TCE Application in Procurement System Selection Essay

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Author divides two types TCE application in construction procurement. First is in the decision making process whether the firms should buy or make the construction products. Second, TCE application in contracting system selection. TCE in Firms’ Decision Making to Procure the Construction Project Procurement intends to explore supply market opportunities and to implement resourcing strategies that deliver the best possible supply outcome to the organization, its stakeholders and clients (Kidd, 2005). Therefore, construction procurement exists to purchase a construction project as requirement of firms or organizational entities to achieve its goals. However, the choice to use external resources is the part of firms’ decision-making…show more content…
Chang and Ive (2000) examine the “make or buy” decision in mathematical way in the illustration below. The research shows that in order to make decision or vertical integration over “make or buy decision” the firm should identify average TC considering the market price to produce such goods and service, then decide which organizational form is the best addressing the issue. Figure 2. The Paradigm of TCE “Make or Buy Decision” Source: Chang and Ive, 2000 TCE application in Contracting System of Construction Procurement In construction projects, mostly the firms (in this case the firms become client) do not have the skills or develop skills inside the firms to undertake the projects due to amount of the projects should be conducted or the complexity of the projects (Reve and Levitt, 1984). Therefore, the economic decision to conduct the projects is to procure them to third parties. However, more commonly the client agonize the final quality of the projects will meet standard requirements. Thus, impacts to involvement of complex contracts of construction procurement. In principle, contracts consist of a number of governance structures (Klein and Shelanski, 1996). Commencing TCE perspective in construction procurement contracts, there is possibility of transactional advantage occurrence over bureaucratic and market relationship (Reve and Levitt, 1984). There are two point of views to describe TCE application in contracting system of construction
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