Contract Violations in the Construction Projects: How Contractual Obligations are Reached Affects Contractual and Reputational Enforcement

ABSTRACT

Contract violations are frequent due to the high uncertainty and complexity of construction projects. However, enforcement after a violation has received limited attention. This study distinguishes between three types of violations, i.e., letter violations, mutually agreed spirit violations, and unilaterally assumed spirit violations, based on the documentation and mutuality dimensions. By using the data collected from Chinese general contractors, this study concludes that compared with unilaterally assumed spirit violations, violations of high mutuality of obligations (the first two violations) will lead to more severe contractual and reputational enforcement while with high mutuality, whether the violated obligations are written in the contract or not (corresponding to the first two violations, respectively) does not significantly affect the severity of enforcement. The mediating effects of relational risk perception on the aforementioned effects are empirically supported. This study contributes to the enforcement literature by exploring the effects of the characteristics of violations, especially violations of undocumented elements of contracts, on enforcement and fills the gaps in the scarce literature on reputational enforcement and its antecedents. Project managers can benefit from this study by recognizing the application of reputational enforcement and making better alignment between different types of violations and enforcement. IEEE