Trust and control in the early phases of target cost contracts
Paper in proceedings, 2007
Target cost contracts entail the use of open book accounting, giving the client full access to project costs. Since comprehensive cost control is expensive, other less costly control mechanisms might be better for the client. Moreover, the ambiguous connection between control and trust and the negative impact of control on the collaboration climate is well known. The purpose of this paper is to investigate the variety of control mechanisms used by the client in the early phases of a target cost contract and give a deeper understanding of the complex relationship between trust and control. A case study approach is adopted, which demonstrates the control mechanisms used by the client in a construction project in order to guarantee that the contractor behaves in a trustworthy way. The case is a large laboratory project with a target cost contract, where the empirical data were gathered through interviews and non-participant observations. Based on previous experiences the client considered the contractor as reliable and believed that a rigorous control of project costs might hurt the relationship. However, the client’s opinion was that trust is fragile and must be continuously preserved. Therefore the client analyses the contractor’s response to project changes as a measure of contractor reliability. For instance, if there are any strange features in the contractor’s response, or if the contractor behaves in a suspicious way, the client might find it necessary to expand control, even if it might impact negatively on the collaboration climate.
open book accounting
target cost contract