THE EFFECTS OF ECONOMIC RECESSIONS ON CONSTRUCTION QUALITY AT THE FIRM LEVEL

Abstract

Quality is heavily emphasized in Singapore where the government has adopted the notion of developing a high quality built environment as part of its mission and strategic thrust for the construction industry. However, studies have shown that poor quality issues may be perpetual due to economic fluctuations and subsequent workload instability for firms. The existing literature have examined the effects of economic recessions on performance areas such as quality, productivity and safety on the industry level; with few studying the more intricate effects of economic recessions at the firm level. As such, this dissertation seeks to propose a conceptual framework to better understand the effects of economic recessions on construction quality at the firm level. A mixed method research design was adopted where both quantitative and qualitative methods were used. The findings suggest that there are seven significant impacts of economic recessions on construction quality which trigger a series of subsequent events. The first five impacts affect the bidding phases of projects and firms respond by bidding at low prices; a phenomenon supported by auction theory. The findings also suggest that it is common for firms bidding low to pass the costs to subcontractors by subcontracting work to them at low contract values. The sixth significant impact of economic recession affects the construction phase of projects and pertains to that of the reduced reliability of subcontractors and suppliers. The seventh significant impact pertains to the fluctuations in the prices of materials and can result in significant quality tradeoff 1) when subcontractors and/or suppliers exploit the price fluctuations and divert their resources elsewhere and 2) when firms seek to exploit price fluctuations as part of their bidding strategies but inaccurately predict the fluctuations. Last but not least, the findings suggest that pay masters play a key role in framing the quality tradeoff outcome as they determine the extent to which contractors can commit to quality. The above-mentioned series of events will contribute to an increase in the costs of producing quality output and this will result in a (higher) quality tradeoff as supported by the profit maximization theory. However, as with institutional theory, the extent of the quality tradeoff will differ among firms.