Incomplete Contract, Agency Theory and Ethical Performance: A Synthesis of the Factors Affecting Owners' and Contractors' Performance in the Bidding Construction Process

Abstract

This paper builds on agency theory and contract incompleteness theory to explore the ethical relation between owners and contractors in the construction process. Using factor and multivariate analysis, it transpires that cost, quality, time/past performance, and information available about the project are important factors that should be taken into account in any future contract between the owner (the principle) and the contractor (the agent). The results provide important empirical and theoretical implications in identifying the contractual elements of incomplete contracts, which, if considered, are expected to reduce the agency theory problem, while at the same time enhancing the ethical relationship between owners and contractors.