Modelling Negotiations of Construction Subcontract based on a Game Theory – Results of an Experiment

Abstract

Abstract The process of negotiation can be analyzed considering some scientific issues (e.g. psychological, sociological). When a construction subcontract is negotiated, as it is business activity, the rational choices should be considered more than other factors influencing the decisions of the negotiating parties. A game theory supports rational decision making based on calculations, expected values and strategic choices. An experiment was carried with the participation of the students of Civil Engineering Faculty. Five different games were prepared. The students started playing with the “nature”. Then the probabilities of the “nature” strategies were introduced. Finally, they played three one-on-one sets of repetitive games. The results prove that knowing the needs of the opposite player (knowing his/her possible strategies) leads to a win-win result where the score of both players is maximized. The experiment and its result are analyzed in the paper. The multiple negotiations, and then multiple cooperation of a general contractor with the same subcontractor on construction projects is an often case. These parties discuss the rules of their cooperation formalized in subcontracts several times. The typical image of a general contractor’s need is a low price given by a subcontractor. In fact, it the is only one of the needs. Moreover, it is not a rare case where flexibility of engagement on a building site or a high number of equipment units or favorable terms of payment are desired by a general contractor more than the low price given by a subcontractor. A subcontractor’s standing can be different too. They can search for profitable cooperation or they have to provide work for some brigades not to have them unengaged. They can afford long term payment or they have to be paid in advance. The experiment proves that disclosure of the needs (strategies) by negotiating parties leads to achievement of higher gain for both of them (when the game is repetitive). The paper sets the basis for modelling negotiations of a construction subcontract based on a game theory.