
  • Ellingsen T, Johannesson M (2004) Promises, threats and fairness. Econom. J. (London) 114(495):397–420.Google Scholar
  • Emiliani M, Stec D (2005) Commentary on “Reverse auctions for relationship marketers” by Daly and Nath. Industry Marketing Management 34(2):167–171.CrossrefGoogle Scholar
  • Engelbrecht-Wiggans R, Haruvy E, Katok E (2007) A comparison of buyer-determined and price-based multiattribute mechanisms. Marketing Sci. 26(5):629–641.LinkGoogle Scholar
  • European Commission (2009) International accounting standard 11: Construction contracts. Accessed May 1, 2020, https://www.ucetni-portal.cz/stahnout/ias-11-en_842.pdf.Google Scholar
  • Fehr E, Falk A (1999) Wage rigidity in a competitive incomplete contract market. J. Political Econom. 107(1):106–134.CrossrefGoogle Scholar
  • Fehr E, Schmidt KM (1999) A theory of fairness, competition, and cooperation. Quart. J. Econom. 114(3):817–868.CrossrefGoogle Scholar
  • Fehr E, Gachter S, Kirchsteiger G (1997) Reciprocity as a contract enforcement device: Experimental evidence. Econometrica 65(4):833–860.CrossrefGoogle Scholar
  • Fehr E, Kirchsteiger G, Riedl A (1993) Does fairness prevent market clearing? An experimental investigation. Quart. J. Econom. 108(2):437–459.CrossrefGoogle Scholar
  • Fehr E, Klein A, Schmidt KM (2007) Fairness and contract design. Econometrica 75(1):121–154.CrossrefGoogle Scholar
  • Fréchette GR (2012) Session-effects in the laboratory. Experiment. Econom. 15(3):485–498.CrossrefGoogle Scholar
  • Fugger N, Gretschko V, Pollrich M (2019a) Sequential procurement with limited commitment. Discussion Paper No. 19-030, Centre for European Economic Research.Google Scholar
  • Fugger N, Katok E, Wambach A (2016) Collusion in dynamic buyer-determined reverse auctions. Management Sci. 62(2):518–533.LinkGoogle Scholar
  • Fugger N, Katok E, Wambach A (2019b) Trust in procurement interactions. Management Sci. 65(11):5110–5127.LinkGoogle Scholar
  • Gretschko V, Pollrich M (2019) Incomplete contracts in dynamic procurement. Discussion Paper No. 19-040, Centre for European Economic Research.Google Scholar
  • Guo R, Lee HL, Swinney R (2015) Responsible sourcing in supply chains. Management Sci. 62(9):2722–2744.LinkGoogle Scholar
  • Hart O (1995) Firms, Contracts, and Financial Structure (Clarendon Press, Oxford, UK).CrossrefGoogle Scholar
  • Haruvy E, Katok E, Ma Z, Sethi S (2019) Relationship-specific investment and hold-up problems in supply chains: Theory and experiments. Bus. Res. 12(1):45–74.CrossrefGoogle Scholar
  • Herold F (2010) Contractual incompleteness as a signal of trust. Games Econom. Behav. 68(1):180–191.CrossrefGoogle Scholar
  • Herweg F, Schmidt KM (2017) Auctions vs. negotiations: The effects of inefficient renegotiation. RAND J. Econom. 48(3):647–672.CrossrefGoogle Scholar
  • Holm S (1979) A simple sequentially rejective multiple test procedure. Scandinavian J. Statist. 6(2):65–70.Google Scholar
  • Hoppe E, Schmitz P (2011) Can contracts solve the hold-up problem? Experimental evidence. Games Econom. Behav. 73(1):186–199.CrossrefGoogle Scholar
  • Hu S, Wan Z, Ye Q, Chi W (2017) Supplier behavior in capacity investment competition: An experimental study. Production Oper. Management 26(2):273–291.CrossrefGoogle Scholar
  • Katok E (2011) Using laboratory experiments to build better operations management models. Foundations Trends Tech. Inform. Oper. Management 5(1):1–86.Google Scholar
  • Katok E (2017) Designing and conducting laboratory experiments. Donohue K, Katok E, Leider S, eds. The Handbook of Behavioral Operations (Wiley, Hoboken, NJ), 3–34.Google Scholar
  • Katok E, Pavlov V (2013) Fairness in supply chain contracts: A laboratory study. J. Oper. Management 31(3):129–137.CrossrefGoogle Scholar
  • Lee YS, Ribbink D, Eckerd S (2018) Effectiveness of bonus and penalty incentive contracts in supply chain exchanges: Does national culture matter? J. Oper. Management 62:59–74.CrossrefGoogle Scholar
  • Li S, Chen KY, Rong Y (2020) The behavioral promise and pitfalls in compensating store managers. Management Sci. 66(10):4899–4919.LinkGoogle Scholar
  • Lo W, Lin CL, Yan MR (2007) Contractor’s opportunistic bidding behavior and equilibrium price level in the construction market. J. Construction Engrg. Management 133(6):409–416.CrossrefGoogle Scholar
  • Loch CH, Wu Y (2008) Social preferences and supply chain performance: An experimental study. Management Sci. 54(11):1835–1849.LinkGoogle Scholar
  • MacLeod WB, Malcomson JM (1998) Motivation and markets. Amer. Econom. Rev. 88(3):388–411.Google Scholar
  • McKelvey RD, Palfrey TR (1995) Quantal response equilibria for normal form games. Games Econom. Behav. 10(1):6–38.CrossrefGoogle Scholar
  • Midler P (2007) ‘Quality Fade’: China’s great business challenge. Accessed July 10, 2021, https://knowledge.wharton.upenn.edu/article/quality-fade-chinas-great-business-challenge/.Google Scholar
  • Nabi Mohamad A, Ali G, Islam E, Garza Louis H, Tichy AS, Girse J (2021) Contractual guidelines for substantial completion under national design-build standard forms of contract. J. Legal Affairs Dispute Resolution Engrg. Construction 13(1):04520043.CrossrefGoogle Scholar
  • Özer Ö, Zheng Y (2019) Trust and trustworthiness. Donohue K, Katok E, Leider S, eds. The Handbook of Behavioral Operations (John Wiley & Sons, Hoboken, NJ), 489–523.Google Scholar
  • Özer Ö, Zheng Y, Chen K-Y (2011) Trust in forecast information sharing. Management Sci. 57(6):1111–1137.LinkGoogle Scholar
  • Özer Ö, Zheng Y, Ren Y (2014) Trust, trustworthiness, and information sharing in supply chains bridging China and the United States. Management Sci. 60(10):2435–2460.LinkGoogle Scholar
  • Pye Tait (2017) Retentions in the construction industry. BEIS Research Paper 17, Department for Business, Energy and Industrial Strategy. Accessed March 15, 2019, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/654399/Retention_Payments_Pye_Tait_report.pdf.Google Scholar
  • Raina P, Tookey J (2013) The perceptions of retentions as held by clients, contractors and subcontractors. Proc. 38th Internat. AUBEA Conf., Auckland, New Zealand, 95105.Google Scholar
  • Rauwald C (2016) VW said to pay compensation to supplier to end standoff. Bloomberg (August 22). Accessed August 11, 2022, https://www.bloomberg.com/news/articles/2016-08-23/vw-said-to-pay-compensation-to-supplier-to-end-six-day-standoff.Google Scholar
  • Shachat J, Tan L (2015) An experimental investigation of auctions and bargaining in procurement. Management Sci. 61(5):1036–1051.LinkGoogle Scholar
  • Spiliotopoulou E, Donohue K, Gürbüz MÇ (2016) Information reliability in supply chains: The case of multiple retailers. Production Oper. Management 25(3):548–567.CrossrefGoogle Scholar
  • Thomas HR, Smith Gary R, Cummings Daniel J (1995) Have I reached substantial completion? J. Construction Engrg. Management 121(1):121–129.CrossrefGoogle Scholar
  • Verdeaux J-J (2003) Public procurement in the European Union and in the United States: A comparative study. Public Contract Law J. 32(4):713–738.Google Scholar
  • Waehrer K (1995) A model of auction contracts with liquidated damages. J. Econom. Theory 67(2):531–555.CrossrefGoogle Scholar
  • Walker MJ, Hyndman KB (2022) The hidden cost of choosing to pay suppliers with delay. Preprint, submitted March 15, https://dx.doi.org/10.2139/ssrn.3752360.Google Scholar
  • Wang R (2000) Bidding and renegotiation in procurement auctions. Eur. Econom. Rev. 44(8):1577–1597.CrossrefGoogle Scholar
  • Wevill J (2015) Law in Practice: The RIBA Legal Handbook, 2nd ed. (RIBA, London).Google Scholar
  • Williamson OE (1985) The Economic Institutions of Capitalism (Simon and Schuster).Google Scholar
  • Zizzo DJ (2010) Experimenter demand effects in economic experiments. Experiment. Econom. 13(1):75–98.CrossrefGoogle Scholar
INFORMS site uses cookies to store information on your computer. Some are essential to make our site work; Others help us improve the user experience. By using this site, you consent to the placement of these cookies. Please read our Privacy Statement to learn more.