INNOVATIVE CONTRACTUAL STRUCTURES FOR INTERORGANIZATIONAL SYSTEMS

This paper tests the principal-agent theory in the context of contract ing practices for the development of large-scale engineering projects. Five hypotheses are derived from the principal-agent theory regarding the propensity to use behaviour-based contracts versus outcome-based contracts function of the project owner's risk aversion and monitoring competencies, of the goal congruence between principal and agent, of the agent's risk aversion, and of the technological innovation require d by the project. A sixth hypothesis states that more successful proje cts are more in line with the predictions of the first five hypotheses . All hypotheses are translated into testable propositions specific to large-scale engineering projects. For instance, outcome-based contrac ts are assimilated to fixed-price contracts such as turnkey and EPC. R esults based on a sample of 60 power plant projects confirm that parti cipants tend to select contracts as the principal agent theory predict s. Moreover, contracts used in successful projects follow more accurat ely the theoretical predictions.