Choosing a project team: The effects of interdependence and prior transacting in engineering, procurement and construction (EPC) projects

What criteria do buyers/contractors apply when hiring teams of suppliers? This dissertation focuses on answering this strategic question to shed light on buyer-supplier relationships and organization of inter-firm governance structures. Three distinct research literatures inform the model. Transaction costs theory emphasizes the benefits of authority under conditions of opportunism, the research literature on firm capabilities focuses on the importance of relative capabilities in selection issues, and the research literature on inter-firm relations extols the value effects of past relationships.;The central hypothesis of this dissertation maintains that buyers strategically hire teams, or groups of activity suppliers who engage in realization of discrete, yet interdependent activities of a customized project. I propose that buyers strategically select two types of supplier teams. First, buyers may contract with a within-the-component team of suppliers when the component is characterized as a low decomposable problem. Second, buyers may contract with a cross-component team of suppliers when the architectural uncertainty across components is high.;This dissertation produces several important findings. First, I find that one needs to treat two key activities/transactions of a customized project---design and manufacturing---on a discrete basis. In specific, technological and architectural uncertainties, typically associated with customized projects, prevent project contractors to specify ex ante finalized outlook of the manufactured component. Because adaptations are frequent on customized projects, a firm with better access to information that facilitates adaptation owns governance advantage. I find that empirical results are consistent with the idea that project designers own an informational advantage over manufacturers in making ex post governance choices. Consequently, contractors choose to internalize design activities as a way of minimizing transaction costs associated with ex post contracting. Secondly, I find that contractors are cognizant of suppliers' capabilities to acquire team-specific problem-solving techniques, which are consequently reused on future projects. Contractors use this information to assemble teams of suppliers with prior joint experience. Which team of suppliers is hired depends on the nature of a component and on the strength of uncertainties that surround component realization. Thirdly, I find that various temporal considerations associated with realization of customized projects affect the selection of supplier teams. In particular, when an individual component requires a modular approach to its realization, the manufacturing process for that component is likely to be chronologically independent from manufacturing processes of other components. Thus, when one of the components is built modularly, architectural uncertainty between interdependent components is likely to increase and exacerbates integration. To minimize the problems associated with integration, contractors hire teams of manufacturers with prior joint experience.