Relational Contraction: Rewards and Downsides

1086 Words Apr 27th, 2012 5 Pages
During this coursework, I would be investigating the concept of relational contracting and how it is used in the real world, this would be followed by a full explanation of the advantages and disadvantages of relational contracting, supported by real case studies and how some of the advantages in turn might lead to the saving in transaction costs.
Managing the relationship between various parties is becoming crucial as the industry is moving from fragmented and adversarial ways of working. Under less- adversarial procurements routes and contractual arrangements such as partnering, it is essential that the parties extend commonly beneficial objectives and a high level of commitment, corporation and trust. When quarrels do occur, without
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In addition relational contracting can lead to lower administrative costs, this is because less paper work is needed and more face to face discussions can be made. More over relational contracting can lead to better time control, since there is high level of trust an organisation personnel can spend more time on implementing creative things which in turn would lead to completing excellent projects. This would attract more customers which mean better financial position for the company. Furthermore relational contracting result in efficient problem solving, this is because members can communicate effectively between each other and therefore can find the ideal work out of the problem.
A research conducted by Rawlinson and Cheung (2004) identified a list of advantages in adopting relational contracting in Queensland department of main roads (QDMR) which in turn would lead to saving on transaction costs. These included less paper work in addition to a comforting working environment for employees as they were more helpful, less destructive and more proactive this in turn would increase the employee’s performance; therefore this would increase the revenue for the company and reduce the value of its costs ( Chan, Chan, & Yeung, 2009).

On the other hand, implementing relational contracting has its own disadvantages. This is because it is not easy to create

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