Positive and Prescriptive Conceptions of Construction Network Organizations: A Rational Systems Approach

The construction industry is characterized by specialist firms that organize contractually on a project-by-project basis through a bidding mechanism. Conventional approaches such as Transaction Cost economics fail to explain this organization form. As construction firms operate in uncertain and complex conditions, standard make/buy conceptions of firm boundaries suggest that construction should be organized as a single hierarchy. This can be explained only by conflicting dimensions of current theory. A new concept - the network organization - is proposed as an analytical tool to model construction organization. The network form explains not only the existence of construction subcontracting relationships but also the frictional environment of production in the construction industry. Network organizations are fertile, positive models of construction organization. Particular emphasis in this paper is given to modeling interdependence between members of the network organization. Drawing from production theory, it is proposed that interdependencies between firms can be modeled and predicted. This lays the groundwork for a normative theory of boundary setting within construction organizations allowing increased cooperation and information sharing, but does not prescribe a stable governance mechanism to achieve this.